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Posted by faisalrenzo on April 12, 2011

A national health insurance scheme is in the offing but, worryingly, few details have been disclosed

by Subramaniam Pillay
Aliran Monthly Vol 25 (2005): Issue 4

In the past few months, the government has been attempting to resurrect a national health financing scheme (NHFS). This idea has been in the air for the past ten years or so. Usually it gets deferred due to opposition from the general public and other groups involved in health care. This time, however, the government appears to be more serious. This article tries to answer some key questions on the health care system and the proposed NHFS.

How did the health care system work in the past?

During the colonial era, the health care system was mainly urban based, catering to the needs of the colonial government service. There was also a separate system of hospitals in the plantations, which provided very basic services to ensure estate workers were healthy enough to work daily!

What happened to the health care system after independence?

After independence in 1957, the new Malayan government decided to focus on providing education, health and basic utilities like water and electricity, especially, to the rural population. In the case of health care, the emphasis was on preventive health and primary care. The improvement in health care was achieved through a network of general hospitals, district hospitals, polyclinics, health centres, midwife and mobile clinics, which enabled Malaysia to provide comprehensive, accessible and affordable health care to the vast majority of the population, including remote rural communities. The system puts 90 per cent of the population within one hour or five kilometres of a health centre. (MMA 1999) Health indicators such as life expectancy, infant mortality rate and maternal mortality rate improved tremendously in the first 25 years after independence. This achievement won praise from several quarters. For example, the World Health Organization (WHO) cited the Malaysian health care system as a model for other developing countries to follow. An IMF health economist said that the Malaysian model of health delivery may constitute an effective instrument for redistributing income in developing countries. Though it had its own shortcomings, by the early 1980s, Malaysia had one of the best health care system among developing countries.

Why then is the health care system facing so many problems now?

There are many causes for this, most of which originated during the era of Dr. Mahathir’s tenure as prime minister. When he came to power in 1981, he introduced policies which permitted the private sector to play a greater role in non-traditional areas like health and higher education. Thus, during the 1980s and 1990s, Malaysia witnessed a sharp increase in the number of profit-seeking private hospitals. Prior to this, most of the private hospitals were run by non-profit community and religious organisations. The government’s justification for its support of profit-oriented private hospitals was that it would reduce the demand on government hospitals; the rich would go to the private hospitals and thus the poorer patients would have better and faster services at the government hospitals.

The reality, of course, was different. The waiting time and quality of service in the government hospitals actually deteriorated during this period. The main reason for this was the massive brain drain of highly qualified and experienced medical personnel from the public sector to the private sector. For example, by 1999, the public sector hospitals which treated more than three-quarters of in-patients had only one-third of the medical and surgical consultants and specialists. In the case of O & G specialists, government hospitals had only about 20 per cent of the specialists while the remaining 80 percent of the specialists were in the private sector.

Health Minister Dr Chua Soi Lek announced that 8 million Malaysian workers (presumably in the private sector) will have to pay the premiums; those who are exempted include one million civil servants, 200,000 disabled persons, 435,000 pensioners, 250,000 hardcore poor and an unknown number of unemployed individuals. Thus, it appears that the biggest burden will be borne by lower and middle income private sector employees.

Why did the brain drain happen?

There are both pull and push factors involved. Firstly, income differences are enormous; a specialist in the public sector earns between RM4,000 and RM12,000 per month while those in the private sector earn between RM10,000 to RM100,000 per month. Some surgical specialists can even earn more than RM200,000 per month! Secondly, the workload in the public sector is heavier in most specialities. Thirdly, many medical and health professionals in the public sector feel that their contribution is not being recognised by pencil-pushing bureaucrats in the ministry and especially in the Public Services Department. There is no sense of urgency in approving new promotional posts or confirming appointments. Fourthly, in the early years of the NEP, many qualified non-Bumiputra staff were passed over in promotions and scholarships. For many of those who were affected, this reduced the motivation to remain in the government service. However, the basic cause is structural: the growth of the private hospital industry catering to the wealthy in society sucked away the expertise from the public sector. The consequence was a decline in the perceived quality of health care provision in the public sector.

What were other changes introduced by Dr. Mahathir’s government?

Another major change was the policy of privatisation of many segments of the health care system. This led to a sharp increase in the budget of the Ministry of Health (MOH) in the 1990s.

But isn’t privatisation supposed to improve efficiency and reduce the burden on government expenditure?

That is the fairy tale they tell us when things are privatised in Malaysia but the facts show otherwise. In fact, government spending on the services that are privatised almost always increases and quite often the level of services actually declines.

Can you provide an example of privatisation that went wrong in the health care sector?

There are many examples. Let us begin with the privatisation of the pharmaceutical services of MOH in 1993. This division, which was in charge of producing and purchasing prescription and non-prescription drugs and medical supplies, was privatised in a secretly negotiated deal to a subsidiary of Renong, the (in)famous crony company. The company was awarded an exclusive long-term contract to supply medicines and supplies to the MOH. In the following year, government spending on medicines and supplies doubled!

How did this doubling in spending of taxpayer’s money come about?

The main reason was the sharp increase in the price charged to the government by this private monopoly. One of the terms of the contract was that the MOH cannot buy those drugs by open tender. The prices charged to the MOH were (and still are) much higher than what you or I would pay at a commercial pharmacy. In some cases the mark-up on price exceeds 1000 per cent! Not surprisingly, the company, Pharmaniaga, made huge profits. According to The Star (24 May 2004), its shareholders would have seen the value of their shares increase more than tenfold from 1999 (when it was listed) to May 2004!

Given the scale of this disaster, did the government abandon privatisation of other services in the government health care system?

Not at all. In fact, worse was yet to come. Support services such as laundry and linen, clinical waste management, cleaning, facility engineering and maintenance were privatised in 1996 to three highly connected companies: Faber Mediserve, Radicare and Tongkah Medivest. In this case, the increase in MOH expenditures on these services after privatisation was even more mind-boggling! In 1996, the government spent RM140 million on these services but in 1997 it jumped to RM450 million! Thus, after privatisation, the MOH ended up paying many times more for pharmaceutical and support services.

Is there any more example of privatisation in health care services?

Another disaster was the privatisation of the design and construction of public hospitals. After privatising this function to private consultants, we end up with fungus-ridden new hospitals like the new Specialist Hospital in Johore!

What about corporatisation of IJN and University Hospital?

The National Heart Institute was the first government hospital to be corporatised. The government has ended up spending more money than expected in subsidies without achieving greater equity in access to care. In the case of the University Hospital, services have become less affordable to many of its old patients.

Why change the present system?

The government says that the cost of health care is rising. Government spending on health care is about 7 percent of the federal budget. But as we saw earlier, a major factor for the disproportionate increase in health care cost is the privatisation of the pharmaceutical and hospital support services to crony companies.

The government also says that people are now earning more and therefore should pay more towards health care costs. Again, if we have a progressive tax system, people who earn more would pay higher taxes and therefore would be entitled to health care without paying twice for it: once, through taxes and the second time through the new insurance scheme that is being proposed.

What do we know about the new NHFS?

Very little since the most critical details of the system such as the quantum of payment and the details of the coverage provided are still under wraps. From the information given so far (in dribs and drabs), it is going to be an insurance-like scheme with the premium(s) being community rated; this means everybody will pay the same premium to the new Skim Insuran Kesihatan Kebangsaan (SIKK), regardless of age or pre-existing conditions.

What will SIKK cover?

At this stage, we are not clear on the scope of coverage of SIKK. From the looks of it there may be several options according to how much one pays. For example, there could be a basic package, a gold package, a platinum package etc. Perhaps, if you bought a platinum package, you could choose your own specialist at a hospital of your choice whereas the person with a basic package may only be treated at a pre-designated hospital.

How much will this SIKK cost me?

Again we have no details. But we can try estimating how much the premium will be. In 2003, the estimated total spending on health care amounted to RM13.0 billion (government RM8 billion and private sector RM5 billion). Given an average family size of 5.4 members per family, Malaysia with its population of 25 million will have about 4.63 million families. Thus the average expenditure per family will amount to RM2,808 per year (RM13.0 billion divided by 4.63 million families). In other words, each family will have to pay about RM235 per month.

That’s a lot of money. Can Malaysians afford to pay such a high premium?

According to the 8th Malaysia Plan, 58 per cent of Malaysian families earned less than RM2,000 per month in 1999. For these families, clearly the premiums are unaffordable as it will be more than 10 per cent of their monthly income. Thus, the SIKK system will end up with a large degree of subsidy.

Who are going to be exempted from the SIKK premium payments?

According to press reports, Health Minister Dr Chua Soi Lek announced that 8 million Malaysian workers (presumably in the private sector) will have to pay the premiums; those who are exempted include one million civil servants, 200,000 disabled persons, 435,000 pensioners, 250,000 hardcore poor and an unknown number of unemployed individuals. Thus, it appears that the biggest burden will be borne by lower and middle income private sector employees.

Will the new SIKK system reduce government expenditure on health care?

Not really. Firstly, the government will have to pay the premiums for the exempted groups. That alone will amount to RM4 to RM5 billion. In addition, the government will still continue spending on preventive health care programs. Moreover, if not supervised properly, health care spending tends to spiral out of control when third parties like the SIKK system pays the bill. Neither the consumer of the service (the patient) nor the provider (hospitals and doctors) have any incentive to reduce cost.

What minimum features should an equitable health care system have?

  • There should be one common healthcare package which provides comprehensive coverage for all regardless of income levels.
  • Payment for the poor must be subsidised and equitable access must not be denied by imposing large co-payments.
  • No private insurance must be allowed for the conditions covered in the basic package.
  • Payment for doctors should NOT be on a fee-for-service basis. This is to avoid over- investigation and over-treatment.
  • Income differentials between the public-sector health-care personnel and their counterparts in the private sector must be narrowed.
  • Given the negative consequences of privatisation in the health-care sector in the past 15 years, no further privatisation of any component of the health-care services should be allowed.
  • Finally, whatever the new system that is introduced, there is a need for democratic control and accountability in the health care sector. One way is for direct elections at the local level to the board running the local hospitals.

Source :


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