SINGAPORE’S INNOVATIVE HEALTH FINANCING SYSTEM

Introduction

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.

Background
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 . 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