HEALTHCARE costs are surely among the most worrisome of expenses, all the more so in the context of an ageing demographic. Singapore is one of the world's most rapidly ageing nations. By 2030, it is estimated that one in five Singaporeans will be 65 or older, and a threefold increase in the elderly to some 960,000 is expected. While advances in the detection and treatment of illnesses are prolonging life, older people will inevitably need greater medical care, and the trajectory of healthcare costs can only be upwards.

In its medical cost trends report, professional services consultancy Towers Watson found the healthcare inflation rate to be 8.4 per cent for Singapore in 2011, against a global pace of 10.5 per cent. Singapore's average annual healthcare inflation rate between 2006 and 2011 was just over 7 per cent.

Against this backdrop, the idea of a national healthcare insurance is attractive - even compelling. MediShield within the CPF umbrella is at the moment seen as a proxy for the national insurance scheme, yet it is neither all-inclusive nor comprehensive. To be sure, a country must strike a balance between the level of care it seeks to cover and keeping premiums affordable. MediShield is designed as a "catastrophe-protection" scheme, suitable for long hospital stays. The catch is that, like most commercial schemes, it has a list of exclusions such as pre-existing illnesses. By definition, this leaves out many of those who really need cover and who will also be rejected by commercial insurers. Steps are being taken to enhance the scheme, for example through expanding coverage to congenital conditions and extending the maximum age of cover. But that still fails to address the needs of many others who fall through the net.

What will it take to provide a truly national health scheme? Clearly, the first and arguably most important prerequisite is that it must be compulsory, enabling it to garner the largest pool of risks - the healthy and the unhealthy. It could retain MediShield's current mandate of providing catastrophe protection. This, together with deductible and co-payment features, would help mitigate the moral hazard conundrum, whereby overly generous coverage could encourage the insured to overuse their healthcare benefits. While private insurers may be happy for the scheme to be a public/private endeavour, a purely government initiative is more likely to help to keep costs down as the scheme should not be for-profit.

In the long run, even if MediShield remains unchanged, an ageing policyholder profile will take its toll. With fewer births, the pool of risks will in time shift disproportionately towards older and eventually less healthy people. The question of when a deficit would crop up would depend on the scheme's flexibility to raise premiums and the government's willingness to make up shortfalls. Meanwhile, the challenge today is to incentivise healthy habits; poor lifestyle habits are surely a leading factor driving medical cost increases. A holistic approach to healthcare cover, that includes preventive measures through healthy lifestyles, will go a long way towards creating a sustainable scheme.