How to Deal with Rising Health care Cost?

[ngtfook]

Food for thought... RayNg

How to Deal with Rising Health Care Cost
Tan Kin Lian

Many people are worried about the rising health care cost when they get old. They asked for my advice on the type of insurance that they can buy to cover these expenses.

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 will increase the total cost of health care by about 50% to cover the marketing and administration cost and the profit of the insurance company. If the average lifetime cost of health care is $100,000, you will have to pay $150,000 when you rely on insurance. If you find health care to be costly, you will find health insurance will be more costly.

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. The actual cost of treatment carried out by a private specialist in a private hospital could be several times of the same treatment in a subsidised ward in a public hospital (ignoring the government subsidy). This is due to the lack of control over the billing by the private doctor. The actual cost of health insurance could be much higher than indicated earlier, due to inflation in charges.

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?

There is also non-clarity in coverage. Many patients have incurred large medical bills, only to find that a large portion of the bill is not covered by insurance, due to exclusions, limits, co-insurance and deductible. The actual coverage under health insurance can be quite complicated for the ordinary lay person to understand.

Possible benefits
Health insurance can be useful under some circumstances, for example, if it is managed effectively and the insurance company can help the insured person to find more cost effective treatment. This would require the insured person to get the advice of the insurance company (through its medical adviser) to identify the appropriate treatment for the medical condition and the specialist who offers a competitive fee for the treatment

Unfortunately, most insured people do not trust the insurance company’s doctor as they may suspect that the doctor will try to save cost for the insurance company by offering inferior treatment.

The patient should also be wary about the advice given by the treating specialist, as the specialist may has a vested interest to increase up the medical fees. Anecdotal evidence has shown that the bills paid by insurance are higher than the cost that is paid out of pocket by the patient.

In some countries, the government provide tax relief to encourage health insurance coverage. If the subsidy is substantial, it will negate the higher cost of health insurance. Unfortunately, there is no such subsidy in Singapore.


What is the alternative for a person who is not able to get insurance for health insurance or prefers to be self-insured?

Below are possible approaches:

Set aside adequate savings to cover your medical expenses. If you do not pay the insurance premiums and invest them to earn interest at (say) 4% per annum, the savings can accumulate to a tidy sum that will be adequate to cover your expected cost of treatment during your lifetime.

Look for cost effective treatment when you need it. You can get the advice of your personal doctor (i.e. the general practitioner that you see regularly). Your doctor knows your personal condition and can be trusted to give you the best advice that is most beneficial to you.

You will find that the treatment in a subsidised ward of a public hospital to be the most cost effective. As the charges are closely monitored by the government, the incidence of over-treatment or over-billing is lesser. Furthermore, the actual bill that you pay will be lower, after allowing for the subsidy from the government.

The doctor or specialist assigned to the subsidised ward will be able to treat most medical conditions. If your illness has reached a serious stage and cannot be treated in a subsidised ward, it is likely that a private specialist will not be able to treat it as well. They may be exceptions, but they are likely to be few.

If you wish to be treated by a private specialist, you can use the benchmark price of the subsidised ward to make your decision. You can negotiate the bill and avoid the shock of getting an unexpectedly large bill.

You have to accept the fact that some medical conditions cannot be treated. Do not waste money on these unnecessary and costly treatments (unless you are so wealthy that the money does not matter to you).

Insuring at a young age
Some insurance agents or journalists advice you to buy health insurance when you are still young and healthy, as you will not be able to get insurance when you are older. It is all right to take this advice, provided that the health insurance premium is low.

However, the premium will increase according to your age, and there will come a time when it does not make sense for you to be paying a premium that is several times more than the average cost of health care.

By that time, it may be more sensible for you to be self-insured. This will be appropriate, if you have accumulated sufficient savings that can take care of the medical bills. If the cost of treatment is very expensive for a serious medical condition, you still have the choice of entering a subsidised ward.

Some insurance agents may exaggerate the cost of medical bills, to frighten you into buying an expensive health insurance policy. They earn a commission that is based on the premium, so they have the incentive to get you to pay as much as possible.

A healthy lifestyle
Do not overlook the importance of adopting a healthy lifestyle – exercise, correct diet and avoid the bad habits of smoking, excessive drinking or stress.

This may be the most important strategy to reduce your health care cost. Spend time to learn about healthy lifestyle and put the tips into practice.

Accept the inevitable
There will come a time when you have to depart from this world. Be ready, when the time comes. Accept the inevitable. There are better ways to spend the last day than under intensive care in a hospital.

This advice also applies to your approach towards your parents. They may prefer not to be treated – accept their views.

[Darren Lee]

Hi Ray,

Great sharing, indeed insurance is not the best solution in some cases. And he has correctly pointed out that indirectly causes the rise in treatment cost, medical inflation doesnt go in tandem with normal inflation.

A tip to add, try your very best not to tell your doctor or just say not sure if you can claim, (esp the ones in private practise) that you have insurance. I'm not implying that doctors overcharge, but there are black sheep in any professions.

My 2cents worth