MI H2 ECONS (9757 01)

Class Adm No Candidate Name: _______________ ______________ This question paper consists of 7 printed pages and 1 blank page. [Turn over 2018 Preliminary Exams Pre-University 3 ECONOMICS 9757/01 Paper 1: Case Study 12 September 2018 2 hours 15 minutes Additional Materials: Answer Paper READ THESE INSTRUCTIONS FIRST Write your name and class on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams or graphs. Do not use staples, paper clips, highlighters, glue or correction fluid. Answer all questions. Begin your answer to Question 2 on a fresh sheet of writing paper. At the end of the examination, hand in your answers to the 2 questions separately. The number of marks is given in brackets [ ] at the end of each question or part question.

2 9757/01/PRELIMINARY EXAMINATION/MI/2018 Answer all questions. Question 1 Healthcare and Health Insurance Extract 1: Global trends in healthcare expenditure Between 2004 and 2014, the World Bank reckons that the average share of health expenditures of high-income countries has increased from 10.9 to 12.3 per cent of gross domestic product (GDP). Singapore is no exception as its share of health expenditure as a percentage of GDP has increased from 3.3 to 4.6 per cent between 2011 and 2015. However, this was not the case for all countries. The equivalent figures for Ireland were 9.9 in 2011 and 7.8 in 2015. An important factor is the development and adoption of new and expensive health technologies such as biologics - extremely costly drugs revolutionising the treatment of rheumatoid arthritis, cancers and diabetes. Another factor is rising wages, fuelled in part by competition between private providers to attract the best healthca re professionals. This is compounded by the fact that retrenched PMETs from other fields cannot easily enter the healthcare sector due to a mismatch of skills. The quantity of care consumed in Singapore is also increasing. While population ageing is often cited as a cause, lifestyle risk factors, such as eating too much and exercising too little, also contribute to the rise of costly chronic conditions. Adapted from: Various Extract 2: The balance needed in health insurance Health insurance plays a central role in influencing healthcare consumption. By significantly decreasing the price of care at the point of consumption, insurance plans increase the quantity of care consumed. Part of this increase is actually a good thing as it reflects better access to healthcare, especially for lower-income individuals who could not afford treatment otherwise. However, by distorting the price of care, health insurance may induce overconsumption. Having an insurer pay 100 per cent of a patient's bill is hardly conducive to encouraging prudent spending. This illustrates the subtle balancing act of health insurance: While some coverage 1 is good, too much is detrimental. Overconsumption of care puts a financial burden on insurance companies which, in turn, need to increase their insurance premiums2. Adapted from: The Straits Times, 1 Feb 2018 1 Insurance coverage refers to the portion of the medical bill that is paid for by the insurance company. 2 Insurance premiums are the price of insurance policies paid by consumers (the insured) to the insurance firms. Extract 3: Singapore’s national health insurance scheme – MediShield Life MediShield Life is a basic health insurance plan which helps to pay for large hospital bills and selected costly outpatient treatments, such as dialysis and chemotherapy for cancer. MediShield Life will provide protection for all Singapore Citizens and Permanent Residents,

3 9757/01/PRELIMINARY EXAMINATION/MI/2018 for life, including for any serious pre-existing conditions. Individuals can use the money in their Medisave accounts to pay for MediShield Life premiums. There are three main features of MediShield Life - claim limits, deductibles, and co- insurance. Claim Limits are the maximum amount that the insured can claim from MediShield Life. There are different claim limits for each type of expense, such as the daily ward charges and the type of treatment or surgery undertaken. For example, the claim limit for radiosurgery is $4,800 per procedure. The portion of the bill above the claim limit will be paid by the insured. The deductible is the fixed amount within the clai m limit that is payable by the insured before the MediShield Life coverage kicks in. The deduc tible is payable only once every policy year and increases with age and the ward class. For example, for those aged 80 and below, the deductible is $1,500 for stays in Class C wards. The co-insurance is a percentage (e.g., 3%) of the remaining claimable amount after subtracting deductible which the insured have to pay. The deductible and co-insurance serve to avoid t he overconsumption often associated with insurance schemes that cover 100% of hospital bills. Adapted from: Ministry of Health website (https://www.moh.gov.sg) Extract 4: Hard truths about co-payments in insurance The seminal study of health insurance conducted more than 30 years ago in the United States by Professor Willard G. Manning showed that introducing insurance co-payments such as deductibles and co-insurance substantially decreased health expenditures with only very few adverse health effects. Since that study, a ll public insurance schemes, including Singapore’s Medishield Life scheme, have included such elements. However, the hard truth is that there is very little data on how to optimally set the level of these co-payments. There is considerable variation internationally. For instance, France's deductible lies below $2 per sickness episode, while Switzerland's maximum annual deductible of $3,500 is higher than Singapore's. For co-insurance rates, Germany's ranges from 5 to 10 per cent, while France's ranges from 30 to 40 per cent. No international guidelines exist. Adapted from: The Straits Times, 1 Feb 2018 Extract 5: Why is healthcare overconsumed and what can we do about it? Apart from overly-comprehensive insurance coverage, another factor causing the overconsumption of healthcare worth mentioning is "physician-induced demand" where some doctors take advantage of patients' lack of medical knowledge to provide them with more care than necessary, or to charge a higher fee. Physician-induced demand is especially prevalent when complete insurance coverage causes patients to have little financial incentive to question whether the care they receive is necessary since it is all covered by their health insurance. To combat this problem, Singapore set up the Agency for Care Effectiveness (ACE), a national health technology assessment centre, in 2015. ACE’s work will help Singapore doctors and consumers determine the value for money of healthcare, in terms of life and quality of life

4 9757/01/PRELIMINARY EXAMINATION/MI/2018 gained. Its first tranch of 11 drug guidances based on how well these drugs work and their cost-effectiveness was published on 3 May 2017. ACE is part of the Ministry of Health’s (MOH) efforts to achieve its mission of: • Promoting good health and reducing illnesses; • Ensuring access to good and affordable healthcare; and • Pursuing medical excellence. Adapted from: The Straits Times, 1 Feb 2018 and Ministry of Health website (https://www.moh.gov.sg) Questions (a) Using the information from Extract 1, compare the change in share of health expenditure as a percentage of GDP between Singapore and Ireland from 2011 to 2015.