Taiwan's ailing health-care financing

By Loke Wai Chiong, Published The Straits Times, 24 Aug 2012

I WAS in Taiwan in June to speak at the Taichung Veterans General Hospital 30th Anniversary International Healthcare Forum, and it struck me then just how much Taiwan had developed since my last visit 24 years ago.

Taiwan's landscape, now complete with impressive skyscrapers and well-planned, tree-lined streets, is testament to its rapid progress. From 1960 to 2010, the per capita gross national product of Taiwan rose by over 200 times to more than US$19,000 (S$23,770).

Yet, as I interacted with fellow industry experts and practitioners within Taiwan, it became clear that the island's health-care system had not managed to keep up with its economic development.

Its current woes, based on extensive discussions I had with Taiwanese doctors, appear tightly linked to its financing model.

Since 1995, the Taiwanese health-care system has been characterised by a nationwide health insurance, the National Health Insurance (NHI).

Prior to the introduction of the NHI, close to 60 per cent of Taiwan's population - based on official statistics - was covered under separate insurance schemes such as labour and governmental employee insurance.

What the NHI system did was to consolidate these different schemes into a single national insurance system which is universal, comprehensive and financed by a combination of payroll tax and government subsidies.

Taiwan's NHI has an incredible 99 per cent coverage, meaning that nearly all of its 23 million people have access to health insurance. But while the NHI system has much to boast about, it also has several weaknesses which have led to some systemic problems in Taiwanese hospitals.

The underfunded healthcare system in Taiwan

The NHI is partially funded out of payroll tax and Taiwanese taxpayers are free to choose their health-care providers. This freedom of choice, however, has led to many problems.

For one, the Taiwanese tend to self-refer themselves to specialists of their own choice. Since medical costs are covered by insurance, they also seek top-notch medical services at the best hospitals - which might not be necessary all the time.

Hospitals naturally jumped at the opportunity to offer high-end services and then bill the government, leading to rapid increases in health-care costs during the initial stages of the NHI.

In 2003, the Taiwanese government introduced block budgeting for NHI, which is also practised in the budgeting for public hospitals in Singapore. This is essentially a cap on expenditure for each hospital.

This cap, coupled with the fact that the NHI does not get enough money from premiums to cover all its costs and is now suffering a deficit of about NT$60 billion (S$2.5 billion), means that hospitals now face severe budgetary constraints.

They do not have the necessary funding to upgrade technology, infrastructure and skills. Doctors are also underpaid, exacerbating the challenge of an acute shortage of doctors in Taiwan.

Worsening this situation are regulations preventing public hospitals from providing private care or offering new services or programmes, which could have provided additional streams of revenue to cash-strapped hospitals.

Patients' free choice has also led to a phenomenon where the most reputable hospitals struggle with too many patients while having to operate within ageing infrastructure and budget constraints.

The smaller hospitals experience declining business.

Another result of patients being able to see any doctor at any hospital is the erosion of the role of the family doctor as a "gatekeeper".

There is little incentive for a health-care provider to offer services across the continuum from womb to tomb or provide continuity of care for patients with chronic diseases.

The future of Taiwan's healthcare

Given Taiwan's fiercely political environment, it is unlikely that taxes will be raised to increase NHI's premiums and provide downstream funding to hospitals.

There are more challenges ahead. Taiwan recently announced plans to raise the bar for national hospital accreditation. These new requirements come with no extra funding or resources.

Hospitals which fail to achieve accreditation can be downgraded and consequently accorded a smaller share of the budget pie.

Doing more and better with less is a tall order. The best bet for hospitals in Taiwan is for them to undergo a thorough review of their processes to reduce costs and waste. From my experience working with hospitals around the world, careful definition of what really adds to patient value and eradicating wastage - long waiting times, excessive processing and poor work flow just to name a few - can lower costs by up to 30 per cent.

At the system level, a review and redesign of incentives and drivers embedded within the nearly two decade-old NHI may be timely.

For a start, the government could examine how to better ensure appropriate cost and pricing of services, and how to carry out structured economic evaluation of new treatments and technologies.

The NHI system has many strengths - it enjoys strong approval from the Taiwanese, high coverage rates and one of the lowest administrative costs in the world.

If the government can improve the quality of services provided while keeping expenditure in check, the Taiwanese NHI system might just become a model for other economies keen to adopt a universal insurance system.

The writer is director, Global Healthcare Practice, KPMG in Singapore.

* Taiwan's social welfare system in predicament after expansion

By Qi Dongtao, Published The Straits Times, 6 May 2013

TAIWANESE approaching retirement are worried, and with good reason. According to a recent actuarial report, the Labour Insurance Fund, which provides pensions for retired workers, will go bankrupt in 15 years if contributions are not increased.

In October and November last year, about 58,000 people reacted to the news by withdrawing lump-sum payments amounting to NT$79.4 billion (S$3.4 billion). It was the third-highest number of claimants in the history of the fund since it was established in 1950. Public concern increased when the local media revealed that other major government insurance and pension funds faced similar problems. These included the Civil Servant Pension Fund, National Pension Fund and the National Health Insurance Fund.

Taiwan's welfare system has also been attracting criticism for another reason: its continuing tendency to favour people who work in particular professions.

Both these problems have their roots in Taiwan's immediate post-World War II history, and the subsequent increased competition between the Kuomintang (KMT) and the Democratic Progressive Party (DPP) resulting from the democratisation of the 1980s and 1990s.

Taiwan's social welfare history since 1945 may be viewed as a development from a selective to an inclusive developmental welfare state. Developmental welfare state is the term used by some social policy scholars to characterise the social welfare models of East Asian economies since World War II. These include Japan, South Korea, Hong Kong, Taiwan and Singapore.

One of the major things these economies have in common that distinguishes them from the advanced economies in Europe and North America, is that their social welfare policies are subordinate to, and an instrument of, national economic development.

The developmental welfare state hesitates to increase social welfare spending because such spending will have to be funded by tax and premiums paid by employers. This increases business costs and thus constrains rapid economic growth. The social welfare spending of developmental welfare states in the early decades following World War II was therefore low.

When the social welfare budget is not large, social welfare programmes have to be selective to ensure efficient spending. This usually means that the population that contributes to economic growth most will receive better social welfare. As a result, in the selective developmental welfare state, civil servants and employees of large firms are usually the first to enjoy better social welfare.

In the case of Taiwan, early social welfare policies were influenced by other factors as well. In 1945, as a defeated government retreated from mainland China to Taiwan with over one million soldiers and mainland Chinese, the KMT government's legitimacy in Taiwan was threatened. Apart from local resistance, there was also the possibility of military action by the mainland Chinese government.

To consolidate its domestic legitimacy, the KMT therefore selected those working in the military, government and schools - the most important groups for maintaining its power - as the first beneficiaries of its social welfare programmes.

Because mainland Chinese were over-concentrated in these three fields, the KMT government's social welfare policy came to be criticised as not only highly selective but also ethnocentric. Although this favouritism has been gradually reduced in more recent years, the distinction remains an important - and very divisive - one.

The democratisation of the 1980s and 1990s led to further changes as rival parties battled for electoral support. Indeed, social welfare spending as a percentage of total government expenditure almost doubled from an average of 6.4 per cent in the 1980s to 12.3 per cent in the 1990s.

The old-age allowance issue is a good example of how this happened. It was first raised by the DPP in 1993 to attract the votes of the elderly in city and county mayor elections. A few months after they won office, however, some DPP mayors had to stop paying the promised old-age allowance because of the financial difficulties facing their local governments.

In the 1997 local elections, the KMT candidates raised the old-age allowance issue first, forcing DPP candidates to respond with their own proposals. Since then, the old-age allowance issue has become a permanent topic in Taiwan's local and national elections, with rival candidates offering higher and higher allowance levels.

That said, Taiwan's social welfare system does meet the economic and social needs of its people in many areas. It has also had an increasingly positive effect on income equality.

And while the financial sustainability of the social welfare system is a major problem, the system probably does have room to expand. This is suggested by the fact that public social spending as a percentage of gross domestic product in Taiwan is about 10 per cent. By comparison, the average social welfare spending in the Organisation for Economic Cooperation and Development countries is about 20 per cent.

Taiwan's rapidly ageing population also justifies the appeal for more social spending. By 2030, the proportion of the population aged 65 years or older will reach 25 per cent. This will inevitably increase the pressure for more social welfare assistance from the government.

During the 2000-2007 period, the DPP administration significantly reduced the defence budget and increased social welfare spending. Subsequent KMT administrations have since felt obliged to maintain this higher spending level.

But conditions have not been favourable for further social welfare expansion in recent years. This is because Taiwan's economic growth has slowed, resulting in dwindling government revenue and fast-increasing government debt. After the rapid expansion in social welfare in the 1990s, Taiwan has entered a period of adjustment in which it has sought to address various issues arising from its expanded and now highly complex social welfare system.

Local and national elections, however, have become even more competitive. Civil society is also better able to challenge the government on social welfare issues. As a result, regardless of the party in power, governments have generally avoided substantial social welfare reform because they lack the financial resources and political will to implement real change.

The writer is research fellow at the East Asian Institute (EAI), National University of Singapore. This is an edited excerpt from an EAI background brief published on Jan 31, 2013.

* What ails Taiwan's national health insurance?

By Qi Dongtao, Published The Straits Times, 7 May 2013

DESPITE strong controversy, the Legislative Yuan, Taiwan's Parliament, passed a controversial amendment to the National Health Insurance Act (NHI) last September. The move was designed to avoid bankruptcy by dealing with an accumulated debt reportedly amounting to more than NT$130 billion (S$5.4 billion). A new 2 per cent increase on premiums was imposed starting in January to temporarily address the insolvency issue.

Four years after its introduction in 1995, the NHI started recording deficits, and they have been reported on an increasing scale ever since.

Despite this, Taiwan's NHI has also been widely recognised by the international community as one of the best health-care systems in the world. One of the main reasons for its outstanding performance has been because it is a single-payer system, that is, the Taiwanese government is solely responsible for operating it. The government sets the rate and collects the premiums, contracts health-care services to medical institutes, establishes the standards for service quality and fees, pays for medical services, and centralises the administration.

In this sense, the NHI is like the model of a planned economy in which an efficient administration seeks to contain costs and provide equal access to health care for the poor. However, when the government is constrained by economic, political and social forces, its ability to react to changing circumstances is much limited.

This is reflected in the government's inability to tackle the problem of financial insolvency. Election pressure has discouraged politicians from supporting increased NHI premiums. This has been aggravated by slower economic growth in the past decade, leading to wage stagnation and a corresponding rise in public resistance to higher premiums.

The NHI is mainly financed by premiums from the public, employers and the government. In 2009, contributions were 38 per cent, 37 per cent and 25 per cent, respectively. The premium is 5.17 per cent of an individual's monthly salary - shared by the individual, the employer and the government in different proportions according to occupation.

The government pays the full premium for low-income households, veterans, military conscripts, alternative servicemen, military school students on scholarships, widows of military personnel on pension. Employers, the self-employed, independent professionals and technical specialists enjoy no subsidy. Most people fall under a sub-category that includes employees of public or privately owned enterprises or institutions. They have to foot 30 per cent of the premium while the employer contributes 60 per cent and the government the rest.

The most obvious achievement of the NHI is the greatly improved access to health care among the previously uninsured population, who were mainly from disadvantaged groups such as the unemployed, the retired, women and children. The performance of the NHI on cost containment has also been highly praised by the international community.

For example, the NHI is known for its low administrative expenses. In 2009, this came to less than 2 per cent of total NHI expenditure, lower than the 2.7 per cent in Canada and 7.3 per cent in the United States. Patient waiting times are also very short.

These achievements are at least partly due to the NHI's well- integrated IT system. Every Taiwanese has a health insurance identity card that keeps the detailed record of his or her medical history. Medical institutes submit claims to the government electronically. This helps officials monitor costs and improve efficiency.

In contrast to its global acclaim, however, the NHI has often been mired in domestic controversies. The most serious problem, of course, is its financial deficit. Four years after its introduction, the NHI's annual revenue was outpaced by its expenses. This annual deficit has widened considerably in recent years. By the end of 2009, the accrual deficit was about NT$58.05 billion.

Another problem is the overuse of medical resources. This is reflected in the high number of clinic visits by patients, as well as over-prescription and unnecessary medical services provided by doctors. Examples of the latter include mechanical ventilation and renal dialysis. Patients using these two treatments make up only 0.3 per cent of the population, but the cost amounts to about 12 per cent of total NHI expenditure.

Yet another problem is the NHI's occupation-based premium system, where individuals in different jobs get different premium subsidies from the government, resulting in some low-income families having to pay higher premiums than well-to-do families.

NHI's system of payment to contracted medical institutes has also come in for criticism. It is a fee-for-service-based system with a global budget.

Each year after negotiating with representatives of the contracted medical institutes, the government provides an overall global budget for the whole system. There are five sectoral global budgets - hospital, primary care, dental, traditional Chinese medicine and kidney dialysis.

But while this payment system is very effective in containing costs, medical institutes have great difficulty raising revenue because they must compete with one another to provide more services at lower cost. So they pass these competitive pressures to their staff, especially doctors and nurses, through low salaries and productivity-based bonuses.

As a result, there has been a rapid fall in the number of doctors in several low-paid but important medical departments, such as surgery, obstetrics and gynaecology, paediatrics and emergency.

Meanwhile, the 2 per cent supplementary premium is only a temporary solution to the insolvency issue. Many observers have urged the Department of Health to start planning for the future now by expanding the premium base to include a household's total annual income.

With a rapidly ageing population, medical costs in Taiwan are unavoidably on the rise. But it will also become more difficult for the government to increase NHI revenue due to the island's unpromising economic prospects.

Slow wage increases have and will continue to harden public objections to any future premium rate hike.

The writer is a research fellow at the East Asian Institute (EAI), National University of Singapore. This is an edited excerpt from an EAI background brief published on Jan 31, 2013.

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