How feasible is the means test?

Categories: Singapore

The Health Minister is considering using a means test to peg C-class hospital ward subsidies to a patient's income level. This idea was first mooted in 2004 by the minister. How feasible is the means test?

A similar scheme was used in the early 1990s where patients who opted for the A-class would be discouraged if they do not have a certain amount of money in their Central Provident Fund (CPF). This was done to help patients appreciate the cost of the paying class. This was however not successful because although some patients may have low CPF funds, they may be able to pay the full paying class funds because they have cash with them.

Although the current means test is for a different reason, the underlying problem is still the same - what parameter should be used to judge a person credit worthiness?

Parameters that the government is looking for must be some data that can be obtained from government agencies. This will reduce the legal requirements to protect privacy between governmental bodies. The data should also be something the population has in common. CPF and income tax would be the most obvious parameters to monitor. Bank accounts may be a better parameter but because of the code of confidentiality observed by these private entities, trying to access these would pose a legal barrier. Therefore the government is probably left with 2 parameters.

As the majority of the population contribute to the CPF, this should be a good place to start. But the use of CPF contains many pitfalls. Firstly not everybody contributes to CPF. CPF is only compulsory for the salaried. Those that have their own business does not need to contribute to CPF. Therefore if a business owner were to stay in C-class, how is it possible to categorise him? He will not have a CPF record, the same as one who has never earned a salary.

Secondly, there is a cap on CPF contribution by both the employer and employee. Therefore whether one is earning $50K a month or just $10K a month, their contribution will be the same. As a result, the contribution rate also does not differentiate the financial ability of a person.

Thirdly, nowadays CPF money has been used for multiple purposes - buying of house, use for studying purposes and invest in shares. With so many ways the CPF money can be used, the CPF balance definitely cannot be used as a gauge. A healthy CPF balance does not mean a person has good income; it may just mean that the person had not tap into the CPF balance.

If CPF is not suitable, what about income tax? Income tax seems a good bet because everybody except those in the lower financial rung, pays them. So if a person does not pay income tax, then she should automatically qualify for the highest subsidy, right? Wrong! She could be the wife of a rich tycoon. Therefore, she shouldn't even qualify for any subsidy. On the reverse, if a person pay high income tax, then he should not qualify for maximum subsidy. Wrong again! He may have been retrenched and currently not earning a salary. As income tax filing is based on the previous year's income, a person will only pay the previous year's income tax in the current year. Therefore, what is depicted as income tax payable only reflects the previous year's income and not the present.

At one time, the type of residence was used as a yardstick to ones financial status. This happened when the government gave out bonuses to Singaporeans. This method was used because the up to 75% of the Singaporeans owned housing board flats subsided by the government. The rest stays in private condominium, private apartments and landed properties. Using this yardstick has its own problems. On paper, having a landed property address make the owner wealthy. However, what is not known is that a percentage of those who has a landed property address does not own the property but just renting it. Some with landed property probably inherited the property and actually having difficulty maintaining it. On the other hand, a person with housing board address, may be rich but choose not to own a private property. Therefore it is clear that residential address is not a good yardstick either.

The above is only looking at a working person utilising the C-class. When other groups are taken into account, the permutations become mindboggling. For example, even if CPF is reflective of a person's financial ability, it does not take into account the number of person in the household. Obviously, the more people there is in the household, the lesser the financial ability. Even if the CPF and the number of people in a household is the same, the financial needs of each household will still be different because of the differences in age group, health status, or financial liability.

Then there are households with double income. How to classify such people? There is no way to identify such people unless specifically asked for. And what is there to stop such people from withholding such information in the first place?

The other category is the retirees. They may have large CPF account, but they have no income. So if the yardstick is based on CPF, then they cannot qualify for large subsidy which is a shame because in reality, they are "unemployed". As such, they should be subsided as much as a real unemployed person should get.

The reasoning behind this means testing is a good one. Spread a limited resources to as many people as possible. However such reasoning may be flawed. By making more people foot more of their hospital bills, those previously juggling to make ends meet will suddenly find themselves needing financial assistance. So the means test does not necessarily solve a problem but merely spread the problem further.