Monday, October 24, 2011

The Chicken Is Coming Home To Roost: Healthcare Costs

This isn’t going to be part of the social consciousness for a good few years yet, but credit where its due, the government is already thinking about it:

A strain on the pocket

Healthcare cost is expected to escalate in line with the rising cost of living and the Health Ministry is taking steps to raise public awareness on non-communicable diseases.

OF late, the Health Ministry has been raising public awareness on non-communicable diseases (NCD) chronic respiratory diseases, heart diseases, cancer and diabetes…

…Recent statistics already show that 60% of premature deaths (below 60 years) in Malaysia were caused by NCD, he has said.

The focus is warranted not only because of the need to keep the population healthy and productive but also to keep healthcare cost, which is expected to escalate in line with the rising cost of living, manageable…

…In Malaysia, the Government currently provides highly subsidised healthcare services to the general population while the poor are exempted from paying.

Liow says the current healthcare system offers a safety net from “catastrophic health expenditure” for those seeking treatment at government hospitals…

…To ensure that people continue to get access and coverage to healthcare, the ministry is planning the 1Care programme, which seeks to address the issues and challenges of the current system.

“In 1Care, it is proposed that the health financing mechanism will keep healthcare inflation under control and reduce out-of-pocket expenditure at the point of seeking care,” Liow explains.

Under 1Care, it is envisaged that the population would have greater choice to seek care either at public or private health facilities. This could happen through mandatory contributions into a consolidated fund managed by the Government, Liow says…

…1Care also envisages the use of a prepayment mechanism, implemented through enrolment in a Social Health Insurance (SHI) scheme, which will reduce high out-of-pocket payments at the point of seeking care when a person is already seriously ill.

SHI premiums, Liow explains, are community-rated and contributions will be based on a percentage of income. The Government will pay the premiums for the poor and vulnerable…

…He assures that when the SHI is introduced, such issues will not arise as people cannot be excluded from joining the scheme because of any pre-existing conditions, age or ability to pay...

Malaysia is still a relatively young country, but the old age dependency ratio is rising (ratio of >65yrs to working population; source: US Census Bureau estimates):


Healthcare and associated costs will eventually become a hot button issue – if we let it.

One of the less happy side effects of the drive towards high income status will be that the general increase in nominal incomes, particularly for the skilled and for knowledge workers, will drive up costs in the services sector. Doctors
(and nurses) would be both, and it’s generally acknowledged that Malaysia’s doctors are grossly underpaid. But that means that healthcare costs will also increase, a less than thrilling prospect particularly for the relatively less well off.

Just to put this in context, here’s the index numbers for some of the services sector CPI components, compared against core inflation and headline inflation over the last six years (index numbers; 2005=100, click on the pic for a larger version):


As of now, both education and healthcare costs are running slightly above the core inflation rate, though below headline inflation. Note that restaurants and hotels is running way above even headline inflation (in fact, just slightly below food, but above transportation costs) – their exposure to services based labour is fairly high. That’s the kind of thing I really expect to see going forward – lower increases in materials costs (including food, clothing etc), but accelerating inflation in services costs.

Getting a handle on healthcare costs before it gets out of hand is warranted. I haven’t an opinion on the specific proposals the Health Ministry is looking at, though I feel a little allergic to defined-benefit plans. My impression is that those types of healthcare plans don’t have a happy history, though I could be wrong. Nevertheless, this is something worth starting a public debate on.

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