Seth’s Blog on Finance

How Did Minister Khaw Pay Only $8 For His Surgery?

In October 2010, it was reported that Minister for Health Khaw Boon Wan paid only $8 in cash for a heart bypass surgery he underwent in May that year. There is quite a bit of anti-government sentiment online and this renewed unhappiness amongst many who were upset with the relentless rise of the cost of living in Singapore, particularly healthcare.

I’m not going into the politics of it as this is a financial blog, but from a financial planning perspective I disagree with some of the views that were expressed on various sociopolitical websites.

Mr. Khaw’s bill was only $8 in cash as he had Medishield and also a private Medishield-integrated Shield insurance. His insurance coverage took care of most of the bill and his Medisave savings paid for most of his co-payment, leading to only $8 payable by cash.

Other than unfounded allegations that Mr. Khaw paid merely $8 because of his ministerial position, the number one criticism online seems to be that normal citizens could not afford the high premiums he must be paying for his private insurance. Is this true?

If we take a look at the private Shield plans in the market, all of them are payable with one’s Medisave account. Medisave is locked up by CPF only to be used for medical expenses. Moreover, there are limits to how much you can use from Medisave to pay for different expenses, after which you would have to pay in cash. Thus, it makes perfect sense for one to use Medisave funds to insure himself from medical expenses so that his cash reserves are better protected.

For a man in his fifties like Mr. Khaw, the premium per year is about $700 which includes coverage for even private hospitals. This is below the withdrawal limit of $800 per year imposed by CPF. For a person earning a gross salary of $2,000 a month, at least 6% is contributed to his Medisave account. This makes $1,440 a year. After subtracting the premium, the rest is growing at a 4% per annum interest for future withdrawal.

With a bill size of $30,000, the insured will have to pay a co-payment of around $5,700 assuming he chooses to be treated at a private hospital. This sum can be paid by partially by Medisave subjected to specified withdrawal limits. It is likely that Mr. Khaw also opted to purchase a rider with cash which enhanced his coverage which can be as affordable as around $20 per month, again even for private ward coverage.

Of course, there are quite expensive hospitalisation plans out there in the market, so it’s back to the importance of being a prudent buyer and finding the right adviser.

The biggest take-away point is this: If a minister, who can easily afford a hospital bill of even a few hundred thousand dollars, bothers to buy medical insurance for himself, can people like us who earn much less afford not to?