Commentary: Help with disability costs welcomed but allowing withdrawal of Medisave may not benefit all
Instead of allowing Medisave to be used directly for severe disability care, we should use extra funds to pay for higher, shared coverage in CareShield Life, says one observer.
SINGAPORE: What will you live on if you meet with severe disability?
A national insurance scheme, CareShield Life, will be launched from 2020. You pay premiums and in return you get payouts for life if you are assessed to be severely disabled. Premiums for CareShield Life can be paid from Medisave.
Older Singaporeans already on ElderShield will be encouraged to upgrade to CareShield Life, with cash incentives, if they sign up within two years of 2021.
Additionally, Singaporeans will be allowed to withdraw monthly cash from Medisave for their severe disability needs. Those still in need of help with severe disability costs may be eligible for aid from a newly formed ElderFund.
GOVERNMENT AS BACKSTOP
This appears to be consistent with how the Government structures the 3M system (Medisave, Medishield Life, MediFund) in healthcare. In this system, the Government is trying to shape shared responsibilities in paying for one’s healthcare, consistent with its approach to involving individuals first, families second, and then Government as a backstop.
Medisave is enforced individual savings and can be used to pay for approved purposes, including chronic illness medication, health and eldercare insurance. It can also be used to co-pay hospital charges in the deductible and co-insurance portions of MediShield Life coverage.
Families can top up a family member’s Medisave or help to pay their medical fees directly.
MediShield Life is essentially meant for covering catastrophic illnesses and the resulting large hospitalisation bills. Individuals will pay cash or from Medisave first before claiming from MediShield Life.
Finally, MediFund will help those who do not have the means to pay for healthcare, assessed on a case-by-case basis.
The Government has modelled severe disability care on this system. But severe disability support, as defined by an inability to carry out three of six activities in daily living (ADL), is much simpler and can be taken care of slightly differently.
THE CASE FOR CARESHIELD
CareShield Life, like MediShield Life, is an insurance scheme. Like all insurance schemes, this is a risk-sharing scheme. A simplified illustration of risk sharing versus individual risk is as follows:
Take for example, 20 persons in a population. Half will be disabled for different lengths of time before passing away. One may be disabled for one year before passing away, but another may be disabled for 12 years.
If subsidised monthly nursing costs are S$1,000 a month, then lifetime disability costs will range from zero for those not disabled to S$144,000 for those who live 12 years after disability.
This can be scary since you do not know who will be disabled and for how long. This is individual risk without insurance.
What if each of the 20 people pay S$8,000 each into a pooled fund that promises to pay S$600 a month for life if you get disabled? That way, everyone is assured that a part of their disability costs is covered regardless of your disability state or how long you live, at the expense of a fixed payment up front.
Risk-sharing is about converting all or part of an uncertainty into a certainty, spread out among all participants.
DEALING WITH ADVERSE SELECTION, MORAL HAZARD
In insurance, there is the issue of adverse selection. If the insurance is not mandatory, you may feel that you are healthy and will not be hit by disability. Or perhaps you are rich enough that disability costs are not a concern. So you opt out.
The insurance does not get your premium and costs increase for those still in it.
One way to tackle this is to make the premiums mandatory like CareShield Life.
Another issue is moral hazard. This is most well-known in healthcare insurance where zero co-payment schemes may have led medical establishments to over-prescribe and people to over-consume services. This leads to higher premium costs for others who make moderate claims, or to insurers suffering losses.
This is less of an issue with CareShield Life, where the claims criteria is a simplified three out of six ADLs, and the payout is in a fixed cash amount, not for services.
CARESHIELD LIFE VERSUS MEDISAVE WITHDRAWALS
CareShield Life can be viewed as a kind of collective saving. Every participant contributes to a pool of funds. The fund accumulates interest, and individuals can withdraw from it when they are hit with the insured event.
It offers the most economically efficient route to partially supporting and sharing the severe disability needs of the population, after mitigating the two issues of adverse selection and moral hazard.
While it avoids inter-generational funding, it features intra-generational funding – within an age cohort, healthier people, who do not claim as much, effectively help out less healthy people.
The Government now says that Medisave can be withdrawn for severe disability needs. Health Minister Mr Gan Kim Yong says that this will give people more flexibility since it is cash, and that it avoids an inter-generational subsidy, where younger tax payers pay for the care of an older generation, for example through subsidised nursing care.
But this is what CareShield Life does as well. It gives cash and avoids an inter-generational subsidy.
When you run out of individual savings, including in your Medisave, you may have to plan to go “cap in hand” to apply to ElderFund or MediFund, with no certainty of disbursement. The uncertainty can cause anxiety.
When you share the risk with others with CareShield Life, you are reducing this uncertainty by the amount you are insured for. The lower-income to middle-income class in particular should welcome a reduction in the uncertainty about eldercare coverage. Reducing anxiety about costs is something to be desired.
MORE CARESHIELD PAYOUTS INSTEAD
Instead of allowing individuals to withdraw from Medisave when they are disabled, why not commit extra funds from Medisave, when most are still in the prime of working life, to additional CareShield Life premiums to get higher payouts instead?
The sharing element of CareShield is to be desired, particularly for lower-income individuals, as it provides greater certainty over a potentially catastrophic end of life event. Better off individuals have more alternatives over how they meet this event.
Individuals with low or precarious income, who would have difficulty coming up a regular flow of extra premiums are likely to have trouble coming up with sufficient Medisave balances to tide them through any future severe disability and would need help then. The ability to withdraw from Medisave would be of little use.
Instead, the Government should help them with premiums now instead of later.
The 3M system for healthcare essentially spreads responsibility for healthcare among individuals, family, the intra-generational community and the Government.
In adopting a similar system for severe disability with its slightly different characteristics, the Government can tweak it to increase the intra-generational sharing responsibility of the system and simplify this new healthcare scheme.
Tan Jin Meng is a postgraduate from the Lee Kuan Yew School of Public Policy with an interest in social policy and economics.