SDP continues to try to sell its "National Healthcare Plan" on its website, now comparing it to auto insurance.
There are a couple of problems with this analogy: for one thing, when you get into a traffic accident, other people may be harmed; the insurance is not just to pay for your losses, but for other people affected by your actions - this is not always true of healthcare (except in the case of infectious diseases). Secondly, one may go through a lifetime of driving without getting into a single accident, but everyone requires healthcare.
Now I am not a fan of Mr Tan Kin Lian, but today I would like to borrow his wisdom, specifically in something he wrote about health insurance:
I want to be frank. Insurance may NOT be the answer. Here are my reason insurance works on the principle of risk pooling. Many people pay a small premium to buy insurance, so that a large payout can be given to the person who suffers the insured event. A good example is insurance covering death by accident. The expected claim rate is 1 in 2,000. If each person pays a premium of $50, the insurance pool can pay $100,000 to the single person who happens to die by accident. The actual premium payable will be more than $50 as the insurance company has to pay its expenses and wants to make a profit.
- This pooling does not apply to health insurance because each person wants to be insured for a lifetime and every one will eventually have to get a serious illness, either by cancer, organ failure (e.g. heart) or other critical conditions. It is likely that every person will make a claim on the health insurance policy – the question is whether it occurs earlier or later
- Insurance has the tendency to increase the cost of treatment. The insured person is likely to go for more expensive treatment, as it is covered by insurance...
- Every insured person wants the high medical bills will be paid by the insurance pool, i.e. by other people. Are they willing to pay for somebody else’s bill?
What this means in the context of a national health insurance scheme is this: collectively, the "premium" paid into the pool must be at least equal to the total payout; and since everyone is covered by a national insurance scheme, and "every one will eventually have to get a serious illness, either by cancer, organ failure (e.g. heart) or other critical conditions", and "every person will make a claim on the health insurance policy – the question is whether it occurs earlier or later", then it tells us that what is happening here is NOT a pooling of risk, but of some people being made to pay for the healthcare of other people.
Now you may argue that the premium or subscription to the health insurance is roughly equal despite one's income, but remember that the bulk of the payout is not funded by the subscription, but by other types of taxes. To carry on the analogy of the buffet from our earlier post, we have a situation where everyone is made to pay $5 for the buffet, but some people having to pay an additional surcharge of $45 to eat the same food as everyone else.
When I criticised SDP's plan in my earlier post, a reader challenged me to come up with a "better system".
Now I have little doubt that in the short term, before moral hazard and the silver tsunami bankrupt the system, SDP's proposed system is definitely "better" for the majority of Singaporeans: they get to pay less for consuming the same or even more healthcare, while the bulk of the tab is picked up by a small percentage of Singaporeans.
But "better" is not always fair, even when it is "better" for the majority of people.