Tuesday, March 21, 2017

Health insurance, NOT pre-paid consumption

The Republican critique of the Affordable Care Act (Obamacare) is that it is not really insurance (covering large impact, low probability events, like catastrophic illness) but rather pre-paid consumption (paying for small predictable expenses).  Singapore's Health insurance seems to validate this critique:

Singaporeans pay for much of their own care out of their own pockets, and their major insurance program is designed to cover long-term illnesses and prolonged hospitalizations, not routine care. The combination has produced genuinely extraordinary results: The island state has excellent health outcomes while spending, as of 2014, just 5 percent of G.D.P. on health care. (By comparison, a typical Western European country that year spent around 10 percent; the United States spent 17 percent.)

HT:  MarginalRevolution.com


  1. As healthcare costs continue to be out of control, this should be an approach worth reviewing as the Singapore’s Health System seems to be a success and an efficient system. Singapore’s system ensures that all individuals, citizens or foreigners are covered by their healthcare system (Feldscher, 2014). Around 10%, of US citizens go without health insurance as they simply cannot afford it. Singapore’s spending on healthcare is less than a third of what the US spends each year. Why is there such a difference is healthcare expenditures?
    One major factor is the citizens are healthier than the US population. A 2016, report by Business Week listed Singapore as the healthiest country contributing to low healthcare expenditures. In 2017, they have moved down the list to #4 where the US ranks 34.
    Another example of what Singapore is doing right is the regulation in healthcare expenses and full transparency of costs. Some companies, with the corporate greed, make prescriptions or other medical services simply not affordable and people go without medications or services. Surgery costs in the US are doubled, tripled, or more than in other countries adding to high healthcare costs. If we could control these costs the overall cost of healthcare would decline.
    Singapore mandates that everyone has a health saving account so they can pay for routine care, and insurance is used for the larger expenses such as chronic illnesses or major care. This approach in the US would take some time to adapt as many would forego routine doctor’s visits if they had to pay for them out of their own pockets unless the cost of healthcare was drastically reduced. Could the health savings accounts be mandated in the US, again this would take a great shift in how we do things. We are used to free spending on things each citizen finds important and we are not mandated to save by the government.
    Douthat, R. (2017, March 18). Make America Singapore. The New York Times. Retrieved from https://www.nytimes.com/2017/03/18/opinion/sunday/make-america-singapore.html

  2. The Singapore healthcare model provides for controlling costs and paying for health in the present. That may be the biggest difference between what we practice here in the United States and the Singapore healthcare model. Since most Americans are seniors and the population of young Americans is decreasing, the United States faces a healthcare crisis in the future that needs to be addressed today. Americans pay much more for the healthcare services and prescription drugs than people in Canada, United Kingdom, France, Germany and Australia. Why is that? One reason is that most other countries provide some form of price controls where the government negotiates with drug companies and device makers for lower prices. The United States government leaves the negotiations for individual insurers to handle and they lose. America spends $2.8 trillion on healthcare annually which is about one-sixth of the economy or more than $8500 per person (Kliff 2014).
    The huge and obvious differences between Singapore and America is are the geographical size of the nations, but more importantly the population of Singapore is only 5.7 million people while the United States has nearly 330 million citizens. America is also the richest nation in the world and so the Singapore healthcare model does not completely comport to what kind of healthcare system we need in the United States. Some components of their system, however, would make sense for America. Their government-run single-payer MediShield program, for example, would make sense for Americans to be covered for catastrophic events only while the states still maintained their Medicaid programs for those who qualify (Douthat, 2017).
    This would allow individuals to keep their current insurance if they chose to keep it. In addition, individuals could fund their own health savings accounts at much lower premiums for low cost and routine annual health screenings, diagnostic tests and doctor visits. Hopefully the politicians in Washington, D.C. will find some common ground and keep most the features that the Patient Protection and Affordable Care Act provides for Americans. No pre-existing conditions, age limit of 26 years old for dependents and funding for Planned Parenthood in order that those Americans with limited resources have access to quality healthcare.


    Kliff, Sarah, (2014). 8 Facts that Explain What’s Wrong with American Health Care. Physicians for a National Health Program, pp. 1, 3.
    Douthat, Ross, (2017). Make America Singapore, pg. 2.

    Retrieved from: https://www.nytimes.com/2017/03/18/opinion/sunday/make-america-singapore.html?_r=0

  3. Long before the Affordable Care Act (Obamacare) the health insurance system in the United States was the epitome of adverse selection and moral hazards. This is not just the results of a flawed health care system but more so the culture and ideology of a nation. The critiques of Obamacare, the conservative leaning/Republicans comprises the very institution that renders the type of health care reform necessary to minimize or eliminate adverse selection and moral hazards, implausible. In order for the United States to adapt and implement the best practices in health care reform they would have to look at a bench mark system like the one that Singapore boast.
    In Singapore, the health care system is the marvel of the wealthy world with healthy outcomes while spending only 5% GDP, less than 30% of the US healthcare spending. Its citizens pay for much of their own care out of their own pockets, thus eliminating moral hazard, and their major insurance program, a government run universal health care, is designed to cover long-term illnesses and prolonged hospitalizations, not routine care (Douthat, 2017). Despite the multitude of criticism, the republican institution has never proposed a health policy that imitates what Singapore does because at their heart is an affinity to autonomy and an abhorrence for statism and paternalism, the very fabric of Singapore’s health system.
    Over utilization has been an ongoing problem in the US health care system and once the consumer is insured there is little the insurance company can do to eliminate this moral hazard except imposing high deductible and copayment for non-emergent visits. Moral Hazards is characterized by the lack of care exhibit by the insured customer because they have less incentive to do so (Froeb, McCann, Shor & Ward, 2016). With the Singapore health system, the high out of pocket payment for routine doctor’s visit provide an incentive, thus eliminating moral hazards. There is also the problem of the providers who are guilty of over or under-utilization by ordering unnecessary tests for private insurance recipients and not ordering much needed tests on government Medicaid patients. One of the goal of Obamacare was to minimize these moral hazards and reduce waste and ultimately health care spending. Has Obamacare achieved the goal of minimizing moral hazard?
    The answer is yes and no, because while there is evidence that suggest that prevention, detection and punishment of healthcare fraud cases have improved under the Affordable Care Act, there is increase utilization by insured consumer due to increase in the number of insured particularly Medicaid patients who have no incentive (no co-payment or deductible) to exercise caution (Mongan, 2016). According to one source Under the Affordable Care Act, more people will have private health insurance coverage, and new breadth-of-coverage requirements (when finally enforced) will mean patients will find that their policies exclude fewer categories of treatment. These reforms are net improvements, in my opinion at least, but they will exacerbate the moral hazard problem that plagues our health-care system and drives up costs (Korobkin, 2014).
    The ACA anticipate and seeks to protect the system against adverse selection hence the individual mandate. Under the ACA there are two different types of consumers, each facing different risks. One type of customer the sick, children, the elderly, and other adults where the probability of health care need is about 70-80% and the other type is the younger healthier generation whose probability of health care need is about 20-30%. The former group is risk averse and the latter is risk affectionate and understandably so due to the low probability of need. Hence the low probability risk group would not be willing to pay for insurance. However, for the premium to be affordable it is imperative that everyone participate hence the individual mandate. Furthermore, in the case that the low risk group need medical care the individual mandate eliminates ‘free riders’.

  4. thank for your sharing good blog comment.


  5. Health insurance will be up for debate for a longtime, but what I have observed is those who have had full coverage do not realize the cost of healthcare. For example, if you do not have to pay for an emergency room visit, or for a visit to your general practitioner, people will then use the emergence room as their primary care for their own convenience. What that person does not realize it will cost the insurance companies a starting rate of $1,500 just to walk into the ED oppose to $150 for a checkup with a general practitioner. This is an example of how a moral hazard can increase insurance rates because there is no incentive for patients to stop using the ED.

    The other issue I have observed is, how do you encourage younger people to purchase insurance, which would help cover older people in the system, especially how the Affordable Care Act is setup. The problem is there is still not enough incentive for younger people to buy insurance especially when rates keep increasing and only high risk patients are purchasing insurance. This has then created adverse selection in insurance industry.

    Finally, what I found interesting in the article of Singapore’s Health insurance, is there insurance structure is setup to cover just casualty, which does seem to resolve both problems mention earlier. Although, in capitalistic economy should the government be able to force you to buy insurance, which is a question that will continue to be debated.