Budget 2020: Invest in solutions now to save on healthcare costs later

THIS is the last article in the Budget 2020 series. In previous weeks, we have seen how healthcare is not free and that there are trade-offs.

We’ve also proposed a realistic mechanism of predictable and gradually increasing 10% allocations, and introduced four specific steps to increase stewardship.

Last week, I proposed three ways to improve the organisational and delivery structure of the Health Ministry (MOH).

This week, we will look at how Budget 2020 can support sustainable health financing in three targeted ways.

Healthcare costs rise for many reasons, so we will need a basket of solutions.

Some of them are systems-related, so they cannot be dealt with by Budget 2020.

An example is that doctors are paid for each intervention (thus incentivising them to perform more and more procedures), rather than being efficient.

These causes will be addressed in future articles.

Fighting rising medicine costs

The first financing-specific task for Budget 2020 must be to fight the rising cost of medicines.

I’ll focus on this as the cost of medicines is rising faster than other cost categories and is the largest cost category in the MOH, amounting to RM3.8bil in 2017 (16% of the operating budget).

However, it’s not as easy as “allocating more money to buy more medicines” or “putting a price cap on medicines”, as the first is a bottomless black hole and the second does not address the increasing prescription volume.

One specific area in Budget 2020 is to allocate a specific sum (perhaps RM2-5mil?) to professionalise the MOH drug procurement team.

At the moment, there are three methods of drug purchasing in MOH: central contracting by MOH headquarters amounts to 44% of total purchases, centrally-managed concessions amount to 37%, and hospital contracting amounts to 19%.

There are overlaps and inefficiencies in these methods, which can be addressed by a more professionalised and streamlined drug procurement team.

We can reference the OECD Recommendations for Public Procurement as a starting point for smart procurement.

Another specific allocation (perhaps RM30-50mil?) is to pilot some risk-sharing schemes in a careful and controlled way.

Risk-sharing schemes are where payers (like governments or insurers) share the financial risks with pharmaceuticals.

This risk comes with new medicines because its value is not fully known when it’s first introduced.

In other words, governments could pay for a medicine that works in clinical trials, but not in real life.

There are many types of risk-sharing schemes, and we won’t cover them. In general, Malaysia will benefit from the rigorous collection of data in risk-sharing schemes, to cover cost, quality, safety and effectiveness.

The third allocation was previously discussed, where we will enhance the health economics expertise in Malaysia.

There are many other ways to control medicine prices, but they exist outside Budget 2020.

Incentivising insurance

Right now, only 9% of Malaysia’s total health spending comes from any form of insurance and 39% comes from personal savings (called “out-of-pocket” or OOP payments). The OECD average is 42% and 20% respectively.

I won’t claim that insurance is the perfect solution to all our healthcare costs. However, its advantages far outweigh its disadvantages and Malaysia needs more insurance as one more source of funding.

Let’s look at this from a real-life perspective, starting with two facts.

First is that Bank Negara has found that three-quarters of Malaysians don’t have and can’t find RM1,000 in an emergency.

Second is that the Credit Counselling and Debt Management Agency (AKPK) has found that high medical costs lead to 20% of bankruptcies.

These two troubling facts are symptoms of the high 39% OOP payment.

When we go bankrupt because we are asked to pay lots of cash for emergencies, it’s called “catastrophic expenditure”.

As health emergencies are unpredictable, we must reduce the 39% OOP to closer to 20%.

(Two caveats: Reducing it to 0% for everyone is undesirable because this would probably result in over-consumption of healthcare, and despite this, the B40 economic group should continue to be exempted from these OOP payments for social justice reasons).

To reduce the OOP percentage, the money has to come from somewhere.

If we don’t want higher taxes, then insurance is one additional solution.

There are many advantages of insurance. Aside from diversifying our funding sources, it reduces the chances of catastrophic expenditure and provides psychological and financial security – insurance is just a smart and logical thing to have.

Budget 2020 can provide three incentives for the uptake of medical insurance.

One, tax breaks can be increased for those purchasing medical insurance for themselves or their families; the specific quantum can be decided by micro-economists.

Two, a small sum can be allocated to provide subsidies for the B40 group to purchase insurance, as a pilot project.

Three, another small sum can be allocated to a “Save More Tomorrow” to attract younger and healthier subscribers.

With these incentives, there will be more subscribers to insurance.

With enough subscribers, we will have cheaper premiums and can solve the problem of “adverse selection”, when the young and healthy do not purchase insurance, thus reducing the subscriber pool and increasing premiums.

Laying the foundation for old age care

Policymakers often claim that they care about the problems of the future.

However, reality understandably often intrudes in the form of daily fire-fighting, political concerns and current events.

Budget 2020 can be the first ultra-long-horizon Budget for Malaysia, by laying the foundation for our ageing society.

This ultra-long-term horizon stretches to 2040 and beyond, and here’s how one scenario could take place.

Between 2020-2025, Malaysia successfully reforms the way we finance and deliver healthcare.

A dramatic improvement takes place, allowing our average life expectancy to rise from 75 years to 85 years.

There will be a population expansion and a returning diaspora.

Economically, we will have fewer working adults supporting an ageing population in a country that’s not high-income enough.

In other words, Malaysia could “grow old before we grow rich”.

Socially, it’s likely that the working adults will work almost entirely in cities.

Their parents will live in suburban or rural areas (in which case they may have physical barriers and loneliness) or with their children (in which case urban hospitals and clinics will be over-stressed).

The questions then become much more complex and reach beyond healthcare.

We would have to manage the delivery of care that’s multi-disciplinary because the patients have multiple diseases, including dementia.

Then there’s the psychological (like loneliness) and social components (like fraying familial bonds).

We should ask if we should raise the retirement age, how to re-skill or up-skill our senior citizens, how to promote ageing with grace, and even how to manage death with dignity.

I don’t have good answers to all these questions, but they must be asked right now.

Budget 2020 can allocate a good sum of money to existing institutions to run research and provide recommendations for Budget 2021 and beyond.

Institutions like the Social Wellbeing Research Centre are centres of thought leadership that can be brought to public attention. SWRC runs the Malaysian Ageing and Retirement Survey (MARS).

Let a more generous allocation in Budget 2020 be a gift that continues to give.

That foundation for old age care must be laid today.

The problem with old age care is that it’s not an urgent, immediate, in-your-face problem. That’s why it can disappear from the public agenda.

Let’s put our money where our rhetoric is and lay the first bricks for when you, gentle reader, enter the twilight of your life.

If we want to enjoy the health and well-being that we deserve, then that commitment begins with Budget 2020.

Dr Khor Swee Kheng has postgraduate degrees in internal medicine and public health, and has worked in five health sectors across three continents. He is currently specialising in health systems and policy in a public university and a local think tank. The views expressed here are entirely the writer’s own.

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