oj_singapore by liuqingyan




Health care costs are escalating rapidly in many countries. This reflects several factors,
such as aging populations, changing disease patterns, high-cost technology and
prescription drugs. But, it is also a consequence of health financing systems. Traditional
indemnity insurance, which guarantees third-party payment for service provided,
contributes to these cost pressures since patients and physicians are shielded from the real
cost of those payments. In an effort to contain costs, governments, employers and
insurers have modified payment schemes and coverage. This increasingly leads to
rationing, restricted consumer choice and, in some cases, denial of care.

Singapore‘s ‗3M‘ health financing system combines universal medical savings accounts
(MSAs) with unique supplementary programs to protect the poor and address potential
market failures in health financing. The results have been impressive, with excellent
health outcomes, low costs and full consumer choice of providers and quality of care.
This note describes Singapore‘s experience and its possible application to other countries.

Despite Singapore‘s small size, with only 3.22 million residents in a land area of 660
square kilometers, the country has been a stellar economic performer, rising from
impoverishment only 40 years ago. Its per capita GDP increased from US$427 in 1960 to
US$24,740 in 2000, one of the highest in the world 1 . In the 1990s it enjoyed strong
economic growth (7.7 percent annually in real terms), low inflation (1.7 percent
annually), and low unemployment (3.1 percent in 2000).

One of the most notable features of Singapore‘s transition has been the reform of its
health financing system over the past two decades. In the early 1980s, the Government
was faced with rising demand for increased healthcare funding. Until that time, health

    All currency amounts are exp ressed in US$ at then-prevailing exchange rates.

care (which accounted for 2.5% of GDP in 1980) was funded by a combination of direct
government funding of state-owned hospitals and polyclinics, plus private funding,
principally in the form of out-of-pocket spending. The Government faced rising
pressures for more health care funding, related to its rapid economic growth and aging

In 1981, the Government initiated a consultative process with stakeholders and the public
to reform the health care financing system in a manner which would be fiscally
sustainable. National health insurance was considered but rejected due to the experience
in other countries. The main drawbacks cited were excessive demand associated with
third-party payer systems and the lack of incentives for individual responsibility and
provider efficiency. Rather the Government‘s objectives were to promote individual
responsibility towards healthcare, shift a greater share of the financing to individuals and
employers, and ensure a fiscally sustainable health care system in the face of an aging

Singapore’s ‘3M’ System

The policy dialogue of the early 1980s led to the issuance of the National Health Plan in
1983 and the introduction of the Medisave program in 1984, the first pillar of its now-
famous ‗3M‘ system of health care financing. Over the past two decades, the
Government has added complementary programs to protect the poor and address
potential market failures in health care financing, while adhering to the founding
principles of its 1980s reform – individual responsibility and cost efficiency. Medisave
and the complementary financing programs are summarized below.

Medisave. Under the Medisave program, each employee contributes 6-8% of monthly
salary (depending on age) to an individual medical savings account (MSA), with a
matching contribution by the employer 2 . Medisave contributions are part of a broader
compulsory savings program in which employees and employers each currently

    Since 1992, self-emp loyed persons are also required to contribute to Medisave.

contribute 16% and 20% of salaries respectively into a Central Provident Fund to cover
the cost of hospitalization (Medisave), pensions and mortgages.

An individual can use a personal Medisave account to pay for hospital expenses incurred
by himself or his immediate family 3 . To encourage prudent use and discourage
unnecessary hospitalization, Singapore has placed limits on how much of Medisave funds
can be used for daily hospital charges, physician fees and surgical fees. The limits are
generally sufficient to fully cover the bills of most patients staying in subsidized wards in
public hospitals; however cash co-payments are required from those who opt for private
hospitals or more expensive accommodation in public hospitals. Medisave can also be
used for expensive outpatient treatments such as chemotherapy, renal dialysis and HIV

Medisave contributions are capped (as fixed amounts) monthly and over a lifetime to
prevent excessive and unnecessary use of medical services. Contributions from the 6-8%
payroll tax which exceed the established caps can be automatically transferred to the
individual‘s ordinary account within the broader compulsory savings program.
Withdrawals above a mandated level are permitted after age 55. Upon death, any
remaining balance is paid in cash to the nominees of the account holder, free of estate

Singapore‘s citizens currently hold 2.7 million Medisave accounts with a total balance of
US$13.1 billion (at end-2000). Roughly 85-90% of hospital inpatients make use of their
Medisave accounts to pay their hospital bills. In 2000, new Medisave contributions
totaled US$1.1 billion, while withdrawals totaled US$227 million.

Medishield. In health care, consumers face the risk of catastrophic illness with very high
expenses. Traditional insurance pools this risk among many policyholders. In Singapore,
Medisave account holders faced the risk that catastrophic illness could completely wipe
out their medical savings. To address this risk -- and in the absence of a traditional

    Primary care expenses are not eligible for Medisave

national health insurance program -- Singapore introduced the Medishield program in
1990. All Medisave account holders under 80 years of age are eligible to buy Medishield
insurance and can pay their premiums using their Medisave. It covers hospital expenses
(e.g. intensive care, surgical operations, implants) and selected higher-cost outpatient

The Medishield program applies several measures to limit its use to catastrophic illness,
including: (a) setting relatively high deductibles for hospital expenses 4 ; (b) requiring
patient co-payments of 20% for amounts above the deductible levels (patients can use
their Medisave accounts to pay the deductibles and co-payments), and (c) setting
maximum limits for claims per treatment, policy year and lifetime. In 1994, the
Government introduced an enhanced Medishield program (Medishield Plus) to provide
reimbursement for accommodation in private hospitals and premium wards in public
hospitals. In 2000, there were 87,000 Medishield claims, with payments totaling US$35

Medifund. The third pillar of Singapore‘s innovative system is the Medifund program,
which subsidizes health care for the poor (roughly 10% of the population). The
Government set up the fund with an initial injection of US$150 million in 1993 and has
made additional contributions during years of overall budget surplus. Medifund is
designed to ensure that no Singaporean is denied good basic care because of ability to
pay. The Fund currently has approximately US$500 million in capital. Under the rules
establishing Medifund, only interest income, not capital, may be disbursed. Within each
hospital, the medical social worker will means test applicants and assess them for
eligibility. Applications are then reviewed and approved by the Hospital Medifund
Committee. Hospitals are given considerable flexibility in determining income criteria. In
2001, the hospitals approved 156,800 applications with disbursements totaling US$15.2

ElderShield. To complement its ‗3M‘ program, a new low-cost insurance program

    There are no deductibles for certain drugs and outpatient chemotherapy, radiotherapy and kidney dia lysis.

(ElderShield) was introduced in June 2002 to provide financial protection for individuals
suffering from severe disabilities. Singaporeans with Medisave accounts are
automatically enrolled in ElderShield when they reach 40 years of age unless they opt
out of the scheme. ElderShield pays a monthly cash allowance (for a maximum of 60
months) to those who are unable to perform three or more basic ‗activities of daily
living‘. By not tying the insurance payout to reimbursement of institutional care, it
gives the policyholders the flexibility of being cared for at home or at healthcare
institutions. By end-2002, there were more than 700,000 policyholders covered under

Provider Subsidies. The financing system is designed to help individuals pay their share
of medical costs. To ensure that basic medical care is available for all, the Government
also provides direct subsidies from its annual budget to public hospitals, polyclinics and
aged care homes. In 2000, direct subsidies totaled US$700 million, or 25% of health

Health Care Delivery

Both the public and the private sector provide health care in Singapore. The public sector
provides roughly 20 percent of primary care and 80 percent of hospital care through two
large, integrated health care networks. The private sector dominates in primary health
care, providing 80 percent of total care through its 1,900 clinics. The 13 privately owned
and managed hospitals account for 20 percent of inpatient admissions. Singapore has
11,800 hospital beds (3.7 per 1,000 people) in both the public and private sectors.

Patients can choose their providers—public or private–at all levels of care. All
Singaporeans are entitled to basic medical services at government polyclinics and public
hospitals, where rates are regulated and subsidized. Patients are expected to pay part of
the cost, and to pay more when they demand higher levels of service. Rates at private
clinics and hospitals are unregulated.

Health Expenditures and Outcomes

Singapore‘s health spending totaled US$2.8 billion (US$870 per capita) in 2000,
equivalent to 3 percent of GDP. The global average is 8 perce nt of GDP. Among OECD
countries health spending ranges from 5.8 percent of GDP in the United Kingdom to 13.7
percent (US$4,187 per capita) in the United States.

Singapore‘s health indicators are equally impressive. Its average life expectancy
increased by 15 years from 1960 (63 years) to 2001 (78) and is now one of the world‘s
longest. Its infant mortality rate is the world‘s lowest, at 2.2 per 1,000 live births, much
improved from the 6.6 in 1990 (and 34.9 in 1960) and far lower than rates in the United
Kingdom (5.9) and the United States (7.6).

Unique Features of the 3M System

Singapore‘s health financing system has a unique combination of features, which differ
from traditional government- funded or national health insurance programs in several

   Incentives: Medisave accounts (MSAs) provide incentives for individuals to take
    responsibility for their own health care needs. Unlike traditional indemnity insurance,
    MSAs provide incentives for individuals to save and avoid unnecessary use of
    medical services. MSAs belong to the individual, accumulate over a lifetime and can
    be used at the discretion of the individual. Health insurance premiums in other
    countries do not belong to the individual, do not accrue over time, and are often
    subject to restrictions on services covered and eligible providers.

   Low-cost insurance. To address the risk of catastrophic illness (which could wipe out
    an individual‘s MSA), Singapore complements MSAs with catastrophic insurance
    (Medishield and ElderShield) to cover extraordinary expenses. Unlike traditional
    health insurance which usually covers a broad range of services, premiums for

      catastrophic insurance can be kept low, as catastrophic events (and, hence, payouts)
      are comparatively rare. In Singapore‘s case, individuals can pay their Medishield and
      ElderShield premiums from their MSAs. In this manner, the majority of
      Singaporeans are protected with some basic insurance cover against the cost of
      catastrophic illness and long-term care.

     Targeted subsidies. To assist the poor, unemployed and elderly who may have
      insufficient income to accrue MSAs or pay Medishield premiums, Singapore provides
      targeted subsidies through Medifund, and ―top-ups‖ to Medisave and Medishield
      funds, specifically aimed at the poor and elderly. The Government provides ‗top- ups‘
      from the Government budget when there is an overall budget surplus. As well, the
      Government also provides direct subsidies from the annual budget to public hospitals
      to ensure that basic services are available and affordable for all.


Most observers agree that Singapore‘s health system has been successful in restraining
costs while delivering excellent health outcomes. It has the lowest-cost health system
among developed countries and ranks very high on all health indicators. But, how much
of this success is attributable to its health financing system - and, in particular, MSAs?
And, how replicable is this financing system in other countries?

It is likely that patient co-payments have played a larger role than MSAs in restraining
demand and costs, given that co-payments represent a larger annual share of health
financing (roughly 50%) than MSAs (10%). But, the proportion of health expenditures
funded annually by Medisave likely understates its true economic impact, both in terms
of: (a) reducing current demand, as consumers will be prudent in using their MSAs so
that they have sufficient resources for future needs 5 ; and in terms of (b) funding future
expenditures; as Singapore‘s population ages, they will have to draw increasingly upon
their Medisave accounts.

    In other words, its success in restraining demand should not be measured by how much it is used.

Is it possible to introduce a Singapore-type program in other countries? Many have noted
that Singapore has particular characteristics – not present in most countries – which have
facilitated the introduction and implementation of its financing programs. These include a
high national savings rate, high levels of education and income, and a still- relatively
young population (11% over 60). These factors have helped to restrain demand for health
care (young population), allow the build up of Medisave balances (young, high- income
population) and permit a large proportion of expenditures to be funded by co-payments
(high- income country).

Nevertheless, it may indeed be possible to introduce a Singapore-type program in other
countries, with adjustments to accommodate demographic, income and fiscal differences
and the existence of national health insurance programs.

   In countries without national insurance programs or well-developed private insurance,
    MSAs could be introduced by requiring all employers/emp loyees to set up accounts
    along the lines of Singapore‘s program. This option would be particularly relevant for
    those countries contemplating the introduction of payroll- financed national health

   In countries with national insurance programs funded primarily by general tax
    revenue (e.g. Canada, UK), MSAs could be introduced by allocating a portion of
    existing tax revenue spent on health care directly to individuals to set up MSAs 6 .
    After the initial allocation, the government would have the option in the future of
    either: (a) continuing to collect the same level of tax revenue and allocating on an
    annual basis the portion previously used for health expenditures directly to individual
    MSAs; or (b) progressively reducing general taxes and replac ing them with payroll
    deductions allocated to MSAs.

 This approach has been proposed by Cynthia Ramsey of the Fraser Institute (Medical Savings Accounts:
Universal, Accessible. Po rtable and Co mprehensive Health Care for Canadians, May 1998).

   In countries with payroll- funded national health insurance, as in most of Europe, part
    or all of the existing payroll contributions could be allocated to individual accounts.
    Consumers would then choose their provider and pay for eligible expenses. It would
    no longer be necessary for the national health insurance fund to act as the sole buyer
    of health care on behalf of consumers.

   In countries with well-developed private health insurance covering basic services
    (e.g. US, Australia, Netherlands), consumers could be given the choice of opting for
    MSAs with a catastrophic insurance provision instead of traditional insurance or
    managed care 7 . However, for MSAs to become truly universal, governments would
    have to allocate public funding -- whether drawn from general tax revenue or payroll
    taxes -- to individual MSAs.

To date, no other countries have adopted universal MSAs, though pilot programs with
some MSA features have been implemented in the United States and China 8 . In the US,
the focus has been on pilots to enable employees to shift from traditional health insurance
to voluntary MSAs with high-deductible health insurance, though experience to date is
quite limited. In China, MSAs were initially piloted in two municipalities 9 and have since
been expanded to roughly 40 others, with local variations in the original program.

Despite the limited international experience, the potential benefits and drawbacks of
MSA-type programs have generated considerable discussion, particularly (it appears) in
Canada        . Indeed, various critics and researchers have argued that: (a) Singapore‘s
health costs have risen faster after the introduction of Medisave than before; or (b) if
overall health spending is low in Singapore, it is due to other factors (not Medisave); or

  This option is already available in the U.S.
  Hanvoranavongchai, Piya, 2002. ―Medical Savings Accounts: Lessons Learned fro m International
Experience,‖ World Health Organization, EIP/ HFS/ PHF Discussion Paper n o. 52
  For a d iscussion of this experience, see W. Yip and W.C. Hsiao, ―Medical Savings Accounts: Lessons
fro m Ch ina,‖ Health Affairs (November/December 1997).
   See for examp le E. Forget, R. Deber and L. Roos, ―Medical Savings Accounts: Will they reduce costs?‖
Canadian Medical Association Journal (July 23, 2002), and S.E.D. Shortt, ―Bo rrowing Po licy
Misadventures from Abroad: Howe Not to Reform Canada‘s Health System, ― Queen’s University Centre
for Health Services and Policy Research (November, 2001).

(c) the introduction of MSAs in other countries could actually drive up costs, since
additional government subsidies for the poor and sick would be required to offset the
MSA allocations of healthy people (which would be saved rather than spent on health

Design Issues

In considering the introduction of a Singapore-type health financing system,
governments must address several design issues:

        Whether medical savings accounts would be mandatory and universal (Singapore)
         or private and voluntary (US).

        Whether universal MSAs would be funded by payroll contributions (Singapore)
         or through general tax revenue allocated by the government to individual accounts
         (and if so, how the allocations would be made).

        What restrictions there would be on eligible expenses and whether/how to use
         deductibles and co-payments to ensure fiscal solvency and to further restrain
         demand (as in Singapore).

        Whether MSA funds would be managed centrally (as in Singapore) or by private
         fund managers.

        How subsidies would be structured and funded for those lower- income patients
         who do not have sufficient MSA balances and catastrophic insurance

What are the prerequisites for implementing a 3M-type program? In this author‘s view,
countries need not have high savings rates, young populations or a high level of income
and formal employment to implement a 3M-type program. As noted above, in even low-
income countries, governments could allocate a portion of existing tax revenue spent on

health care to individuals‘ MSAs and allow them to accrue these funds over time and
make eligible expenditures. Some administrative mechanisms would need to be put in
place for tracking allocations/contributions and expenditures so that MSAs fulfill their
original intent and become more than annual vouchers. And, as noted in the case of
Singapore, MSAs should be complemented by low-cost catastrophic insurance and
targeted subsidies to fully protect the poor and address potential market failures.

The initial net fiscal impact of transitioning to a Singapore-type program will depend on
the underlying health needs of the population and the complementary measures and
restrictions adopted           . Fiscal sustainability will be reinforced as people accrue MSAs
and moderate their demands over time.

In this author‘s view, however, it will be difficult to accurately model the impact of
adopting a 3M-type program in advance, as is the case for many significant economic
reforms in other sectors. Countries which choose to adopt some form of Singapore-type
program will likely do so because of two factors: growing public dissatisfaction with the
existing financing system, and the presence of a core group of economic reformers who
are attracted to the underlying economic principles of the approach 12


Singapore is unique among developed countries at achieving excellent health outcomes at
a low economic cost. Part of its success may be attributable to its health care financing
system, which combines individual responsibility with targeted subsidies to protect the
poor. This system may be replicable in other countries, with design modifications to
accommodate for differences in income levels, demographic profile and current health
financing systems.


     Such as deductibles, co-payments, and restrictions on eligible expenses
     As is the case for virtually all major economic reforms.

Hanvoranavongchai, Piya, 2002. Medical Savings Accounts: Lessons Learned from
International Experience. World Health Organization. EIP/HFS/PHF Discussion Paper
No. 52.

Nichols, Len. M., Nicholas Prescott, and Kai Hong Phua. 1997. Medical Savings
Accounts for Developing Countries, Innovations in Health Care Financing. World Bank
Discussion Paper No. 365, 233-245.

Phua, Kai Hong. 1997. Medical Savings Accounts and Health Care Financing in
Singapore. Innovations in Health Care Financing. World Bank Discussion Paper No. 365,

Ramsey, Cynthia, 1998. Medical Savings Accounts: Universal, Accessible, Portable, and
Comprehensive Health Care for Canadians. The Fraser Institute, www.fraserinstitute.ca

Singapore Ministry of Health. www.moh.gov.sg.

World Health Organization, 2000. The World Health Report 2000: Health Systems:
Improving Performance. Annex Table 8.

Yip, Winnie C. and William C. Hsiao, Medical Savings Accounts: Lessons from China,
Health Affairs, November/December 1997.

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