A SIMPLE MODEL OF THE HEALTHCARE FINANCING SYSTEM IN SINGAPORE

Abstract

Medical savings accounts (MSA) have raised much international attention largely because of the claim that the system helps to contain increases in healthcare expenditure. This claim has however remained controversial as both proponents and opponents have yet presented conclusive evidence in support of their stand. Most studies conducted have adopted a qualitative approach to examine the issue. In this paper however, a simple optimization model is developed to examine the healthcare consumption behavior of individuals under the medical savings account / catastrophic health insurance (MSA/CHP) system. The model is constructed to emulate the mechanisms of the healthcare financing system of Singapore, focusing in particular on the Medisave and Medishield system. It has been found that medical savings may in fact induce over consumption of healthcare services. This results largely because healthy individuals have little use for their medical savings. Thus, while healthcare planners have been mostly concerned about inadequate accumulation of medical savings, they should also be mindful of adverse effects of excessive medical savings. Finally, the bequests motive is found to act as a natural mechanism to mitigate over consumption of healthcare.