Singapore's Health Care System: A Free Lunch You Can Sink Your Teeth Into
By Bryan Caplan
In The Undercover Economist, Tim Harford highly praised the health care policies of Singapore. But it wasn’t until I read the section on health care in Ghesquiere’s Singapore’s Success that I realized how amazing the official numbers are. If the following is true, all the comparisons showing that the U.S. greatly outspends Europe without getting better health are beside the point, because Singapore makes Europe look like the U.S.:
The Singapore government spent only 1.3 percent of GDP on healthcare in 2002, whereas the combined public and private expenditure on healthcare amounted to a low 4.3 percent of GDP. By contrast, the United States spent 14.6 percent of its GDP on healthcare that year, up from 7 percent in 1970… Yet, indicators such as infant mortality rates or years of average healthy life expectancy are slightly more favorable in Singapore than in the United States… It is true that such indicators are also related to the overall living environment and not only to healthcare spending. Nonetheless, international experts rank Singapore’s healthcare system among the most successful in the world in terms of cost-effectiveness and community health results.
How does Singapore do it? Singapore is no libertarian health care paradise, but it does self-consciously try to maintain good incentives by narrowly tailoring its departures from laissez-faire:
The price mechanism and keen attention to incentives facing individuals are relied upon to discourage excessive consumption and to keep waste and costs in check by requiring co-payment by users.
The state recovers 20-100 percent of its public healthcare outlay through user fees. A patient in a government hospital who chooses the open ward is subsidized by the government at 80 percent. Better-off patients choose more comfortable wards with lower or no government subsidy, in a self-administered means test.
I’ve heard a lot of smart people warn that co-payments are penny-wise but pound-foolish, because people cut back on high-benefit preventive care. Unless someone is willing to dispute Singapore’s budgetary and health data, it looks like we’ve got strong counter-evidence to this view: Either Singaporeans don’t skimp on preventive care when you raise the price, or preventive care isn’t all it’s cracked up to be.
More details on how Singapore’s system works:
- There are mandatory health savings accounts: “Individuals pre-save for medical expenses through mandatory deductions from their paychecks and employer contributions… Only approved categories of medical treatment can be paid for by deducting one’s Medisave account, for oneself, grandparents, parents, spouse or children: consultations with private practitioners for minor ailments must be paid from out-of-pocket cash…”
- “The private healthcare system competes with the public healthcare, which helps contain prices in both directions. Private medical insurance is also available.”
- Private healthcare providers are required to publish price lists to encourage comparison shopping.
- The government pays for “basic healthcare services… subject to tight expenditure control.” Bottom line: The government pays 80% of “basic public healthcare services.”
- Government plays a big role with contagious disease, and adds some paternalism on top: “Preventing diseases such as HIV/AIDS, malaria, and tobacco-related illnesses by ensuring good health conditions takes a high priority.”
- The government provides optional low-cost catatrophic health insurance, plus a safety net “subject to stringent means-testing.”
Last year, Robin Hanson stuck his neck out and argued that we should cut health spending in half. If Singapore’s numbers are right, Robin was being conservative. Singapore has achieved American health outcomes for about a quarter of the share of GDP the U.S. spends. Furthermore, if Canada shows that socialized medicine can save a few percent of GDP without hurting health, Singapore shows that the free lunch offered by greater government control is meager compared to the free lunch offered by old-fashioned individual incentives.