singapore governance model

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By Rowan Callick

Tuesday, May 27, 2008

The city-state of Singapore may have a fix for Americas healthcare woes.

Americans have grown used to buying every kind of product from overseas. So why not buy

foreign ideas or social institutions? Why, for instance, hasnt the United States adopted the same

healthcare system as Europe, Canada, and nearly all the rest of the developed world?

While the United States is portrayed as the outlier, the truth is that another developed nation has

eschewed the European government-payer modelwith a great deal of success. That nation is

Singapore, a city-state with a population of just 4.6 million but a lot to teach America.

Singaporeans are considerably healthier than Americans, yet pay, per person, about one-fifth of

what Americans pay for their healthcare. A major reason is that Singapores system does not focus

on the question that seems to preoccupy both Europe and America: who pays? Ultimately, whoever

signs the checks, the money comes out of the pockets of individuals. Singapore takes a different

tack.

The country, a genteel and still sleepy colonial port when it became independent in 1965, was

whipped into industrial shape by its founder, Lee Kuan Yew. Its detractors, opposed to his draconian

style, dismissed it as a place where you could get fined for chewing gum, littering, smoking in taxis or

elevators, almost anything.

But in this election year, as Americans agonize yet again over their health service, Singapores

system has emerged as an impressive model that is a major attraction for increasing numbers of

permanent Western expatriates.

Singaporeans are considerably healthier than Americans, yet pay, per person, about one-fifth of

what Americans pay for their healthcare.

Here are some comparisons: Life expectancy at birth in the United States is 78 years; in Singapore,

82 years. The U.S. infant mortality rate is 6.4 deaths per 1,000 live births; in Singapore, just 2.3

deaths per 1,000. But the United States has far more caregivers: 2.6 physicians per 1,000 people,

compared with 1.4 physicians in Singapore. The United States has 9.4 nurses per 1,000 people;

Singapore, 4.2. And it has six times as many dentists as Singapore and three times as many

pharmacists.

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The World Health Organizations most recent full report on global health statistics says the United

States spends 15.4 percent of its GDP on healthcare, while Singapore spends just 3.7 percent.

Whats the reason for Singapores success? Its not government spending. The state, using taxes,

funds only about one-fourth of Singapores total health costs. Individuals and their employers pay

for the rest. In fact, the latest figures show that Singapores government spends only $381 (all

dollars in this article are U.S.) per capita on healthor one-seventh what the U.S. government

spends.

Singapores system requires individuals to take responsibility for their own health, and for much of

their own spending on medical care. As the Health Ministry puts it, Patients are expected to co-paypart of their medical expenses and to pay more when they demand a higher level of service. At the

same time, government subsidies help to keep basic healthcare affordable.

The reason the system works so well is that it puts decisions in the hands of patients and doctors

rather than of government bureaucrats and insurers. The states role is to provide a safety net for

the few people unable to save enough to pay their way, to subsidize public hospitals, and to fund

preventative health campaigns.

The low proportion of government spending on health in Singapore helps the country maintain

regular budget surpluses while reducing taxes. The top personal income tax rate is now 20 percent,

and the corporate tax rate is 18 percent (both roughly half the U.S. rates), while the value-added tax,

at 7 percent, is roughly one-third the level of the typical European country.

The Peoples Action Party has ruled Singapore since the British left, and is led today by Prime

Minister Lee Hsien Loong, the son of founder Lee Kuan Yew. It calls the health system it has put inplace the 3M framework: Medisave, Medishield, and Medifund.

Medisave, which covers about 85 percent of all Singaporeans, is a component of a mandatory

pension program. Employees typically pay 20 percent of their wages into the Central Provident Fund

(CPF), while employers pay 13 percent. (Since 1992, the self-employed have also participated.) At

the beginning of 2007, CPF had over $1 billion in surpluses.

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In Singapores system, the primary role of government is to require people to save in order to meet

medical expenses they dont expect.

Medisave accounts can be used to pay directly for hospital expenses incurred by an individual or his

immediate family. Limits are in place on the extent of Medisave funds that can be used for daily

hospital charges, physicians fees, and surgical fees. The idea is to cover fully the bills of mostpatients in state-subsidized wards of public hospitals. Beyond that, individuals dip into their own

pockets or use benefits from insurance plans (see more on this below). Medisave can also be used

for expensive outpatient treatments such as chemotherapy, renal dialysis, or HIV drugs.

Medishield, the second part of the program, is a national insurance plan that covers the higher cost

of especially serious illness or accident, which in Singapores system is described as catastrophic.

Singaporeans can choose Medishield or several private alternatives, some offered by firms listed on

the Singaporean stock exchange. Premiums for the insurance plans, including Medishield, can bepaid using Medisave accounts.

Medifund, the third part, was established by the government for the roughly 10 percent of

Singaporeans who dont have the means to pay for their medical needs, despite the governments

subsidy of hospital and outpatient costs. The fund was set up in 1993 with $150 million, with the

budget surplus providing additional contributions since then. Only interest income, not capital, may

be disbursed.

Finally, theres Eldershield, an addition to the 3M structure that offers private insurance for disability

as a result of old age. It pays a monthly cash allowance to those unable to perform three or more

basic activities of daily living.

Nearly all Singaporeans contribute directly toward each treatment, including prescription drugs,

through patient co-payments of 20 percent for amounts above deductible levels. The money to meet

deductibles and co-payments can come out of a persons Medisave account.

In Singapores system, the primary role of government is to require people to save in order to meet

medical expenses they dont expect. While the Singaporean government does regulate prices and

services, its hand is nowhere near as heavy as that of governments with extensive nationalized

healthcare, such as the United Kingdom or Germany.

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John Tucci, head of general insurance consulting for North Asia for Watson Wyatt Insurance

Consulting, says, The use of compulsory savings has been very successful as the main source of

private funding for hospital expenses.

Another key focus of the government has been to ensure that overall health expenditure does not

fall victim to the significant inflationary pressures that have been evident throughout the world. This

has been achieved by regulating the supply and prices of healthcare services in the country. Even

the United States rations treatments and sets prices both through government regulation and

purchasing and through private insurance rules.

The United States spends 15.4 percent of its GDP on healthcare, while Singapore spends just 3.7

percent.

Tucci warns that it may be hard to replicate Singapores system in the United States. After all,

Singapore has a small, concentrated population, with a backdrop of political stability, enabling

successive governments [all of the same party] to introduce consistent measures relating to

individual responsibility, compulsory savings, and regulatory control of healthcare services and

costs.

The public healthcare facilities in Singapore have been clustered, since 2002, into two integrated

networks, each government-owned and managed as nonprofits: the National Healthcare Group(NHG) on the western side of the city-state, and Singapore Health Services (SingHealth) on the

eastern side. Each provides a full range of services, running the public hospitals and specialty centers

as private companies.

The Health Ministry says that these clusters provide cooperation amongst the institutions within

the cluster, foster vertical integration of services, and enhance synergy and economies of scale. The

friendly competition between the two clusters spurs them to innovate and improve the quality of

care while ensuring that medical costs remain affordable.

Each of the networks also benchmarks against international standards and publishes exhaustive

performance figures. In its 2007 report, NHG says its vision is adding years of healthy life. The goal,

the report says, departs from merely healing the sick to the more difficult but infinitely more

rewarding task of preventing illness and preserving health and quality of life.

Meanwhile, 80 percent of primary healthcare needs are met by private general practitioners and 20

percent by public outpatient polyclinics of hospitals, chiefly those run by the two clusters, NHG

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and SingHealth. Within the private general practitioner sector, a significant proportion of patients

about 12 percent of themconsult traditional Chinese practitioners.

Phua Kai Hong, associate professor of health policy and management at the Lee Kuan Yew School ofPublic Policy at the National University of Singapore, describes the crucial social setting that enabled

the country to create its remarkably successful health system: a dynamic economy (with 7.5 percent

GDP growth in 2007 and an average income per person of about $34,000, or three-quarters that of

the United States), strong family ties and social support systems, a high propensity to save and

invest, a rapidly aging and affluent population, and an absence of socialized models of social

security, social insurance, or healthcare.

He lists five core prerequisites for countries that may want to emulate Singapores system: a

willingness and ability to save; high participation in formal employment; effective payroll collection

with efficient fund management and claims processing; a well-developed information system with

strong security and accounting controls; and effective public education in the proper use of medical

accounts.

Within the private-public mix, he says, most people lean toward the private system for primary care

and the public system for hospital care. There are 13 public-sector specialty centers and hospitals in

Singapore and 16 private-sector hospitals. But 74 percent of the beds are within the public sector.

The government has also introduced low-cost community hospitals for intermediate healthcare forthe convalescent and aged.

Why does Singapores system work? Phua cites these principles: the creation of incentives for

responsible behavior and the efficient delivery of services; the discouragement of overconsumption

through cost-sharing; the regulation of hospital beds, doctors, and the use of high-cost medical

technology; the promotion of personal responsibility; targeted government subsidies; and the

injection of competition through a mix of public- and private-sector providers.

Medical savings, he says, are now being accumulated to ensure that the Singaporean society of the

future will be able to look after its own health needs even with a steady rise in the population of

elderly people.

But, he adds, there remains room for further evaluation of clinical quality and outcomes as the

system continues to evolve.

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Increased investment in health facilities is encouraging a broadening of the market. More than

400,000 patients traveled to Singapore for healthcare in 2006.

While 3M was designed to curb overconsumption rather than achieve a particular public-private mix,

the result of the system has been to moderate the governments share of total health spending. The

lesson here is that an efficient healthcare system will naturally come to rely on consumer, ratherthan government, decision-making.

Professor Lim Meng Kin of the department of community, occupational, and family medicine at the

National University of Singapore says, Every dollar spent on healthcare is a dollar earned by

healthcare providers, so there is inherently no incentive for healthcare providers to want to contain

costs. Indeed, providers could be expected to exhibit entrepreneurial behavior.

In 1999, the system introduced case-mixcategorizing patients in order to assess the cost of

treating themas a move to address such supply-side moral hazard. Since 2003, the Health

Ministry has been publishing hospital bill amounts for common conditions and procedures to give

patients more information on which to base their choices.

Meanwhile, the increased investment in health facilities is naturally encouraging a broadening of the

market. Thus, in 2003, a group of government agencies launched SingaporeMedicine, aimed at

developing the country into a leading international destination for healthcare. In 2006, more than400,000 patients traveled to Singapore specifically for healthcare.

This internationalization of the countrys health services is also now extending to export. Singapore

hospital operator Thomson Medical Center, for instance, which specializes in obstetric and pediatric

care, is establishing, with a Vietnamese partner, a 260-bed, resort-style hospital for women and

children, with a medical spa and a helipad, near Ho Chi Minh City, to meet a new market arising from

Vietnams economic surge. Many more Singaporean health providers are setting up shop in India,

where they have already invested in hospitals and diagnostic centers.

The three principal challenges, Lim says, are interrelated: containing cost, developing a medical hub,

and ensuring quality. A focus on costs without a corresponding focus on quality and patient safety

is meaningless. Care that is cheap but of poor quality is surely not what Singaporeans want or

deserve. The right focus, he says, is on creating the conditions for competition, consumer choice,

and provider cooperation.

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Alvin Soong, the immediate past president of the Singapore Insurance Institute, worries about rising

medical inflation, which reached 6.2 percent in Octoberalmost twice the national rate of price

increases.

Many Singaporeans, he says, do not have adequate funds in their Medisave accounts to pay for

their own medical bills because their Medisave funds have been used to pay the bills of spouses,

parents, or siblings. The Baby Boomers have often had to take care of their parents medical costs.

He says the current average individual Medisave balance of $23,260 will not be adequate for the

post-retirement period, when people most need medical coverage, even with the added protection

provided by Medishield insurance.

After taking into account payment for the deductibles, co-insurance, and anything beyond the

amount paid by the schedule of benefits...if the funds in Medisave are used to pay directly for

medical bills, there may not be anything left to pay the Medishield premiums, according to Soong.

At the current rate of medical inflation, Medisave will become totally inadequate, he warns.

The low proportion of government spending on health in Singapore helps the country maintain

regular budget surpluses while reducing taxes.

Singapores health minister, Khaw Boon Wan, wants insurers to come up with more innovative

policies. He says: Give doctors and hospitals the incentive to focus on the health outcomes of your

policyholders. Try piloting pay-for-performance measures that reward doctors based on the health

of patients they care for, not the number of procedures performed. His concern demonstrates that

case-mix funding, intended to produce just this response, is not yet doing the trick.

Rising health costs are not simply a matter of price increases but of more use. In 2006, operating

revenues in the sector grew by 8.9 percent, the national statistics office reported in January 2008.

As Singapores demography and its economy evolve, its formula for meeting medical needs will also

have to change. That is hardly surprising. Nor is it surprising that it should face criticism.

The World Bank, in a paper assessing Singapores health system, says the results of 3M, with its

supplementary programs to protect the poor and to address potential market failures in health

financing, have been impressive, with excellent health outcomes, low costs and full consumerchoice of providers and quality of care.

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It says that Medisavea key component of the systemcould be introduced in countries without

national insurance programs or well-developed private insurance, by requiring all employers and

employees to set up accounts along the lines of Singapores program.

In countries such as Canada and Britain which have national insurance programs funded primarily by

general tax revenue, Medical Savings Accounts (MSAs) could be introduced by directly allocating a

portion of existing tax revenue spent on healthcare to individuals to set up MSAs. Such governments

could then progressively reduce general taxes and replace them with Singaporean-style payroll

deductions allocated to MSAs.

And, says the World Bank, in countries like the United States, with well-developed private healthinsurance covering basic services, consumers could be given the choice of opting for MSAs with a

catastrophic-illness insurance provision instead of traditional insurance or managed care. However,

for MSAs to become truly universal, governments would have to allocate public fundingwhether

drawn from general tax revenue or payroll taxesto individual MSAs.

Pilot programs with some MSA features have been introduced in the United States, with a focus on

plans that enable employees to shift from traditional health insurance to voluntary MSAs with high-

deductible health insurance.

The critics in Singapore, unlike many in the United States, are calling for fine-tuningnot for a new

engine. The structure developed 25 years ago still works. Compared with the American system, it

keeps Singaporeans healthier for much less cost per person.

Rowan Callick is the China correspondent of The Australian.

Illustration by John Weber.

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Since we're at the start of the Lunar New Year in the Chinese and Vietnamese calendars, a discussion

about Singapore seems timely.

Thomas Friedman is a big fan of governance attitudes in Singapore and wonders why we don't

function the same way in the US. In a column in the New York Times earlier this week, Friedman

opined that Singapore gets it right while the US gets it wrong, and so should serve as a model that

American policy makers and politicians might follow. He suggests that

If Singapore has one thing to teach America, it is about taking governing seriously, relentlessly

asking: What world are we living in and how do we adapt to thrive.

Later, though, he goes on to say "Singapore is tiny and by no means a U.S.-style democracy," whichmay have answered his own question.

For example, it's easier to keep politics out of policy when you only have one real political party. As

friends of mine have said, "In the US, you know when the next election is, but you don't know who

will win. In Singapore, we don't know when the next election will be, but we already know who's

going to win." If you're not too worried about winning elections, it's easier to move forward with

decisions that might be necessary but unpopular. Friedman also says that, "like America, it has a

multiethnic population Chinese, Indian and Malay with a big working class," but to compare

the tri-Asian ethnicity of Singapore with the multiethnicity of the US is a bit of a joke. Singapore also

manages its multiethnicity in ways that would never fly in the US (for example: ethnic quotas within

subsidized housing developments).

This isn't to say I necessarily disagree with the way Singapore is governed, but I do disagree that it

should be a model for American attitudes toward governance. Singapore's strategic culture --

including its history, its cultural values, its post-colonial heritage, its lack of natural resources, its

geopolitical relationships, and for that matter, even its size -- is so different from the United States'

that it makes it difficult to import ideas from there to here.

The question of governance becomes important for Creatives when governments try to spur their

creative economies. Singapore in 2002 unveiled its Creative Industries Development Strategy, which

has led to some governance and education changes, though the effect of those still remains to be

seen. In last month's State of the Union address, President Obama advocated government

investment specifically designed to facilitate innovation, though the details still need to be

discussed. Governments can help provide opportunities for innovation, but their willingness and

ability to do so is shaped in part by their style of governance. The US political and social system hasshown the ability to support innovation (there's a reason the Internet was able to be created here,

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and Apple, Microsoft, and Google all find a welcoming environment). Whether the US has the

willingness to support innovation, well, that depends on political issues, fiscal constraints, and more,

but we know that when the US decides to do it, it at least has demonstrated the ability.

Singapore seems to be in the opposite condition, again for governance and social reasons.

Innovation is dissent from the status quo, but Singapore has a legal and social culture that strongly

deters dissent. For instance, since 2005 it has been illegal for more than 5 people to gather for an

event without a permit. A government that punishes non-violent political dissent might be doing

what's necessary for a still-young country whose political systems are evolving, but it creates an

environment in which new ideas are stifled. Singapore may have the willingness to advance its

creative economy, but it's political institutions aren't as effective at supporting it, which may be one

reason so much of their creative talent is being developed through immigration.

In the interest of full disclosure, let me say that I think Singapore is a great country. I lived there at

one time, teaching at Nanyang Technological University. I have many friends there. I would seriously

entertain the idea of moving back. That doesn't mean, though, that I think that what they do would

necessarily work in the US. Friedman has long been a fan of Singapore just like me, so his current

praise isn't much of a surprise. I think, though, that he's let his respect for Singapore overshadow his

objectivity in this case.