Game of Moans

The Health Insurance Task Force (HITF) has released its report this month. It has made many recommendations that have been widely reported in the press. Many doctors are understandably concerned.

The full report and appendices can be found at

Some of these recommendations include

  • Setting up of fee benchmarks or guidelines
  • Insurance companies setting up of panel of preferred healthcare providers

The Ministry of Health has mostly welcomed and supported these recommendations.

What was not reported very well but was also released as Appendix D to the Report is The Study done by LIA Singapore (Page 27). LIA stands for Life Insurance Association and LIA Singapore is a key member of the HITF.

The study by LIA Singapore found that private hospital bills are increasing at a much faster rate than public hospital A Class or B1 bills. This comes as no surprise. Many people will point the finger at the doctors. But actually if you look at this study (Page 39), the conclusion is that hospital operators are also responsible.

The two-year compounded annual growth rate (CAGR) for room and board charges for private hospitals was 8% (compared to 4% for A Class public hospital patients). The corresponding figure for surgical implants were 13% and 0% respectively. Surgical fees increased at a 2-year CAGR of 10% for private hospital patients and 1% for A Class.

Please note that for surgical fees, the figure includes facility fees which doctors have no control over. So as anyone can see – the FASTEST growing component of private hospital bills are implant charges. Not doctors’ fees. And even if we consider the surgical fees, how much of that are doctors’ fees’ and how much of that comes from facility charges?

The next interesting observation is that median bill sizes for the commonest 100 conditions in private hospitals have hovered just below two times that of A class bills. But in recent times, the figure has crossed beyond two times (Page 37).

The question that needs to be asked is that why should private hospitals charge twice that of A Class bills, bearing in mind A Class bills are already unsubsidised. The answer is simple. A Class bills are subsidised because the land costs of public hospitals are never fully reflected in the bill sizes. Mount Elizabeth Novena Hospital is literally a stone’s throw away from TTSH. But if we imputed the cost of Novena (true and current market cost, especially in the form of clinic suite prices or rentals) into TTSH, this hobbit suspects TTSH A class bills will increase dramatically. The same goes for other public hospitals which are located in superb locations, e.g. SGH or even the newer NTFGH.

And of course, since specialists (cannot use the meaningless term ‘consultants’) in the private sector are generally more senior than those associate consultants and consultants in public sector, their charges should also carry a certain albeit limited ‘seniority’ premium.

Anyway, there are many more nuggets of information to be found in the LIA Study (Appendix D) which bear reading again and again.

The next interesting bit is found in Appendix C (page 26) which is a List of Countries with Medical Fee Structures. Medical Fee Structures is just another term for Guidelines of Fees (GOF). It was stated that Canada, America, Japan, Taiwan and Malaysia all have fee structures for the private sector. The ones that do not have are the UK, HK, Australia and Singapore. Appendix C acknowledged that UK (by virtue of the NHS) has a very limited private sector. The same logic applies to Hong Kong which modeled its system after the NHS in the nineties. Australia has legislation that sets prices for its universal healthcare insurance framework while leaving the private insurers to set prices with private healthcare providers.

That leaves mighty Singapore with looking embarrassingly under-dressed in this department of “fee structures” for the private sector.

Do the rest of the world know something we don’t?

Actually we once knew. We had a SMA GOF, remember? In fact, some of us old coots will recall the GOF was put in place reluctantly by SMA because MOH wanted SMA to do it in the eighties. (Folks who ran MOH in the eighties were smart people who knew a powder keg when they saw one – they passed the powder keg to SMA) Then market fundamentalism (read: sclerotic dogma) took hold and the GOF was outlawed. And we are now exactly where we shouldn’t be.

But there is still hope. The fact that the HITF recommended that fee guidelines and benchmarks be set up and this hasn’t been thrown out by MOH recently means MOH may be inhabited by smart people (again)?. But perhaps MOH has to do the heavy lifting this time since SMA cannot do issue any guidelines (The geniuses at the Competition Commission of Singapore considered SMA a ‘trade association’ and hence the SMA GOF was deemed anti-competitive).

Finally, we need to go back to the main item of the day with this HITF Report – the insurance itself. Insurance is a product, and like all products, can benefit or suffer from good or bad design. So let’s look at how a disaster is constructed from scratch….

In 2005, one insurance company introduced “as-charged” policy plans which meant the insurance company will pay whatever the hospital or doctor charged. Of course, to compete with this new development, other insurance companies quickly followed suit.

Then the government outlawed the SMA GOF in 2007.

Everyone in the developed world has known for a long, long time that health insurance policies with no deductibles or copayments carry the risk of moral hazard (commonly called “buffet syndrome”). That is why Medishield and now Medishield Life have always carried these two aspects. However, as-charged plans quickly evolved to the point where one can purchase riders that removed the need to pay both copayment and deductible. The patient is now totally disconnected to how much his healthcare costs once he has bought an as-charged plan with the appropriate riders. The private sector doctor providing care is also now under practically no restraint when it comes to charging – he knows the patient is not paying but the insurance company is; on top of that, with no GOF, he can practically charge anything since overcharging can only be proven in the most egregious of cases and after much effort.

Someone clearly did not have his eyes on the regulatory ball when insurance products that carried these three characteristics were allowed to be sold:

  • As-charged
  • Riders removing need for copayment
  • Riders removing need for deductibles

And now the genie is out of the bottle. How do we put it back?

The solution is simple. Insurance companies can just stop offering these products and insurance costs and claims will return to more reasonable levels. But that is not going to happen. Because every insurance company is now behaving exactly according to what behavioral economists have described as “Game Theory”. No one is going to stop offering these products because if one company does so, there is no guarantee that the others will follow suit. In fact, the likely scenario is that the brave/stupid company that does this will see all its customers migrating to the other companies that continue to offer such health insurance products. And because all companies want to avoid the calamitous situation where it loses all its customers to its competitors, no one will take these products off the market even though all the companies are locked in this unsustainable embrace of steep rising claims and costs.

So while the private insurance companies will moan and lament, they are stuck in a Game of Moans because all these companies are behaving as expected, according to Game Theory.

In case you think this is just a game, Game Theory is serious stuff. Several economists have been awarded the Nobel Prize for Economics in the last few decades for work related to Game Theory. You may remember Russell Crowe starring as the famous Game Theory Nobel Laureate economist John Nash in the movie “A Beautiful Mind”.

Allowing such insurance products is a mistake of omission. Killing the GOF was a mistake of commission.

The saying, “Every system is perfectly designed to get the results it gets,” is used very commonly nowadays in management and business. Actually this saying was coined by Dr Paul Batalden, an American physician. It is ironic that our private healthcare system and private healthcare insurance are now in this unsustainable trajectory precisely because some people who could have made the right decisions at critical junctures in the past did not. The results we now see in the health insurance industry did not happen by accident.



One thought on “Game of Moans

  1. The playing field is not levelled and hence the comparison of private hospitals fee and restructured hospital fees are largely frictional and for government propaganda. Restructured hospital enjoys millions of $ education and training funds in the form of HMDP and scholarships, funding for infrastucture projects and new services from RF funding and HSDP funding, MOH paid bonus for staff and etc. Besides free land, I don’t think they pay development fees to URA as well.


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