Singapore’s super-aged society needs new ways of funding healthcare

OCT 1 marked the United Nations’ International Day of Older Persons. Its theme this year, “The Age of Longevity: Rethinking Systems for Longer Lives”, poses a particularly pertinent question for Singapore.

Singaporeans are living longer; the population is ageing rapidly, with the proportion of residents aged 65 and above having risen from 12.4 per cent in 2016 to 21.4 per cent today, making the country a super-aged society.

Longevity across the board is a great achievement. But longevity alone is not the goal.

The more important question is how many of those additional years people spend in good health: remaining independent, participating in work and community life, and requiring less intensive care.

This makes prevention central to the economics of an ageing society.

The logic is straightforward. Preventing or delaying diabetes, cardiovascular disease and other chronic conditions can improve quality of life while reducing later demand on hospitals and long-term care. Healthier people can also remain economically and socially active for longer.

This is becoming increasingly important as Singapore thinks about healthcare through a longevity lens.

At the AIA Healthcare Summit in August, Ministry of Health Permanent Secretary Lai Wei Lin argued that a life-course approach should shape not only how healthcare is delivered, but also how it is financed and how insurance is designed.

She identified investing in preventive health as one of three areas of shared responsibility across government, insurers and employers.

Funding-incentive mismatch

Singapore has already backed this ambition with substantial public investment.

Between 2021 and 2024, government operational funding for healthcare services increased by about 50 per cent. Even as that base grew, the share going to primary and preventive care rose from 14 per cent to 19 per cent, driven largely by the Healthier SG initiative.

The question now is how to make that commitment sustainable over decades.

Our research at the Office of Health Economics identifies a recurring barrier to investment in prevention: It often creates value over long periods and across several parts of society; the organisation paying today may therefore capture only a fraction of the full benefits which arrive in the future.

Longevity makes this mismatch even more apparent. As Lai noted in her speech, many Singaporeans receive employee medical benefits while they are working, but those benefits cease upon retirement.

An employer investing in preventive healthcare for a worker may therefore pay for improvements whose largest benefits emerge after that employee has retired.

The resulting savings could instead accrue to the individual, an insurer or the public healthcare system, making some employers hesitant to finance benefits they cannot expect to capture.

This is a problem of misaligned incentives and siloed budgets. Prevention generates gains across multiple sectors, while funding decisions are usually made within individual organisations facing relatively short budget cycles.

There is nothing irrational about this; the same problem applies to insurers when customers can move between plans, and to individual healthcare budgets when savings ultimately appear elsewhere.

Targeted financing instruments

Simply asking every stakeholder to “do more” does not solve this problem. Shared responsibility also requires shared financing.

There are three complementary ways to address this.

The first is to protect funding already committed to prevention, so that long-term programmes are not eroded when short-term pressures arise.

The UK, for instance, has had success with ring-fenced funding mechanisms, which protects budgets to be used in a certain field.

That does not mean diverting resources from acute care, which must remain adequately supported.

Prevention and treatment are complementary, and the aim is to avoid long-term prevention investment being displaced by more immediate pressures.

The second is to grow the overall pool of resources allocated to prevention. This can be achieved through mechanisms such as hypothecated taxes, of which revenue is directed to specific goals.

The third is to diversify financing entities, bringing in employers, insurers, philanthropic organisations or private capital where they also stand to benefit, and where their participation is appropriate.

These are not competing models. A sustainable system needs sufficient resources to treat illness today while also investing consistently in reducing avoidable illness tomorrow.

Singapore already has many of the ingredients required.

The government provides the backbone of healthcare financing. Employers spend significantly on employee health benefits. Insurers manage risk across long periods. Community organisations and businesses support preventive programmes.

And Singapore has extensive experience coordinating public and private institutions around long-term national objectives.

The fundamental task, then, is to identify who receives value from prevention, when they receive it, and how much of that value each stakeholder can reasonably be expected to finance.

What Singapore needs next is not simply more encouragement for every stakeholder to invest in prevention. It needs mechanisms that make shared responsibility practical.

That means identifying preventive interventions whose benefits are spread across government, employers, insurers and households, and creating ways for those beneficiaries to contribute jointly, rather than leaving one party to carry the upfront cost.

Where employers can reasonably expect gains from healthier and more productive workers, there is a case for employer participation.

Where insurers can expect lower claims, insurance design can reward preventive behaviour and earlier intervention.

Where an intervention creates wider benefits that no individual participant can capture, such as reduced pressure on the health system, greater independence in later life, or lower caregiving needs, public funding has an important role.

And where benefits genuinely span several budgets, mechanisms that allow different parties to pool funding or pay for agreed outcomes may sometimes help.

Specialised funds and bonds

This is where instruments such as blended-finance funds and social impact bonds can be useful.

Social impact bonds, for instance, allow investors to finance an intervention upfront and receive repayment from an outcome payer when agreed results are achieved. Blended-finance structures can combine public or philanthropic capital with private investment.

Such models can help align incentives across sectors and make preventive outcomes more visible. But they are also complex, resource-intensive and unsuitable for many interventions.

These instruments should therefore be viewed as tools for particular financing problems, rather than replacements for public healthcare funding.

Regardless of how funding is achieved, the underlying rule still holds: The costs of prevention should be shared more deliberately among those who stand to benefit, rather than being left entirely to whichever institution funds the intervention upfront.

The International Day of Older Persons invites societies to rethink their systems for an age of longevity.

The financing system must therefore become as long term as the lives it is intended to support – and whether Singapore is prepared to build a financing architecture that makes investing early rational for everyone involved.

The writer is chief executive of the Office of Health Economics, and focuses on health system efficiency, policy evaluation, and pricing and reimbursement in pharmaceutical markets