How Singapore Delivers the Best Medical Care in the World While Spending 80% Less Than We Do

Sean Masaki FlynnScripps College

Presentation at Suffolk UniversityOctober 20, 2011

How good is Singapore’s health care system?

• Singapore is either the very best in the world or near the very top in every health care category that the World Health Organization keeps track of.

• Singapore produces these amazing results at far lower costs than any other nation in the world.

Singapore has the lowest infant mortality in the world.

Brazil Mexico China Russia United States

United Kingdom

Germany France Japan Sweden Singapore0

5

10

15

20

25

Infant deaths per 1,000 live births

Source: The World Factbook

Singapore has the fourth highest life expectancy at birth.

Average life expectancy at birth, years

Japan

Andorra

Australia

Singa

pore

Canad

aFra

nce

German

y

United St

ates

Cuba

Mexico

Tunisia

ChinaBraz

il

Sri La

nka

Mongolia Haiti

55

60

65

70

75

80

85

90

Source: World Health Organization WHOSIS database. Data is for 2009 or latest available year.

How did health care spending vary by nation in 2009?

Health Care Spending as a percentage of GDP

Source: World Health Organization WHOSIS database for all nations except United States. United States’ data is from the January 2011 release of National Health Expenditure Data by the Centers for Medicare and Medicaid Services. All data is for 2009.Note: These are the 30 OECD countries plus Singapore.

United St

ates

Belgium

German

y

Portuga

l

Switze

rland

Denmark

France

Austria

Canad

a

Netherl

ands

Greece

Swed

en

Finlan

dIre

land

Norway

Spain

New Ze

aland

Italy

United Kingd

om

Slova

kia

Australia Jap

an

Luxembourg

Czech Rep

ublic

Hungary

PolandTu

rkey

Mexico

Republic

of Korea

Singa

pore0

2

4

6

8

10

12

14

16

18

20

How did health care spending vary by nation in 2009?

Health Care Spending as a percentage of GDP

Source: World Health Organization WHOSIS database for all nations except United States. United States’ data is from the January 2011 release of National Health Expenditure Data by the Centers for Medicare and Medicaid Services. All data is for 2009.Note: These are the 30 OECD countries plus Singapore.

United St

ates

Belgium

German

y

Portuga

l

Switze

rland

Denmark

France

Austria

Canad

a

Netherl

ands

Greece

Swed

en

Finlan

dIre

land

Norway

Spain

New Ze

aland

Italy

United Kingd

om

Slova

kia

Australia Jap

an

Luxembourg

Czech Rep

ublic

Hungary

PolandTu

rkey

Mexico

Republic

of Korea

Singa

pore0

2

4

6

8

10

12

14

16

18

20USA:

$8,086 per person

Singapore: $1,330

per person

19701972

19741976

19781980

19821984

19861988

19901992

19941996

19982000

20022004

20062008

0

2

4

6

8

10

12

14

16

18

OECD countries Australia Austria BelgiumCanada Chile Czech Republic DenmarkEstonia Finland France GermanyGreece Hungary Iceland IrelandIsrael Italy Japan KoreaLuxembourg Mexico Netherlands New ZealandNorway Poland Portugal Slovak RepublicSlovenia Spain Sweden SwitzerlandTurkey United Kingdom United States

How have health care costs been trending outside of Singapore?

Total Expenditures on Health Care as a Percentage of GDP, 1970-2008

Source: OECD Health Data 2010.

Why is health care spending so out of control in America?

• Because we have a third-party-payer system in which nobody says NO!

• The system is a bad leftover from WWII price controls.– The government fixed wages during WWII, so firms

competed to attract workers by offering free health care.– Due to the corporate tax deduction for insurance premiums,

the system persisted after the war.– Low out-of-pocket costs make health care look nearly free,

which leads people to demand a lot of health care procedures, including those that deliver little (if any) benefit.

How have out-of-pocket health care costs trended in America?

19601962

19641966

19681970

19721974

19761978

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20080

5

10

15

20

25

30

35

40

45

50

Out-of-pocket health spending as a percentage of total health spending, 1960-2008

Source: “National Health Expenditures Accounts”, Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group.

Why haven’t low out-of-pocket costs caused equally large increases in health care spending in other countries?

• Because they have institutions that provide non-price rationing mechanisms.– Queuing– Denial of Care• In the UK, the National Committee for Clinical

Excellence (NICE) is tasked with denying care based on anticipated cost. • Right now, if you have a condition that would on

average cost more than 30,000£ to extend your life for more than a year, NICE says: NO!

How does Singapore do so well while spending so much less?

• By first making sure that people have the money to bear significant out-of-pocket costs…

• …And then by making them actually have to pay significant out-of-pocket costs.

• If health care doesn’t look free, people purchase less of it.

What are the main components of Singapore’s system?

• Health Savings Accounts combined with high-deductible catastrophic insurance for the working.

• Free care on the government’s dime for the poor. • Price competition between hospitals created by the

requirement to actually print price menus for all procedures so that patients can comparison shop.

• “Upselling” the rich to subsidize the poor. For instance: – A standard hospital bed in a ward with six other patients is

$99 per night.– A luxurious private suite costs $1,400 per night.

Can we adopt the best features of Singapore’s system in the U.S.A.?

• Yes. • Some experiments have already been made.• Consider two cases:– Whole Foods Markets– State of Indiana

What does Whole Foods do?

• For each full-time employee:– The company pays 100% of the premium for a high-deductible

health insurance plan that kicks in after a $2,500 per year deductible.

– The company deposits $1,800 per year into a Personal Wellness Account.

• So workers are only on the hook for the $700 “doughnut hole” between $1,800 and $2,500.

• But since both that $700 and the $1,800 deposited into the Personal Wellness account are their own money, workers spend very prudent.

• Consequently, health care usage falls dramatically.

What does the State of Indiana do?

• Two years ago, the State of Indiana started offering state employees an option similar to Singapore.

• Employees could stay with an older PPO system or enter the new system.

• 70% are now in the new system in which:– Indiana places $2,750 per year into a health savings account.– There is an insurance policy that:

• Covers everything above an $8,000 deductible• Features about 80-20 cost splitting between the patient and the

insurer on any spending between $2,750 and $8,000.• Thus, workers are on the hook for at most $1050 per year.

What are the audited results of the State of Indiana System?

• Health care spending has fallen 35% for those who enrolled in the new option:– They visit emergency rooms and physicians 67%

less often.– They are admitted to hospitals half as often.– They opt for generic drugs so that their average

cost-per-prescription is $18 lower.– They show no evidence of deferring needed care or

preventative measures like routine physicals or mammograms.

How do these results compare with those of the famous Rand Health Insurance Experiment?

• From 1973-1982, Rand ran the only large-scale, fully randomized study of how different health insurance plans affect utilization and care. – The group usinga plan that had them paying 95% of all

spending up to a high deductible (after which insurance covered 100%) showed 30 percent less spending than the group that got unlimited free care.

– Health outcomes were nearly identical across all insurance plans.

– Reduced expenditures were due to not initiating care, rather than opting for less-costly care.

Source: “The Health Insurance Experiment,” 2006, Rand Briefs. Available on-line at: http://www.rand.org/pubs/research_briefs/2006/RAND_RB9174.pdf

Why could we expect the Whole Foods program or the State of Indiana program to provide even greater savings if implemented

more widely?

• Flip the Fallacy of Composition on its head.– Both of these programs are too small by themselves to

shift the demand curves for health care to the left by any appreciable amount. So what we have is reductions in expenditures caused solely by reductions in quantities consumed.

– But if adopted widely, the sharp reductions in quantities demanded under such programs would lead to a precipitous decline in prices.

– Consequently, expenditures would fall not just due to reductions in quantities but also in prices. The savings would be massive.

How can people cut health care usage so much without hurting their health?

• Much of current health care spending is wasteful or useless:– Brand name drugs rather than chemically

identical generics.– New treatments that are only marginally better

than old treatments but cost way more.– 85% of health procedures have never been

subjected to randomized trials. We don’t even know what works.

Sources: Michael Millenson, Demanding Medical Excellence, University of Chicago Press, 2000; “Assessing the Efficacy and Safety of Medical Technologies,” Office of Technology Assessment, U.S. Congress, 1978; The British Medical Journal’s“Clinical Evidence” page at http://clinicalevidence.bmj.com/ceweb/about/knowledge.jsp; and Jonah Lehrer’s article “The Truth Wears Off” about the so-called Decline Effect in the December 13, 2010 issue of The New Yorker:http://www.newyorker.com/reporting/2010/12/13/101213fa_fact_lehrer

What evidence do we have that massive governmental spending on health care does not improve outcomes?

– Medicare doesn’t affect death rates.• If having health insurance and spending a lot on health

care actually made a significant improvement in health outcomes, you would see death rates drop off when people hit 65 and go on Medicare. But you don’t see that. Extra spending happens, but outcomes are not improved.

– In England, higher spending leads to lower output.• Evidence for the inverse relationship between health care

spending and health care output in the UK goes back to doctor Max Gammon’s “Law of Bureaucratic Displacement.”*

* “Gammon’s Law of Bureaucratic Displacement,” at Australian Doctor’s Fund website. Also see “Gammon’s Law Points to Health Care Solution,” by Milton Friedman, The Wall Street Journal, November 12, 1991.

Why might one consider the Singapore system more humane as well as more efficient?

• Because it encourages self-rationing rather than government rationing. – Singapore’s high out-of-pocket costs encourage a

prudence that is the equivalent of people self-rationing.

– This avoids the not-so-NICE need in the UK and other similar countries to have the government do the rationing either with long wait times or denial-of-service rules.

Where can I learn more about Singapore’s health care system?

• Newspaper and Magazine Articles– “What Singapore Can Teach the White House,” by William McGurn, The Wall Street Journal, October 19,

2009.– “The Singapore Model,” by Rowan Callick, The American, May 27, 2008.– “What We Can Learn From Singapore’s Health Care Model,” by Matt Miller, The Washington Post, March

3, 2010. – “The Whole Foods Alternative to Obamacare,” by John Mackey, The Wall Street Journal, August 11, 2009.– “Hoosiers and Health Savings Accounts,” by Mitch Daniels, The Wall Street Journal, March 1, 2010.

• Websites– “Heath Care System Overview,” Singapore Ministry of Health.– “International Health Systems: Singapore,” The Henry J. Kaiser Family Foundation.

• Video– “Singapore’s Health Care System Saves Money and Lives,”World Focus, January 27, 2009. – Interview with Khwa Boon Wan, Singapore’s Minister for Health,World Focus, January 27, 2009.

Where can I learn more about Gammon’s Law?

• Newspaper and Magazine Articles– “Gammon’s Law Points to Health Care Solution,” by Milton Friedman, The Wall Street Journal,

November 12, 1991. Hyperlink is to a reposting at the website of Professor Samuel L. Baker, Arnold School of Public Health, University of South Carolina.

– “Gammon’s Law,” by David Gratzer, The National Post (Canada), March 27, 2004. The hyperlink is to a reposting at the Manhattan Institute’s website.

• Websites– “Gammon’s Law of Bureaucratic Displacement,” transcript of January 24/25, 2005

teleconference, Australian Doctor’s Fund.

How do I contact Sean Flynn?

• Email sean.flynn@scrippscollege.edu

• Address1030 Columbia Ave. #4074, Claremont, CA 91711