Health and wealth: a shock to the system

By Sim Shuzhen

SMU Office of Research & Tech Transfer – While medical professionals in the clinic may think about ageing in terms of how to slow down patients’ physical and cognitive decline, healthcare economists take quite a different perspective.

“From an economist’s point of view, we think about ageing very much in the context of health shocks that then have impacts on the labour market, on household structure and on people’s financial situations,” said Professor Rhema Vaithianathan, a senior research fellow at the Singapore Management University’s (SMU) Centre for Research on the Economics of Ageing (CREA).

Professor Vaithianathan was speaking on 4 June 2018 at a CREA roundtable on healthcare, where researchers presented new findings from the Singapore Life Panel® (SLP), a large-scale, high-frequency survey of health and household economics that has been running since 2015. With SLP data, gathered monthly from some 12,500 Singaporeans aged 50-70, CREA researchers are studying the long-term effects of health shocks, defined as the new diagnosis of a chronic condition such as cancer, stroke or heart attack.

“Now that we have three years of data, we can start understanding not just the minutiae of how people respond month-to-month to those diagnoses, but also how the diagnoses go on to affect their financial position in the long term,” said Professor Vaithianathan, who is also director of the SLP.

Shocks and safety nets

The first safety net that people rely on during a health crisis is usually their own financial resources; indeed, the data so far indicate that health shocks tend to negatively impact survey respondents’ longer-term wealth positions, said Professor Vaithianathan.

At month 30 of the survey, the median and mean household wealth of respondents who experienced a health shock between months 6 and 18 was slightly lower than at the beginning of the survey; in contrast, median and mean household wealth for respondents who had not experienced a health shock had risen slightly. Further, while Medisave balances of healthy respondents rose throughout the 30 months, those of respondents experiencing a health shock took a hit at month 18 before rising again.

People experiencing a health shock may also receive monetary support from family and friends outside of their own households, said Professor Vaithianathan. However, while respondents who experienced a health shock reported higher levels of financial help from family and friends, this occurred much less frequently than expected, indicating that this form of support plays a minimal role as a safety net, she added.

Finally, people in ill health may also draw on government support. Unexpectedly, however, respondents who experienced health shocks reported receiving lower levels of welfare assistance from government-run programmes, said Professor Vaithianathan. “One hypothesis we have is that this is because welfare is attached to earned income,” she explained, adding that respondents, especially men, tend to exit the workforce for up to ten months after a health shock. “If the man is not working, he is not receiving earned income, and this could be driving the lower rates of government assistance.”

While welfare payments – to the extent that they are tied to work status – do not seem to be effectively targeting those who experience health shocks, the answer is not to simply increase welfare to people after a shock, said Professor Vaithianathan. Doing so would change the incentives for people to build up their own financial resources against ill health, creating what is known as an ex-ante moral hazard – a change in behaviour before the outcome of an event, she explained. The policy challenge, she emphasised, is therefore to strike the right balance between motivating people to save and having adequate safety nets in place.

Topping up on funds – and policy awareness

Delving deeper into one such safety net is CREA research fellow Dr Jessica Ya Sun, who also presented her work, which evaluates the impact of the Singapore government’s 5-Year Medisave Top-Up plan, at the roundtable. Individuals eligible for the plan are notified in a letter in January each year, and the S$100-200 top-up is subsequently credited into their Medisave accounts in August.

Drawing on data from the SLP collected between August 2016 and September 2017, Dr Sun set out to determine the top-up plan’s impact on healthcare demand and health. She found that eligible individuals were indeed more likely than non-eligible individuals to visit a doctor in August 2016 – the month they received the top-up – and that this effect lasted until December 2016.

A second spike in doctor visits was seen in March 2017 – two months after eligible individuals received their letters – but did not last past that month. “Information plays a very important part. When people know that they are about to receive that amount of money – even without actually receiving it – their behaviour changes as well,” said Dr Sun.

Eligible individuals also out-spent non-eligible individuals on prescription medication by about S$9 a month, and on outpatient expenditure by about S$18 a month, a further indication that top-ups are associated with increased healthcare demand, added Dr Sun.

Surprisingly, being eligible for the top-up did not have any effect on respondents’ self-reported health and subjective wellbeing, said Dr Sun. A closer look at this puzzling finding revealed a possible explanation: less than 40 percent of eligible respondents were actually aware that they were beneficiaries of the top-up plan. Once Dr Sun factored this information into her calculations, she found that eligible individuals were in fact five to seven percent more likely than non-eligible individuals to be satisfied about their life, household income, economic situation and health.

“Policy awareness indeed plays a very important role in the programme's effectiveness,” said Dr Sun, adding that she and her collaborators plan to further investigate the barriers that prevent people from understanding policy.

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