Paper ID: 352
MAKING FREE MARKET WORK FOR HEALTHCARE
INDUSTRY
—THE CASE OF TAIWAN
Chiu-Cheng Chang
SOMMAIRE/
SUMMARY
In this paper, I first introduce Taiwan's National Health
Insurance (NHI) program briefly and its problems
extensively. NHI's approaches to its own problems are then
described and their shortcomings and doomed failures are
noted. Taiwan's new pension regulations are then
introduced and the integrated strategy for solving Taiwan's
NHI problems by combining NHI into individual retirement
account is thus recommended with reasons. This strategy is
expected to succeed because it will make free market work
in the health care industry by fundamentally change the
behavior of both consumers/patients and medical providers.
9.A Various Topics
Health
Paper ID:352
11am, June 1, 2006
Chaos is the law of nature;
order is the dream of man.
------- Henry Adams
TAIWAN’S NHI PROGRAM
• Established in 1995 without much deliberation.
• It is a government-run, single-payer national
health insurance program.
• It is financed through a mix of premiums and
taxes.
• It compensates a mixed public and private
delivery system predominantly on a fee-forservice basis.
• NHI enrollment is mandatory. More than 97
percent of Taiwan’s population is enrolled.
TAIWAN’S NHI PROGRAM
• It is financed on a pay-as-you-go basis with the
premiums being based on income.
• Individual families, employers, and the government all
pay a share of premiums.
• About 40 percent of the NHI’s total premium revenue
come from insureds, 33 percent from employers, and 27
percent from government.
• The share of the premiums paid by the insureds,
employers, and government varies greatly within the six
categories of population groups.
• The premium for an individual varies with the number of
dependents which is capped at three.
TAIWAN’S NHI PROGRAM
• Its benefits are very comprehensive including
even expensive treatment for HIV/AIDS and
organ transplants.
• Its benefit package is much broader than that of
the U.S. Medicare program.
• It offers the insureds complete freedom of choice
among providers and treatments.
• There is neither rationing nor queues for care.
• It is popular for patients to go doctor-shopping.
TAIWAN’S NHI PROGRAM
• Volume of health services has been increasing
far greater than what may be justified by
population growth.
• There are effectively no ceilings on utilization
resulting in high health care utilization rates.
• Taiwan’s outpatient visits have averaged around
15 per year, the highest in the world.
• Out-of-pocket spending by households
represents services not covered by the NHI.
• Out-of-pocket spending also includes user fees
and copayments for some NHI-covered services.
TAIWAN’S NHI PROGRAM
• Providers’ revenues come from NHI, patient user fees
and copayments and products and services not covered
by NHI.
• NHI pays providers on a fee-for-service basis at uniform,
national fee schedules.
• Other payment methods have been tried such as DRGs
for hospitals, primary care capitation.
• Even payments linked to clinical outcomes were tried in
an attempt to control costs and improve quality.
• Global budgets have been used by phasing in sector by
sector.
TAIWAN’S NHI PROBLEMS
• NHI’s fee schedule tends to be too low,
artificial, and arbitrary.
• Providers respond by expanding volume of
services, reducing resources for each unit of
service, and profiting from sale of products
and services not covered by NHI.
• Provider-induced demand for services, many
of which are not medically necessary.
• Fee-driven practice may lead to misdiagnosis,
improper treatment, or delays in proper
treatment.
TAIWAN’S NHI PROBLEMS
•
•
•
•
Doctor-patient relationships have been
deteriorating.
“Professional Fee” (PF) system
compensates doctors on the basis of their
revenue productivity.
Overuse and misuse of health care may
constitute up to a third of the NHI’s total
expenditure.
“Drug price black hole” leads to serious
overmedication of patients, including that
with antibiotics.
TAIWAN’S NHI PROBLEMS
•
•
•
•
Poor health care quality.
Lack of family physician system.
The failure of the referral system.
NHI has been financially insolvent.
NHI’S APPROACHES TO ITS
PROBLEMS
• NHI has tried to increase premiums but
encountered difficulties.
• NHI has increased copayments and
reduced drug prices but with limited effects.
• NHI has introduced “reasonable outpatient
volume” policy and payment reforms but
with limited effects.
• NHI has used global budgeting which has
had its intended effect only in the short run.
NHI’S APPROACHES TO ITS
PROBLEMS
• NHI has used fee-for-outcomes to move
providers toward greater accountability for
quality.
• NHI has constructed hospital quality indicators .
• NHI has introduced IC-card containing its
holder’s clinical and personal information.
• All these approaches are of limited value since
they are reactive and of short-term nature.
• All these approaches ignore that social
insurance programs can easily fall victim to the
Tragedy of the Commons.
TAIWAN’S NEW PENSION
REGULATIONS
• Although a dual system, all Taiwanese employees are
currently covered under individual account scheme.
• This scheme is very similar to those IRAs of Singapore’s
CPF, Malaysia’s MPF, and HK’s CPF.
• Each month employers must contribute
6％ of employees’ salary into their accounts.
• Employees may contribute 6％ of their salary tax free to
their own accounts.
• Taiwan is expected to follow international trend to
subdivide the individual accounts into ordinary subaccount, LTC sub-account etc.
THE INTEGRATED STRATEGY FOR
SOLVING TAIWAN’S NHI PROBLEMS
• All approaches to solving Taiwan’s NHI problems
have proven of very short-term or limited value
so far.
• This is because none of the ideas and
approaches have dealt with the Tragedy of the
Commons directly.
• My approach is to merge NHI into Taiwan’s new
pension system by creating a medical subaccount into which all the NHI premiums are
deposited.
• Under this approach, all the medical expenses
incurred by each individual must be paid from
that individual’s Medical Sub-account.
THE INTEGRATED STRATEGY FOR
SOLVING TAIWAN’S NHI PROBLEMS
• Medical Subaccount is cumulative and once the
accumulated balance reaches a certain amount,
the excess may be transferred into other subaccounts or withdrawn.
• Medical subaccount holders could use their
funds to buy such health insurance as Hospital &
Surgical, Major Medical, Dread Diseases,
Cancer Insurance, etc as they see fit.
• All medical consumers’ behavior is expected to
change completely under this approach.
• All medical providers’ behavior is likewise
expected to change completely.
THE INTEGRATED STRATEGY FOR
SOLVING TAIWAN’S NHI PROBLEMS
• All medical providers know all too well that under
our approach, patients are no longer taking
advantage of the Tragedy of the Commons.
• Providers must offer much better services in
order to keep their patients.
• Best providers could charge highest fees and
still attract enough patients.
• Worst providers could be wiped out of the
market.
CONCLUSION
• My approach to solve Taiwan’s NHI problems is
to empower consumers/ patients so as to
completely change providers’ behavior.
• Likewise consumers/ patients will no longer take
advantage of the Tragedy of the Commons.
• The behavior changes of both providers and
patients will enable free market mechanism to
work in Taiwan’s health care industry.
• Health care is too important NOT to be exposed
to the market and only through free market
mechanism can we make health care affordable
at great quality.