Govt should take on more risk on behalf of citizens

The PAP MP’s argument that it is okay for the Government to “save more” (by collecting more premiums than necessary) but disastrous for it to pay out more, proved the central point in my speech: That the Government is reluctant to take on more risks on behalf of Singaporeans.

During the debate in Parliament on 27 May 2014 on the President’s address, I made a speech in which I criticised the Government for not taking on sufficient risks on behalf of the people, but had instead passed many risks to them. I cited the increasing of the CPF Minimum Sum, the raising of the CPF drawdown age, and the high capital adequacy ratio of the MediShield insurance scheme as examples.

PAP MP Janil Puthucheary took issue with my remark that MediShield was “collecting a lot more in premiums than it is paying out in claims”. He suggested — without mentioning me by name — that this was an example of “intellectual dishonesty” and “sound-bite politics”, paraphrasing what I said as, “Medical insurance premiums are higher than the pay-outs”.

He left out my phrase “a lot more”, which gave the impression that I thought MediShield should be making a loss by collecting less in premiums than it pays out in claims. I immediately clarified that “I never said or suggested that health insurance pay-outs should be more than the premiums collected. But for a social health insurance scheme which is what MediShield Life should be, the premiums collected do not need to be so much more.”

In any case, these are not simply sound-bites, but facts. Between 2001 and 2013, based on CPF Board Annual Reports, MediShield collected $3.704 billion in premiums but paid out $2.190 billion in claims — a difference of $1.514 billion. I leave it to Singaporeans to assess whether or not they consider $1.5 billion to be “a lot more” in premiums than pay-outs.

Dr Puthucheary also questioned the validity of my comparison between MediShield and Obamacare, the US Affordable Care Act, which requires all Americans to buy health insurance and mandates commercial insurers to take on more risks on behalf of their policyholders. He said that “we are talking about a public social insurance and he is comparing it with a private, for-profit environment in the United States”.

In fact, Obamacare served to illustrate my point that even profit-oriented health insurers in the US are required to take on more risks on behalf of their policyholders than our MediShield, which is a social health insurance scheme. I pointed out that Obamacare mandates a loss ratio of at least 80-85%, and that insurers who do not meet this minimum must now issue rebates to policyholders. (Loss ratio = [claims paid-out] / [premiums collected] x 100%. The higher the loss ratio, the more risk on the insurer.)

MediShield’s loss ratio between 2001 and 2012 had been, on average over this period, 63% (59% if year 2013 is included). It dropped from 75% in 2012 to to a historical low of 43% in 2013. The latter figure was revealed in the latest CPF Annual Report released on 6 June (after the Parliament sitting). It is likely due to the higher premiums collected as a result of the premium hike last year.

On his last point, about what if the “supposition that we could increase pay-outs is wrong”. He cited a “worst case scenario is that our public healthcare financing becomes insolvent and we are unable to support the healthcare needs of a generation possibly.”

Increasing the loss ratio to 80-85% is not going to make public healthcare financing “insolvent”. That is clearly a hyperbole (an accusation he made about me). But more importantly, wouldn’t it be better for a government to take on more risks, so as to prevent individual citizens from suffering financial ruin due to high healthcare costs?

The PAP MP’s argument that it is okay for the Government to “save more” (by collecting more premiums than necessary) but disastrous for it to pay out more, proved the central point in my speech: That the Government is reluctant to take on more risks on behalf of Singaporeans.

The MediShield Life Review Committee is expected to submit its full report to the Government this week. I hope the Committee can prove me wrong, and that the Government will show that it is willing to take on significantly more risks on behalf of its citizens. If not, this will certainly not the last time I will be raising this issue.

This is the transcript of the full exchange in Parliament:

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Mdm Speaker: Mr Gerald Giam.

Mr Gerald Giam Yean Song: Thank you, Madam, I just want to clarify a point that Dr Janil said in his speech earlier on. I never said or suggested that health insurance pay-outs should be more than the premiums collected. But for a social health insurance scheme which is what MediShield Life should be, the premiums collected do not need to be so much more.

As a point of comparison, the US Affordable Care Act, the new ObamaCare, mandates that a minimum loss ratio of between 80% and 85%. Ours is, on average, 63% over the last 11 years, and it was 75% in 2012. So, the US Affordable Care Act mandates that the minimum loss ratio should be between 80% and 85% and that insurers who do not spend 80-85% of their premiums in healthcare costs must now issue rebates to consumers. And these are all commercial insurers. These are not social health insurers.

Mdm Speaker: Dr Puthucheary.

Dr Janil Puthucheary: Thank you, Madam. Mr Giam brings up some very good points. And if I could take them in reverse order. Firstly, we are talking about a public social insurance and he is comparing it with a private, for-profit environment in the United States. So I do not think his comparison is valid.

Secondly, I am loath to use the United States as the be-all and end-all for a model of where our healthcare system should evolve to. Even the policy-makers and office holders in the United States would readily admit that the short-term electoral outlook significantly constrains their ability to take a long-term strategic vision for the healthcare system of their nation.

But lastly, I would like to make one point, which is that what if he is wrong? What if Mr Giam’s supposition that we could increase pay-outs is wrong? And we should compare that to what if the current situation is the wrong decision? If the current situation where, as he puts it, the pay-outs are far less than the premiums collected, that is the wrong decision. We save a little bit too much. If he is wrong, and we pay out more, if we pay out more and he is wrong, what is the worst case scenario? The worst case scenario is that our public healthcare financing becomes insolvent and we are unable to support the healthcare needs of a generation possibly.

This has happened in many other countries. The intellectually honest thing to do is to compare risks versus risks, benefits versus benefits, and worst-case scenarios against worst-case scenarios – not to cherry-pick the benefits of your proposal against the potential risks of the proposal in front of you. Thank you, Madam, for your indulgence.

Mr Gerald Giam Yean Song: Madam, I am glad he made that clarification. In fact, I cited ObamaCare precisely because of the US health system and the trouble that it is in today, and the fact that it is a commercial insurance scheme rather than a social insurance scheme. In fact, a social insurance scheme should have a much higher loss ratio than a commercial insurance scheme because commercial insurance wants to make money, whereas the Government is not in the business of making money. In fact, MediShield is supposed to be a not-for-profit insurance scheme.

Secondly, he asked about the grave scenario if pay-outs become more than the premiums collected. Now, in the case of medical insurance, it is relatively easy to be able to project what are the likely pay-outs to be and compared to, let us, say, earthquake insurance or something that has a much low frequency compared to health insurance, where you are able to see the trend and the cost of medical expenses over the years and be able to project what the pay-outs should be.

So, the question is: if it comes to the point where, because of the miscalculations, we aim for a 90% or 80% medical loss ratio but, for some reason, there is SARS that year or something like that happens, then we have a situation where the Government would have to step in to subsidise a bit more of the cost and the premiums can rise behind the increase in cost, not before you know that the costs are going to increase, then you raise the premiums.

Mdm Speaker: Dr Puthucheary.

Dr Janil Puthucheary: Madam, because we are talking about a social public good, it is therefore incumbent that we take a longer term, prudent approach, past one electoral cycle. I am glad that Mr Giam feels that medical expenditure is predictable. I and my professional colleagues would completely disagree. There is a lot of uncertainty about how costs will rise.

Myself and my brothers and sisters in the healthcare profession are part of that problem because we keep researching and coming up with all kinds of ways to spend the Health Minister’s money. Lastly, the example of SARS is a great example. It is precisely because of the prudent, conservative, risk-averse approach that we take on a day-to-day basis that when something like SARS comes along, the Government is able to step in and do what needs to be done.

Mdm Speaker: Minister Gan Kim Yong.

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Source: Singapore Parliament Reports (Hansard)

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