MAKING FREE MARKET WORK FOR HEALTHCARE INDUSTRY —THE CASE OF TAIWAN

2. Paper ID: 352 MAKING FREE MARKET WORK FOR HEALTHCARE INDUSTRY —THE CASE OF TAIWAN Chiu-Cheng Chang

3. 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.

4. Paper ID:352 11am, June 1, 2006 9.A Various Topics Health

5. Chaos is the law of nature; order is the dream of man. ------- Henry Adams

6. Establishedin 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-for-service basis. NHI enrollment is mandatory. More than 97 percent of Taiwan’s population is enrolled. TAIWAN’S NHI PROGRAM

7. 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

8. 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

9. Volume of health services has beenincreasing 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

10. 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 DRGsfor 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 PROGRAM

11. 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

12. 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

13. Poor health care quality. Lack of family physician system. The failure of the referral system. NHI has been financially insolvent. TAIWAN’S NHI PROBLEMS

14. NHI has tried to increase premiums but encountered difficulties. NHI has increased copayments andreduced 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

15. 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’sclinical and personal information. All these approaches are of limited valuesince 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. NHI’S APPROACHES TO ITS PROBLEMS

16. Although a dual system, allTaiwanese employees are currently covered under individual account scheme. This scheme is very similarto those IRAs ofSingapore’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 sub-account, LTC sub-account etc. TAIWAN’S NEW PENSION REGULATIONS

17. 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 sub-account into which all the NHI premiums are deposited. Under this approach, all the medical expenses incurred by each individualmust be paid from that individual’s Medical Sub-account. THE INTEGRATED STRATEGY FOR SOLVING TAIWAN’S NHI PROBLEMS

18. Medical Subaccount is cumulative and once the accumulated balance reachesa certain amount, the excess may be transferred into other sub-accounts 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

19. 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. THE INTEGRATED STRATEGY FOR SOLVING TAIWAN’S NHI PROBLEMS

20. 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. CONCLUSION