The Singapore healthcare system is primarily based on a fee-for-service model where service providers generate more revenue the more patients they treat, and the more complex the treatment.

This is in contrast with other healthcare systems such as capitation where service providers and doctors collect a flat fee for each patient they attend to, irregardless of the type of treatment prescribed.

Medical expenses on a fee-for-service basis will vary depending on the type of health condition and the type of treatment used for treatment.

As maximizing revenue is a goal of profit-driven service providers, this can also lead to doctors or salespeople trying to sell expensive procedures and treatments to patients that are unnecessary.

For example, a person might have stomach flu that can be healed with a simple prescription of medication. But a doctor might recommend an endoscopy that is unnecessary. The total expenses the patient ends up paying ends up being $1,000 instead of $50 for a simple consultation and prescription of medication.

Moral hazard

It goes without saying that for a fee-for-service healthcare model to work without making healthcare unaffordable to the average household, healthcare workers (especially doctors and surgeons) have to have the utmost integrity in their work and not be pressured by management to increase revenue.

This means that products and services must not be grossly overpriced. And maybe even a conservative profit target is set instead of charging patients the maximum amount of money which they can afford.

Otherwise, the whole system would become untenable and insurers would have no choice but to increase policy premiums.

This is because the more more money patients spend on treatment, the more claims they would make against insurance companies. And the only response that an insurer can make is to increase premiums to keep up with the increasing costs of claims.

Consider that because competition between insurance companies are fierce, a competitive edge that one could be building to beat a competitor is to make claim easier to approve and disburse. When one is observed to be doing this, other insurers might follow suit in response.

The easier these claims go through, the higher the medical bills, and the more premiums would hike.

Insured patients get to choose the hospital they go to, and even a doctor of choice. Many would go for the most expensive ones in which a policy allows.

To counter this potential moral hazard, modern health policies often come with deductible requirements and co-payment systems.

This makes a small portion of the medical fees payable by a patient. And because patients have to fork out cash for their treatments, service providers have to take into account that patients might not be able to afford highly priced services.

Even if the patient has to pay just 5% for surgery, it can be a difficult amount to raise for someone who is living from month-to-month without savings.

Yet capitation is not the clear solution for all these.

While a fixed fee in capitation can seem very attractive to general consumers, it does come with drawbacks and challenges too.

And that is the potential that service providers ends up going through the motion of serving patients since they collect the same amount of fees from each. Everyone given the same treatment. And no one is given priority over another.

This can easily lead to a downward spiral of service quality and a lack of innovation.

Patients might not even have the freedom to choose a hospital or a physician.

Defensive Medicine

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