Healthcare Insurance – Slowly (?) But Surely Rising Costs

TODAY carried an exclusive article on August 18th 2006 relating how managed healthcare providers provided medicine in lower doses after the patient showed her a medical management company card of which her employer was a participant.

This does not bode well for the medical consumer in Singapore. We will either get shortchanged in terms of medication as suggested by the article or conversely expect to pay more for ‘proper’ medication. And as will be expounded on later - risk pooling will not help in anyway.

Managed care, managed healthcare, medical management company, medical management scheme are all fancy phrases to describe a phenomena which rocked the American medical, legal and social order as recently as the last decade. The dirty phrase in America was: Heathcare Management Organisations or HMOs in short.

HMOs in the U.S. started out with blatantly social aims of pooling risks and delivering affordable healthcare costs for all Americans. It gradually grew into a monstrous behemoth that not only controlled sectors of the government but worse, had government agencies inevitably condoning practices that would generate profits for the pharmaceutical companies that were eager to make a few more bucks.

Costs began escalating out of control as the pharma giants plumbed the HMOs and government agencies with junkets and retreats ostensibly selling their drugs. These drugs are often newly developed and recently passed by the American Food and Drug Administration for public consumption. Actual healthcare providers were economically and otherwise incentivised not to prescribe or utilize generic drugs for those whose seven year patent life span has run out. (Thereafter which any company in the world can produce this drug and sell it at a dramatically reduced rate of profit due to either lower cost of production or simply not attempting to earn on patent royalties – royalties are what one pays for the ‘intellectual property’ required to develop drugs, much like what you pay for an original music CD. Currently the ‘owners’ of “Tamiflu” are under severe international political pressure to allow the drug to be produced elsewhere and sold at a lower cost then normal due to the incidences of bird flu surfacing internationally.)

The rationale was simple. It only costs each end consumer a few dollars more each year in terms of ‘pooled risks’ and doctors who prescribed the drugs had nothing to lose with a slight possibility of gain while the pharmaceutical firms stood to gain massive market share and therefore profits both locally and internationally.

“In 2005, employer health insurance premiums increased by 9.2 percent - nearly three times the rate of inflation. The annual premium for an employer health plan covering a family of four averaged nearly $11,000. The annual premium for single coverage averaged over $4,000 (3).

Experts agree that our health care system is riddled with inefficiencies, excessive administrative expenses, inflated prices, poor management, and inappropriate care, waste and fraud. These problems significantly increase the cost of medical care and health insurance for employers and workers and affect the security of families.*

Since 2000, employment-based health insurance premiums have increased 73 percent, compared to cumulative inflation of 14 percent and cumulative wage growth of 15 percent during the same period.

Health insurance expenses are the fastest growing cost component for employers. Unless something changes dramatically, health insurance costs will overtake profits by 2008.
According to the Kaiser Family Foundation and the Health Research and Educational Trust, premiums for employer-sponsored health insurance in the United States have been rising five times faster on average than workers' earnings since 2000.

The average employee contribution to company-provided health insurance has increased more than 143 percent since 2000. Average out-of-pocket costs for deductibles, co-payments for medications, and co-insurance for physician and hospital visits rose 115 percent during the same period.

The percentage of Americans under age 65 whose family-level, out-of-pocket spending for health care, including health insurance, exceeds $2,000 a year rose from 37.3 percent in 1996 to 43.1 percent in 2003 - a 16 percent increase.” *

* http://www.nchc.org/facts/cost.shtml

Can Singaporeans withstand such increases in cost in such a short span of time? Can you? Why then is the PAP government backing calls for a managed healthcare scheme for the nation when overseas first world experience shows that the system is open to mis-management and costs which spiral out of control?

But cost is only one factor in a HMO setting. Socially, America began seeing higher and higher incidences of those who are treated and those who are not – medically treated of course. Every sane person of reasonable economic means is enrolled in some sort of managed healthcare program in the U.S.. If you have a card showing you are in a program you are treated, if not, show your credit card, if not ……. And if only it ended there. Healthcare costs, under the HMO scheme for decades has escalated to a point where even credit cards may not be accepted as a form of payment for medical treatment in some instances in the U.S.


Later in the week the Sunday Times, 20th August 2006, carried an article on how the Minister for Health is beaming with the success of his plan to turn Medishield around. The claims for success rests on that fact that consumers now have a choice of insurers and plans while government regulations prevent or attempt to prevent cherry picking so as to maintain the risk pool. Alongside these successes were a statement that Medishield is running in the black, by some $100 million, as opposed to running in the red just a year ago. Makes one wonder if premiums collected are too high or payouts are too low resulting in a surplus within one year of running a deficit in the national healthcare plan.

The article goes on to lists examples of how one would pay less for hospitalization stays compared to the ‘old’ plan as the present plan pays out more from insurance therefore requiring less from the consumer. Funny how the article does not also mention if the total bill for hospitalization stays have been going up or down over the past years. What difference does it make if the 3Ms cover more of a medical bill but if the medical bill rises beyond the original quantum then someone, somewhere, somehow has to pay more.

For example, let’s say insurance covers 50% of a bill of $1000 and your deductible (amount of cash you have to pay) is 10% then the insurance plans pays $500, your Medisave gets $400 deducted and you pay $100 in cash. Now insurance covers 60% of $2000 and your deductible is 5% this means that your Medisave account will be poorer by $900 while you are still paying $100 out of pocket – and in the meantime, the insurer has to fork out $1200. With rising medical costs who will ultimately pay despite insurance schemes that claim to pay out more?

Insurance, as a method of pooling risks, simply means that it will be easier for healthcare providers to charge “each patient” or “each insured person” just a few dollars more as in the example above. It is a national plan and no one can really opt out of it. Not every who buys car insurance ‘uses’ it in the form of a claim but everyone has to buy insurance as a pooled risk for motoring and therefore has to pay for all the risks inherent in motoring. Premium increases affect all motorists despite huge improvements in vehicle safety. Could the same thing happen in healthcare? Perhaps the authorities in all their wisdom could incentivize the population further to stay healthy by offering a ‘no claim bonus’ scheme similar to one for motoring rather then just talking about healthy living?

While government administered (public) healthcare schemes can afford to run in the red every now and then with an eye to recovering the losses later. Private firms cannot afford to do so. They are answerable to their shareholders whose only concern is profit. If government bodies insist on running in the black with a ‘healthy surplus’ at all times it mimics a business model and I would then have to ask if surpluses collected have any impact on civil servants bonus structures.

The Minister topped off his speech with a claim that competition is always good – I wonder if he had political competition in mind as well?

This articles carries three sources of information. TODAY’s article points out a loophole that insurers are taking to lower their cost; the website which statistically lists the cost of insurance on the economy (the employer and the employee) demonstrates ridiculously rising healthcare cost under a privately managed healthcare insurance scheme; the ST article tells us how Medishield is now in the black and how private insurers are actually better for the health of Singaporeans healthcare.