HERE is a not-so-difficult question: Suppose someone shows you a $5 note. Then they ask, 'Hey, buddy, would you care to buy it for $1?'

-- ST file picture

Whoa. It sounds like a scam, right?

Surprise. It is a genuine offer. The product is health care and yes, you can buy $1,000 of it for only $200. It is a very good deal.

A national debate about health care has dominated the news over the past two weeks.

The issue: Should the rich receive subsidised health care? The outcome: Yes, but not as much as the poor.

The next issue is how to define the rich. Everyone seems to have an opinion.

The Ministry of Health (MOH) received feedback from more than 1,000 people last week. The decision is that subsidies for the rich will be cut slightly.

There are no cuts for the bottom 50 per cent of incomes. (See table)

Fortunately, there wasn't much abuse of the system to start with.

MOH tells me that the top one-fifth of the income earners make up only 9 per cent of the C-class ward patients.

Still, subsidy cuts are a step in the right direction.

Okay. That takes care of public policy. Now, how about personal policy? What should you do? No one disputes that the best value for money is a C-class hospital ward. It cuts the price and the frills, but not the quality of doctors and medicines.

MEDISHIELD: CHEAP AND GOOD

A second, less obvious benefit is that subsidised B2 and C-class wards mean the insurer also pays less inclaims.

The savings are passed on to policy holders. It is a big reason why Medishield is cheaper.

Cost differences increase with age and at 75, you will pay $2,000 per year for plan-A private health insurance versus $225 for Medishield.

It is a huge 88 per cent cost savings.

The older you get, the more the savings.

Third: Another reason Medishield costs less is that it has no sales force and charges no commissions. Private shield plans do, although health insurers don't have to disclose distribution costs as they do for life insurance policies.

Fourth: The bottom line is value for money. It is measured by the ratio of what you get (claims payouts) to what you pay (premiums).

Here is the data that's assembled from the Monetary Authority of Singapore, the CPF Board and health insurers. A bigger number is better. Private health insurance: 25 per cent. Medishield: 50 per cent. Group health insurance: 65 per cent.

Because of its policyholders' fund, Medishield is an even better deal than the numbers indicate. If low payouts result in high profits, they are channelled back to the fund and ultimately to policyholders.

For the five private shield plans, profits go to stockholders at AIA, Aviva, GE Life, NTUC Income and Prudential.

Fifth: At the end of the day, it depends on preferences. If you want no frills but high value for money, go for Medishield. If you want to be sick in luxury, to insure against every possible contingency and you don't mind paying for it, then private health insurance is the best choice.

Students propose healthcare solution

I THREW the health care subsidy problem to my first-year economics students at Singapore Management University.

Their solution: Return to free markets. How? Take the subsidies and pay them as grants to the poor.

A problem is that a $200 hospital bill will rise to $1,000 when the 80 per cent subsidy is dropped.

No worries. The former hospital subsidy will be paid into the Medisave accounts of the poor.

The subsidy, higher hospital charges and Medisave top-ups are all equal. So there are no gains or losses for either the public or the government.

A side benefit is the plan would be easier to sell. It shifts the debate from who should lose something (subsidies) to who should receive something (grants).

The biggest benefit is that free markets will send the correct price signals to hospitals, insurers and patients. It assures that our health care resources (supply) are balanced with what people really want (demand).

Prof's comment: It is an answer that's straight from the textbook. Very good. Full marks.  Back to Columnists