Opinion: Better use of health savings accounts: lessons from Singapore

Today, 9 in 10 Americans have health insurance, more than ever before, yet health care is less affordable than ever. Up to 100 million U.S. adults carry medical debt. Skyrocketing inflation is forcing people to decide between spending money on medical care or other necessities like food and housing. People typically spend thousands of dollars, in addition to premiums, before insurance kicks in. And rising out-of-pocket costs are just one side of the story: Health insurance premiums are going up, too. Employer-sponsored insurance cost a whopping $22,221 per family in 2021. That’s one-third of the median household income.

The insurance system in the U.S. is broken. Rather than continuing to plow money into insurance and expensive case, families should be stowing that cash away for future health care needs. That’s what they do in Singapore. There, people save toward their own health care needs via mandatory individual health savings accounts — with the government serving as the safety net.

Singapore’s system has seen far more success than the U.S.’s insurance-based system, and at a fraction of the cost.

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Singapore spends about 4% of its gross domestic product on health care (the U.S. spends 18%) and achieves superior health outcomes. To be sure, the experiences of a city-state with a population of fewer than 6 million residents and that of the U.S. with more than 330 million are not directly comparable. But it’s worth exploring how Singapore has achieved its success.

A good part of it may be credited to what the nation’s health website describes as “a financing system anchored on the twin philosophies of individual responsibility and affordable health care.”

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In Singapore, health care is financed both publicly and privately. About 41% of total health care costs are covered by the government, which funds much of the cost of hospitalizations and exercises tight control over hospital prices to limit spending. People use individual health savings accounts, known as Medisave, to pay for nonhospital care. Medisave accounts are mandated by the government, funded by salary deductions, and controlled by the individual. To enable individual choice in how to spend health care dollars, the Ministry of Health publishes health service prices.

Health savings accounts were authorized in the U.S. as part of the Medicare Prescription Drug Improvement and Modernization Act of 2003. Today, these accounts hold $100 billion, but they have been underutilized, and have the potential to be a far more powerful force in helping individuals to pay for health care.

When a Singaporean patient goes to the doctor, she is made aware of the prices ahead of time and has a chance to look for a provider who will charge her a fair amount for the quality she needs. She pays for the visit using her Medisave account. She faces neither sky-high charges nor surprise bills.

In the U.S., patients are often completely in the dark concerning prices and have no ability to shop for value. Costs are out of control because patients have no control. Putting patients back in charge with health savings accounts would require two simple things: that they are empowered to direct where their health care dollars are spent, and that they are given the chance to agree to the amounts before they incur them. That’s what Singapore’s individual Medisave accounts and transparent prices allow.

To be able to spend one’s own money on health care, one needs to save large amounts first. The good news is, there is enough money to go around. People spend on average $316,000 on health care services over a lifetime. While that seems like a lot, they pay far more in health care premiums — several millions. Because spending intensifies toward the end of life, saving for health care like we do for retirement makes a lot more sense than wasting it every month on health care premiums.

Since 2003, the use of health savings accounts in the U.S. has been severely limited. Many people are barred from having one — including everyone on Medicare and Medicaid — and annual contribution caps are low, just $3,650 for individuals and $7,300 for families in 2022. These restrictions impede the use of an otherwise very appealing financial tool. These accounts offer a triple tax advantage: annual allocation reduce taxable income, investment growth in a health savings account is tax-free, and qualified withdrawals (that is, those used to pay for medical expenses) are tax-free.

The U.S. health care system should heed the example of Singapore by limiting the use of insurance to complex and unpredictable events and shifting the financing of routine and shoppable care to health savings accounts.

Three simple measures would help the U.S. system look more like Singapore’s:

First, annual contribution maximums for individual health savings accounts should be increased from $3,650 to at least $6,000, and allowed to accumulate if not used. Second, for individuals with low incomes, these accounts could be funded in the same way as a negative income tax. In a negative income tax, a tax filer below the federal poverty line, adjusted for a geographic cost of living, would receive from the IRS the difference between the income filed and the poverty line. In the same way, a tax filer below the poverty line would get a health savings account “top up” of up to $6,000. Third, before their deductible is met, patients should be able to contract directly with providers instead of going through insurance. That would encourage providers to compete on value and make them directly accountable to patients. Ultimately, this scheme empowers patients to choose and insurance companies to compete by creating products to attract patients.

The U.S. spends more on health care per person than any other country in the world. That’s because much of health insurance isn’t a hedge against unexpected catastrophes but an entitlement that can facilitate the overconsumption of services, and overspending. Putting health care dollars back in the hands of Americans and allowing providers to compete for those dollars will go a long way toward arresting unsustainable spiraling costs and inefficiencies.

Elise Amez-Droz is a health policy manager in the Washington, D.C., area and a member of the Young Voices Contributor Program. Phillip Phan is professor of strategy and entrepreneurship at the Carey Business School and professor of medicine at the Johns Hopkins University.

Source: STAT