"Government-run healthcare," Singapore style

In his long rhetorical war against the Affordable Care Act, Avik Roy likes to hold up Singapore's healthcare system as a shining counter-example. He quite rightly points out that Singapore spends far less on healthcare than the U.S. (4% of GDP vs. 18% for the U.S.), and with better outcomes. How do they do it? Roy -- while acknowledging one aspect of the government's heavy hand --  credits free-market magic:

The key to the Singapore system is mandatory health savings accounts: again, something that libertarians and many conservatives wouldn't like. Matt Miller of the Center for American Progress describes Singapore as "further to the left and further to the right" than the American system--something that could also be said of Switzerland.

In a manner somewhat like our Social Security system, Singapore takes mandatory deductions from workers' paychecks--around 20 percent of wages--and deposits them into health savings accounts called Medisave. Medisave accounts are used mostly for inpatient expenses, but also some outpatient ones. Singaporeans are expected to pay most of their outpatient expenses with non-Medisave cash.

Roy goes on to outline other pieces of the system -- a catastrophic insurance scheme and a fund further subsidizing care for the poor -- and concludes:

Why does this system work so well? Because it incorporates the central idea behind free-market health care: that health-care spending is most efficient when that spending is executed by individual patients, rather than third parties. It's easy to waste other people's money. But if that money is your own, you are going to try your best to spend it wisely.

That's partly true. But this patient choice is exercised in a very, very managed playground.  As Ezra Klein pointed out at the climax of his recent marathon discussion with Roy, the common denominator between Singapore and other systems that control costs more effectively than the U.S. is government control over pricing.

What Roy does not like to mention is that the Singaporean system can ask individuals to pay a large portion of billed costs out of pocket because the government a) subsidizes most of those billed costs, and b) runs healthcare facilities that dominate the market. 

In Affordable Excellence: The Singapore Health System  (Brookings, 2013, free on Kindle), William Haseltine explains cost control, Singaporean style:

The government's most consequential approach to keeping prices under control: they have developed a quasi free market. within which the healthcare system must function...Public and private hospitals coexist in this market, but most hospital care is intentionally directed toward the public side through the patient incentives and subsidies I have described. With the ability to set the prices of services at the public hospitals, and with the ability to regulate the number of public hospitals and beds they provide, the government shapes the marketplace. It then allows market forces within that marketplace to regulate the private sector, which must not price itself out of the market....

 One study comparing healthcare systems among the developed Asian nations described the Singapore government as “micro-managing provision,” ensuring that public hospital charges are kept at acceptable levels, and in turn relieving pressure on Medisave accounts. It went on to say that the government “uses funding (and hospital ownership) in a calculated manner to control service costs and subsidize care, in turn limiting expenditure from insurance accounts and providing incentives for private providers to keep costs down (Location 977-988).

The system seems designed to avoid the kinds of distortions imposed by entrenched private market interests in the U.S.:

Former Health Minister Khaw Boon Wan has said that the public sector should always play the dominant role in providing care services, but there needs to be a private healthcare system to challenge it. In his view, the public sector is necessary to set the ethos for the entire system— which should not only be about maximization of profits, a primary focus of the private sector. It is the public side that tends to set boundaries and standards for ethics within the system. 

Khaw Khaw takes the view that where the private sector does dominate, it will inevitably influence the government and public policy to serve its own interests. If the public healthcare system is too small, it becomes the “tail that tries to wag the dog.” Once a private healthcare system becomes the dominant entrenched player, it is very difficult to unwind it— there are many vested interests and many pockets will be hurt. (Location 998--1007).

While federal and state governments pay almost half of total U.S. healthcare costs, the relative price discipline imposed by Medicaid and Medicare does not benefit those outside those programs. Making patients pay a proportionate portion of costs incurred can work if patients have the means to make informed choices, i.e., transparent pricing -- and ideally, some information as to treatment effectiveness. That is rarely the case in the U.S.,though some employer plans are beginning to provide some means of cost comparison and incentives for choosing favored providers.

Roy indulges in a bait-and-switch when he uses his favored healthcare systems, those of Switzerland and Singapore, as a stick to beat the Affordable Care Act.  He touts the free market features of those systems that fit his ideological propensities, downplays features they share in common with the ACA that deploy government control  (e.g., community rating, or limits on the extent to which older people can be charged more than young), and doesn't mention at all those features deploying more government control than either he or almost any politician now in office would countenance in the U.S.