Singapore health system euthanises voodoo economics

The Senate nanny state inquiry has not only revealed that everyone has a pet grievance when it comes to laws regulating behaviour for our own good, but that public health is the home of voodoo economics.

This takes two forms. First, it argues that those who harm themselves as a result of poor choices cause the rest of us to pay more through the healthcare system. Second, it calculates the cost of poor choices in a manner far removed from legitimate economics.  

Studies asserting that smoking and drinking impose multi-billion dollar costs on society, for example, well in excess of the revenue they bring to the Treasury, are a good example. The Public Health lobby generates these lopsided figures by counting lost productivity and early mortality as costs to the taxpayer. In reality the costs are private, incurred by the drinker or smoker and sometimes his employer. 

But Public Health’s rubbery numbers don’t stop there. They also include the emotional costs of being offended by a drunk, money spent on alcohol or cigarettes (counted as a cost to his family), and even pain and suffering from hangovers.

While this is sometimes amusing, in economic terms it is ridiculous. If we count a drinker’s spending on alcohol as a cost to the family – and by extension to the taxpayer – what of a non-drinker’s spending on golf clubs? Or a sports car or boat?

All of these alleged costs are bundled into a category called ‘social costs’, then attributed to the taxpayer to justify increases in excise along with coercive laws directed at drinkers, smokers, and many others.

Even if the ‘social cost’ claims were true, they are a consequence of a health care policy that socialises health care costs. The problem here is that once we start telling people how to live based on their potential to increase health costs to others, the slope gets slippery pretty quickly. Do we want to make it a crime to eat potato chips, fail to exercise or wear high heels?

With a more intelligent approach to healthcare, this argument would not even be raised.  For this we could do worse than emulate Singapore, which has the lowest-cost health system among developed countries and yet ranks highly on all health indicators.

Singapore’s health spending was US$2426 per capita in 2014, equivalent to 4.5% of GDP.  The global average is 9%. Among OECD countries, health spending ranges from 7% of GDP in Israel to 17.2% (US$ 8,895 per capita) in the United States. Australia is close to the global average, at 9.1% (US$6,140 per capita).

A key principle of Singapore’s healthcare is that no medical service is provided free of charge, regardless of the level of subsidy, even within the public system. This reduces over-utilisation of healthcare services, a common problem in fully subsidised universal health insurance systems.

Under Singapore’s Medisave program, each employee contributes 8-10.5% of monthly salary (depending on age) to an individual medical savings account, with a matching employer contribution. A personal Medisave account may be used to pay for hospital expenses and expensive outpatient treatments such as chemotherapy, renal dialysis and HIV drugs, incurred by the account holder and immediate family members.

This logic should be familiar to Australians – it’s how our superannuation system works. Adopting the Singaporean system would not reinvent the wheel.

To protect against the risk of catastrophic illness which could wipe out their medical savings, Medisave account holders under 80 years of age may use their funds to buy Medishield insurance. This covers hospital expenses and selected higher-cost outpatient treatments. Other primary care costs (eg consultations and tests) are typically covered by top-up private insurance, which is very competitive. 

The third pillar of Singapore’s innovative system is Medifund, which provides means-tested health care for the poor (roughly 10% of the population). The Government established the fund in 1993 and makes additional contributions during years of overall budget surplus. Medifund ensures that no Singaporean is denied good basic care because of inability to pay. 

The difference is that Singapore’s health care system gives maximum responsibility and choice to patients, who are mostly spending their own money rather than that of other people. However, it also makes sure nobody faces catastrophic medical bills, and that the poor have enough money to buy medical care.

Voodoo economics have no place in public policy. With sensible policies, personal choice and individual responsibility can co-exist, without the Nanny State barging in and telling us all how to live.