Social inequality in Singapore

Yee Jenn Jong is a non-constituency Member of Parliament from the Workers' Party. He writes regularly on social and economic issues. Read this article on social inequality in Singapore.

Social insurance - to pay for large medical bills

My friend asked me to help publicise an appeal for a little girl called Chloe who has a rare disorder called Pompe Disease and needs $200,000 to $300,000 a year to be treated. This is a lot of money and is likely to be beyond the means of compassionate, ordinary people.

This issue raises the following questions:

• Should something be done to help people like Chloe who are borne with a rare disorder? 
• Should the state take this burden from the parents?
• Can a solution be found using private insurance?

I must first rule out private insurance as most people are not likely to take up insurance against the unexpected and undefined risks of life - until it happened. There are other problems associated with the profit motive of insurance companies, leading to dispute on claim settlement or unfair rejection of legitimate claims.

The best approach is through social insurance, i.e. insurance provided by the state. It should cover all  eligible people and be funded by taxation or compulsory contribution (that can be adjusted based on actual experience) or a mix of both sources of funding.

Some issues to be considered by the state are:

• Should the social insurance pay for expensive treatment that boost the profit of pharmaceutical companies?
• Should there be a cap on the amount that are to be funded by the state?

Some possible approaches that are helpful are:

• The compensation should be for the actual cost of treatment and can be subject to a cap of say $100,000 and should be used under proper guidance.
• The cap may not be sufficient to meet the needs of serious cases, but it does help to provide some relief to the parents. It may be possible for the pharmaceutical company to reduce the cost of the drugs. 
• More importantly, there could be many cases where this type of compensation would be helpful to the parents.

It may be difficult to design a social insurance scheme, but this should not stop us from giving attention to this matter. If nothing is done, then the burden has to be met by the parents or family members (who may not have the financial means) or the patient will not be treated due to lack of funds. 

It is not a good approach to leave these problems to charity. Apart from the high cost of collecting and accounting for the donations, there is the risk that some of these cases may be exploited by unscrupulous people who wish to make a personal profit from the effort. (However, in Chloe's case, I find that the donations will be administered by the hospital).

Tan Kin Lian

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Outsourcing and drop in standard

I went to Paris for a board meeting. The company arranged for me to be picked up at the airport. I was to look for a person holding a sign with my name.

When I arrived, I could not find the pick up person. I searched for him. He arrived 15 minutes later and was clearly not a local person. After driving for some time, he appeared to be driving me to the wrong destination. I checked with him and gave him the correct address.

I reported the matter to the hotel for investigation. Apparently, they have arranged the pick-up to a contractor who must have outsourced it to a third party (who used an immigrant to do the work).

This was probably done in the interest of brining down the cost or making a bigger profit margin. This has led to a drop in standard and quality. There is a need to have better control on outsourcing!

Buying a property on dual income

Many people depend on dual income to calculate the affordability of their property purchase. This is highly risky as any one party may lose the income, causing financial difficulty. Read this article.

Tip: when you use dual income to calculate affordability, you should apply a discounting factor for the dual income. I suggest a discount of 30%. You should take only 70% of the dual income to calculate the amount of the property that you can afford to buy. 

Buying gold bar at inflated price

Mr. Tee had a friend who introduced an attractive investment scheme to him. The friend, whom he trusted, told him to invest in a gold bar. It promised to pay 2% interest every 3 months. After 12 months, the company promised to buy back the gold bar at its full value. This allowed him to earn a return of 8% for 12 months. There is also a certificate for him to take out the gold bar from a trusted third party if the company did not honour the buy back promise.

At the end of the period, the company did not buy back the investment. Mr. Tee took out the gold bar and found that he had paid for the gold bar at a price that is 50% higher than the real value of the gold. He was not aware that the price, quoted in $ per gram, was much higher than the price in USD per ounce that was quoted in the world market.

Fortunately for Mr. Tee, the value of the gold had appreciated, so he did was somewhat compensated. But, he could have made a larger gain by investing in gold directly, rather than investing in this scam. The friend who sold the investment to him was honest and did not realise the scam. She had also invested her own money and found out later about the scam.

There are many investment scams of this kind. They distract the investor with some gimmick, such as an attractive yield and a buy-back scheme. There is usually a catch that the investor was not aware of.

Life insurance - past and today

I have been asked many times about why I find life insurance policies to be a bad investment, when I had been selling life insurance for 30 years.

The life insurance policies sold during my time gave a yield of about 5% per annum. The expenses were low and high rates of bonuses were distributed to the policyholders. This was an attractive yield.

Today, the yield for most policies is about 2.5% per annum. This is unattractive when it is possible for the consumer to earn more than 4% per annum from other types of investments, e.g. in an index fund or exchange traded fund.

If you can find a life insurance policy that gives a yield of 4% per annum today, it is all right. But 2.5% is too low.