The Advantages and Disadvantages of Medical Savings Account Model in Singapore

Introduction

Medical savings accounts are a form of a health cover which combines catastrophic medical insurance policy with the savings account used to cater for particular health expenses. Over the past decade, these savings accounts have received a considerable amount of attention in a few countries such as Singapore, the US, China, and South Africa. Extensive research indicates that MSAs have greatly enhanced equity and are very efficient in providing adequate financial protection. Over the last few years, medical savings accounts have been considered as important healthcare sustainability and reform measure. Medical savings accounts are just like any other bank account. Therefore, an individual is set to pay for healthcare expenses. These accounts are typically established in conjunction with high deductible health insurance. The funds kept aside in the medical savings accounts is used to cater for the qualifying medical expenses while the insurance coverage plan pays for the costs after the deductible level has been reached. Medical savings accounts were introduced first in 2003 in the United States and were designed to help patients cover the cost of different eligible expenses. For a person to qualify for these accounts, it was mandatory to be enrolled in the Medicare. The purpose of that enrolment was to allow one to be dependent on anyone else. Research shows that from 2006 to 2010 a lot of people registered for MSA. The figures grew from 1.3 million to 8.4 million, and up to date, the number is still increasing (Wouters, Cylus, Thomson, & McKee, 2016).

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Background

The concept of mandatory savings is not a new phenomenon for Singapore. The introduction of the Medisave scheme was widely accepted without any resistance. By 1955, Singapore had already initiated an old age scheme that was under the Central Provident Fund board. Medisave was also administered by this board (Chia & Tsui, 2005). Majority of countries throughout the world are still considering whether medical savings accounts are an appropriate strategy of acquiring finance to fund the health sector. Singapore has registered a substantial achievement in making use of these accounts through incorporating other financing mechanisms to ensure quality healthcare at a considerably cheaper cost. In most nations worldwide, the healthcare sector is financed by both the public as well as the private sources. These include taxes, contributions, pocket payment, insurance premiums among others. The fact is that the demand for healthcare services is prone to rise than the economic growth, therefore funding the healthcare sector is becoming more challenging to the lawmakers as well as the taxpayers. Various health policies conducted in those particular countries determine the implementations to be put in place to intensify the cost-effectiveness for the healthcare providers. MSA provides aneffective and innovative mechanism that can be used to pay for health expenses by accumulating these savings. However, it is similar to a bank account only that its primary role is to cater for medical bills of either an individual or the whole family. In Singapore, the medical savings account is commonly referred to as Medisave. Since the interception of Medisave in 1984, this scheme has always operated on the rule that each person who is employed contributes into a personal account that builds up to cover the patient's health expense in the future (Barr, 2001). The governing body has initiated a mechanism to reduce the pooling risks rate through strategizing the catastrophic health insurance scheme. The central objective of this scheme is for all the account holders of Medisave together with their beneficiaries who are 85 years old and below to be covered in case of the risk of catastrophic diseases.

Advantages

One of the biggest allures of a medical savings account is the triple benefit. An account holder deposits funds pre-tax, it grows and eventually gets distributed tax-free so long as the money was used for a qualified healthcare expense. Any money that remains in the account at the end of the year is transferred to the next year. This creates an excellent platform for the account holders to pay for their medical expenses as they also save for the future. Besides the account is highly portable which means that even if one changes their career, health insurance plan or go for retirement, the bank account remains with them.

Second, saving instills a sense of discipline and responsibility for health. This is because an individual is expected to save for their health. Therefore, medical savings account instills a sense of self-responsibility for health. Additionally, it highly encourages a person to live a healthier lifestyle by ensuring they covered in case of an emergency.

Third, a medical savings account helps an individual to save money for their use. In recent years, these health accounts are becoming more important from people's opinions. What an individual save always remain as their asset. In case these savings are not used by either the account holder or the family members they are left to his or her estates. Medisave assist individuals to save for their future health requirements. Such savings help people to take their financial risks due to poor health by banking up to meet future health requirements (Hanvoravongchai, 2002). These savings are mainly useful after a person has retired because they will be forced by circumstances to spend a lot of funds on health care when they are no longer getting any salary. Hence, saving money for one's health in the future is a concept that is widely known in Singapore (Gorin, 2006).

Fourth, medical savings account assists one to minimize the financial constraints for the future generations. Research forecasts that the demographical changes in the coming decades suggest a high probability of having a smaller working population to support the elderly in the society (Chia N. C., 2018). Thus, the medical savings account could significantly help to reduce the financial constraint to the future generations. However, to allow these savings to be channeled into the healthcare unit without depending much on the tax from the general public, there has to be a substantial portion of the private sectors to help people to choose on how to save. Besides, there is also an urgent need to increase the public fee.

Finally, the Medisave scheme greatly assists in managing the care of patients with chronic illness. It serves both as a strategy of attracting members to maintain their health funds as well as a way of minimizing cost and other complications of hospital admissions. Patients are directed to quality and adequate healthcare. Besides, the system has helped to bridge the gaps that in the current Medicare system in Singapore (Sammut, 2015).

Disadvantages

On the other hand, just like any different retirement savings plan, introducing medical savings account in Singapore comes with its share of demerits, to begin with, at times, a medical saving account is not always a guaranteed source of additional medical funds. Although these savings accounts assist people in accumulating funds, with time there is a possibility of having a massive pool of risks which can be used to finance his or her health services, the utilization of such funds solely depends on the account holder. It is difficult to predict how such funds can be utilized. Therefore, any additional amount which can be saved for use in the healthcare is entirely uncertain. (Gorin, 2006). This is particularly the case especially if the health services will continue to remain one of the highest subsidized sector (95% subsidized). This means that the account holders would have powerful incentives to keep making good use of the public healthcare system. But in contrast, this is not the ideal situation in Singapore roughly 80% is the highest subsidies the government has offered. (Hsiao, 1995).

The table below shows government subsidies to ensure health access to all

Source: Singapore Ministry of Health

Another disadvantage is that these savings incur administration cost. This implies that the savings accrued, as well as the disbursement for health expenses, entails an extra charge. These costs can be reduced by the effective use of the MPF framework. However, the fee for the disbursement of medical expenses is inevitable.

Making use of savings before an individual has retired discourages the aim of banking for the future. This is a significant drawback because these savings are meant to offer funds that can be used to meet the future healthcare costs. Therefore, agreeing to utilize these savings before retirement can quickly deplete savings hence defeating the central purpose of such accounts. Savings are invested in assets that have low volatility and high liquidity to discourage frequent withdrawals to take care of unpredictable healthcare needs thus sacrificing for the upside of long-term investments. This makes these savings accounts to have a less attractive proposition.

Another potential disadvantage is that the advocates of Medisave always assume that the demand for medical attention is still infinite. This implies that the patient will use it as many times as they can, whether they require it or not. Often people refer to the misconception that the demand for health care is unlimited. However, this is not true because account holders may end up not using the services as many time as advocates of MSA claim (Gorin, 2006).

Besides, medical savings account locks a large pool of funding. This is the case, especially where the contributions are relatively high to meet a higher degree of sufficiency. Sometimes, the investment is not acceptable. For such cases, these savings can lock a large amount of idle money.

Another drawback is that medical savings do not support market reform especially in redressing the imbalance between the private and public sectors. These accounts on their own or when coupled with other highly subsidized public health systems offer little or no support to encourage the utilization of such services. As a result, there is more doubt on the real strength for Medisave to provide supplementary concerning the health sector. This also renders them the inability to make the necessary reforms in the market concerning the health care system, especially where their primary objective is to redress the public-private imbalance.

Lastly, the medical savings account is not for everybody. Therefore, the majority of workers cannot qualify for the eligibility. This is because they typically charge a high monthly or transaction fee. Hence, it may not be the best path for the low income earners who are in a low tax bracket or not paying tax at all. If one is paying less tax or once an individual attains the age of 65 years, they can only qualify for Medicare. Thus the medical savings account is treated like a standard retirement plan that will enable one to owe tax on all the money withdrawn (Williams, 2017).

Conclusion

In a nutshell, Singapore's experience with Medisave shows that they have generally been effective and equitable. However, the effects of these schemes on a long-term basis are not yet apparent, and the lack of risk pooling in medical savings accounts is among the fundamental limitations. Ad...