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Financing Health Care in Taiwan and Korea

Financing Health Care in Taiwan and Korea. “ Innovations in Health Financing ” International Conference in Memory of Juan Luis Londono. Mexico City, Mexico April 20 - 21, 2004. Tsung-Mei Cheng International Forum, Princeton University. HEALTH CARE FINANCING IN TAIWAN AND KOREA.

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Financing Health Care in Taiwan and Korea

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  1. Financing Health Care in Taiwan and Korea “Innovations in Health Financing” International Conference in Memory of Juan Luis Londono Mexico City, Mexico April 20 - 21, 2004 Tsung-Mei Cheng International Forum, Princeton University

  2. HEALTH CARE FINANCING IN TAIWAN AND KOREA I. TAIWAN AND KOREA AT A GLANCE A. Country profile

  3. TAIWAN AND KOREA: COUNTRY PROFILE Taiwan Korea Population (million) 22.52 48 Population aged 65 and over 9.02% 7.6% GNP per capita (US $) $12,900 $10,013 THE* as % of GDP 6% 5.9% Infant mortality rate 5.35 6.2 (per 1000 live birth) Life expectancy: Female 78.8 79.2 Male 73.0 71.7 * THE = total health expenditure

  4. HEALTH CARE FINANCING IN TAIWAN AND KOREA I. TAIWAN AND KOREA AT A GLANCE A. Country profile B. Genesis of National Health Insurance (NHI)

  5. GEENESIS OF TAIWAN’S NHI Over 10 separate insurance schemes existed before NHI’s establishment in March, 1995: 1950 Labor Insurance (40.12% of population) 1958 Government Employee Insurance (8.06%) 1985 Farmer’s Insurance (8.21%) 1990 Low-Income Household Insurance (0.55%) Total population covered pre-NHI in 1995: 56.94%

  6. GENESIS OF TAIWAN’S NHI(Continued) How Taiwan established its NHI: 1986-1993 (7 1/2 yrs.) Planning 1993-1994 (18 mos.) Legislation March 1, 1995 Implementation Additional 41% pop. 2003: NHI covers 99% of the population

  7. IMPACT OF TAIWAN NHI’S ESTABLISHMENT ON TOTAL NATIONAL HEALTH EXPENDITURE NHE/ Increase Increase YearGDP (%)NHE (%)GDP (%) 1992 4.77 13.44 10.98 1993 4.88 13.39 10.85 1994 4.93 10.44 9.21 1995 5.27 15.99 8.58 1996 5.29 9.82 9.41 1997 5.27 8.06 8.47 1998 5.33 8.59 7.33 1999 5.46 6.37 3.93 2000 5.44 3.65 4.02 Source: Republic of China 2000 Health statistical Trends, Department of Health, Taiwan, 2002, p. IV-9

  8. GENESIS OF KOREA’S NHI % Population Covered NHIMAP* 1977 National Health Insurance Act 8.6 5.7 Firms with over 500 workers 1980 Firms with over 300 workers, 24.2 5.6 government and private school employees 1985 Firms with over 16 workers 44.1 8.0 (since 1982) 1988 Rural self-employed (farmers -- -- and fishermen 1989 Urban self-employed. Universal 93.9 9.2 coverage achieved; includes firms with over 5 workers 1999 96.4 3.5 *Medical Assistance Program (MAP) for the very poor Source: Adapted from OECD Reviews of Health Systems: Korea, OECD 2003, p.19

  9. IMPACT OF KOREA’S NHI ON TOTAL NATIONAL HEALTH EXPENDITURE NHE/ % Increase % Increase YearGDP (%)NHE Expend.NHI Revenue 1991-1992 4.5 19.25 15.47 1992-1993 4.7 16.60 11.25 1993-1994 4.7 14.62 12.19 1994-1995 4.7 27.87 19.18 1995-1996 4.7 27.34 18.11 1996-1997 4.9 20.59 13.92 1997-1998 5.0 12.73 8.94 1998-1999 5.1 9.36 8.05 1999-2000 5.4 11.07 9.72 2000-2001 -- 32.1720.82 Average annual rate of growth (%): 19.16 13.76 Source: Adapted from OECD Reviews of Health Care Systems: Korea, OECD 2003, p. 56

  10. HEALTH CARE FINANCING IN TAIWAN AND KOREA I. TAIWAN AND KOREA AT A GLANCE II. A FRAMEWORK FOR COMPARING HEALTH SYSTEMS

  11. A FRAMEWORK FOR THINKING ABOUT HEALTH-CARE FINANCING TOPIC B: Organizing risk pools TOPIC A: TOPIC C: INSURANCE POOLS Sources of funds Paying providers of health care GOVERNMENT PROVIDERS OF CARE EMPLOYERS HOUSEHOLDS Delivering health care to patients

  12. THE DELIVERY SYSTEM AT A GLANCE Taiwan Korea Private sector dominance: Yes Yes Doctors in private practice 97.3% 90% Private hospitals 84.8% 90% Privately-owned beds 67.9% 90% Closed staff system for hospitals Yes Yes Bed occupancy rate 62.8% 65.8%

  13. THE DELIVERY SYSTEM AT A GLANCE (Continued) Taiwan Korea Gate-Keeper system No On paper Freedom to choose providers Yes Yes Physician/population/1000 pop. 1.3 1.3 Nurse/population/1000 pop. 3.6 1.4 Utilization (no. visits/prs./yr.) 14.4 8.8 Waiting list No No

  14. A FRAMEWORK FOR THINKING ABOUT HEALTH-CARE FINANCING TOPIC B: Organizing risk pools TOPIC A: TOPIC C: INSURANCE POOLS Sources of funds Paying providers of health care GOVERNMENT PROVIDERS OF CARE EMPLOYERS HOUSEHOLDS 4. Delivering health care to patients

  15. IN THEORY, PREMIUMS CAN BE SET AS: • % of gross wages or income (ability to pay) • Per capita (large families pay more than small ones) • Actuarially (depending on health status) • Both Taiwan and Korea have chosen the first approach in assessing premiums, with the exception of Taiwan’s residents in remote, mountainous areas and off-shore islands where financing is through capitation.

  16. SOURCES OF PREMIUM REVENUE 2002 OF TAIWAN’S NHI: Who writes the checks to the Bureau of National Health Insurance? GOVERNMENT 28% HOUSEHOLD 39% EMPLOYER 33%

  17. SOURCES OF TAIWAN’S NHI PREMIUM CONTRIBUTION (Contribution rate 2003: 4.55% gross wage) “Population Category”InsuredEmployerGovernment 1st Private-sector employees 30% 60% 10% Government employees 30% 70% -- Self-employed, employers 100% -- -- 2nd Union workers 60% -- 40% 3rd Farmers, fisherman 30% -- 70% 4th Military personnel -- -- 100% 5th Low-income households -- -- 100% 6th Veterans -- -- 100%

  18. SOURCES OF KOREA’S NHI PREMIUM CONTRIBUTION (Contribution rate 2003: 3.96% gross wage) InsuredEmployerGovernment Private sector employees 50% 50% -- Government employees 50% -- 50% Private school employees 50% 30% 20% Self-employed* 55% -- 45% The indigent -- -- 100% Source: * Yang, B.M. and Chun, C.B., “Evaluation of NHI Reforms in Korea”, iHEA presentation, 2003, p.5

  19. A FRAMEWORK FOR THINKING ABOUT HEALTH-CARE FINANCING TOPIC B: Organizing risk pools TOPIC A: TOPIC C: INSURANCE POOLS Sources of funds Paying providers of health care GOVERNMENT PROVIDERS OF CARE EMPLOYERS HOUSEHOLDS 4. Delivering health care to patients

  20. CHARACTERISTICS OF THE NHI SYSTEM TaiwanKorea Single payer Yes Yes Administered by government BNHI NHIC Mandatory enrollment Yes Yes Administrative Cost (% of THE) 1.76% 4.0% Low premium rate (2003)4.55% 3.96% (% of gross wage) Expenditure cap (global budget)Yes No

  21. CHARACTERISTICS OF THE NHI SYSTEM (Continued) TaiwanKorea Payroll-related premium rate Yes Yes Benefits comprehensive Yes No Copayments for ambulatory, Yes Yes inpatient care, and drugs Electronic claims processing 100% ? Smart-Card (IC Card) Yes No Satisfaction (% of survey 74% Not high respondents)

  22. COMPONENTS OF TOTAL SPENDING: Who writes the final check to providers? Taiwan (2001) Korea (1999) 60% 56% 50% 44% 40% 33% 31% 30% 20% 11% 8% 7% 10% 4% 0% NHI Out-of-Pocket Government Others (incl. PHI) SOURCE: Taiwan: Health Statistical Trends 2001, Dept. of Health, Taiwan, 2002 Korea: OECD Reviews of Health Systems: Korea, OECD, 2003, p.17

  23. EQUITY IN FINANCING OF TAIWAN’S NHI • Measured by WHO’s FFC index • Equity in the financing of Taiwan’s health care has improved*: • 0.881 (1994) 0.991 (1998) • Some researchers remain, however, concerned with Taiwan’s relatively high out-of-pocket spending (31%) Source: Bureau of national Health Insurance, Department of Health, Taiwan

  24. EQUITY IN FINANCING KOREA’S NHI • The financing of Korea’s NHI is highly regressive: • Out-of-pocket (OOP) payments (44%) constitute almost 1/2 of the total national health spending • This causes problems with both equity in the financing of, and access, to care • High OOP spending is the No. 1 reason given by Koreans for their dissatisfaction of the health care system

  25. A FRAMEWORK FOR THINKING ABOUT HEALTH-CARE FINANCING TOPIC B: Organizing risk pools TOPIC A: TOPIC C: INSURANCE POOLS Sources of funds Paying providers of health care GOVERNMENT PROVIDERS OF CARE EMPLOYERS HOUSEHOLDS 4. Delivering health care to patients

  26. PAYING PROVIDERS: TAIWAN AND KOREA Providers in both Taiwan and Korea obtain their revenues from 3 sources: 1. Payments by the NHI 2. Patient user fees, copayments and coinsurance 3. Proceeds from the sale of products and services not covered by the NHI

  27. HOW DOES TAIWAN’S NHI PAY PROVIDERS Using a set of mixed payment methods, the single payer Bureau of National Health insurance (BNHI) pays by: • Fee-for-service based on national, uniform fee schedules (limited use of RBRVS to date) • Diagnostic-related-groups (DRGs) for hospitals (50 DRGs as of 2002; ongoing expansion • Capitation for residents in remore mountainous areas and off-shore islands • Fee-for-performance (FFP) based on both process and outcome of care

  28. HOW DOES KOREA’S NHI PAY PROVIDERS • Fee-for-Service payment system based on a national, uniform fee schedule using Resource-Based-Relative-Value-Scale (RBRVS) • NHIC as single payer pays providers after claims review and approval by the Health Insurance Review Agency (HIRA), the other arm of the NHI under the Ministry of Health and Welfare • In Korea, control of the level of fees has been the major tool of cost containment

  29. HEALTH CARE FINANCING IN TAIWAN AND KOREA I. TAIWAN AND KOREA AT A GLANCE II. A FRAMEWORK FOR COMPARING HEALTH SYSTEMS III. MANAGING FINANCIAL CRISIS A. Taiwan

  30. Trend of NHI Financial Status Unit: quarterly average in NT$bn Medical spending Average growth rate: 6.3% Premiumrevenues Average growth rate: 4.1% Source: Bureau of National Health Insurance, Department of Health, Taiwan.

  31. TAIWAN’S NHI - GOVERTMENT’S RESPONSE TO THE FINANCIAL CRISIS of 2000-2002 • Increase premium rate: from 4.25% to 4.55% • Increase copayments • Price reductions: • - Pharmaceuticals price cuts • - “Reasonable patient volume” introduced • Payment reforms: DRGs introduced • Others: Increase claims reviews, cuts in medical education subsidies • The Ultimate tool: Global budgets

  32. THE ULTIMATE COST-CONTAINMENT TOOL: Global budgets, by sector % Total YearNHI Spending Dental 1999 8% Chinese medicine 2000 4% Primary care 2001 55% Hospitals 2002 33%

  33. RESULTS OF TAIWAN GOVERNMENT’S RESPONSE TO THE 2002 FINANCIAL CRISIS I. Demand-side and supply-side measures aimed at containing cost and increasing revenue paid off. NHI financial balance was restored; it is now good through December 2004. No premium increase for 2004 II. However, challenges remain for the longer- term financial sustainability of the NHI. Chief “usual suspects” for higher future spending: - New medical technology and drugs - Ageing of population: Actually not a major cost driver -- see paper by Reinhardt, U.E. in Health Affairs, November/December 2003

  34. HEALTH CARE FINANCING IN TAIWAN AND KOREA I. TAIWAN AND KOREA AT A GLANCE II. A FRAMEWORK FOR COMPARING HEALTH SYSTEMS III. MANAGING FINANCIAL CRISIS A. Taiwan B. Korea

  35. KOREAN NHI’S FINANCIAL CRISIS OF 2000 Financial status of NHI before the financial crisis: - Financial instability due to low contribution rates and inadequate rate increases - FFS payment system led to large volume increases - Volume increases chiefly responsible for the 10x spending increase 1982-1999 - Benefits increased in same period - Spending grew18%/yr.1991-2000, while revenue grew 13%/yr. in same period - Since 1997 NHI has run deficits - At the end of 2001, NHI deficit = 20% of THE

  36. KOREAN NHI’S FINANCIAL CRISIS OF 2000 Immediate cause: 2000 Separation Reform (SR) What is SR: - Doctors’ privilege to sell drugs to patients at a profit directly taken away and given to pharmacists - Doctors can only prescribe after SR - SR led to a tremendous loss of income to doctors Why the SR-- Goals of SR: - Reduce overuse of drugs (30% THE) - Improve the quality of prescriptions

  37. KOREAN NHI’S FINANCIAL CRISIS OF 2000 • Although perfectly well-intended, SR led to a number of consequence, both intended and unintended: • Evidence that drug share of THE decreased • But, the response of the providers and the response of the government to the providers’ response led ultimately to the NHI’s Financial crisis of 2000

  38. SEPARATION REORM AND THE KOREAN NHI FINANCIAL CRISIS of 2000 What happened: - Doctors’ strikes - Fee hikes -- 41% - Volume of outpatient visits up 22.6% 1999-2001 - Break-down of trust between government and the medical profession even though both doctors and pharmacists were winners

  39. KOREA NHI’S RESPONSE TO THE FINANCIAL CRISIS FOLLOWING SR(continued) The Korean government, however, sought to stabilize NHI finances by 2006 through the May 2001 Special Act for Fiscal Stability: • Increase premium rate by 9% / yr. till 2004 • Increase co-payments • Step up claims reviews for fraud • Increase government subsidies to self-employed • Improve ways to assess income of self-employed • Increase sharply tobacco taxes

  40. RESSULT OF THE KOREAN GOVERNMENT’S RESPONSE TO THE FINNANCIAL CRISIS • Measures taken by the Korean government were mostly focused on the REVENUE side. • On the EXPENDITURE side, the government used less effective means to curb spending such as tight control of fees until recently • It did NOT use known effective means such as restrictions on volume expansion, global budget, evidence-based-medicine, manpower and facility planning, etc. • Financial situation did improve, but still in the RED • Longer-term structural weaknesses persist

  41. KOREA’S OTHER 2000 REFORM: INTEGRATION REFORM • To improve efficiency and quality of the NHI, the Korean government in July 2000 merged all 389 separate insurance societies that existed at the time into one single insurer: National Health Insurance Corporation (NHIC) • NHIC still administered 2 separate funds (employed and self-employed) • In July 2003, NHIC became a single-payer after merging the 2 funds into one, thus becoming a true SINGLE PAYER

  42. IMPACT OF THE 2000 INTEGRATION REFORM • Overall, impact of Integration Reform on NHI was financially NEUTRAL: • Did not exacerbate expenditure • Nor reduce revenues

  43. HEALTH CARE FINANCING IN TAIWAN AND KOREA I. TAIWAN AND KOREA AT A GLANCE II. A FRAMEWORK FOR COMPARING HEALTH SYSTEMS III. MANAGING FINANCIAL CRISIS IV. LESSONS LEARNED

  44. LESSONS FROM TAIWAN’S EXPERIENCE A confluence of several conditions existed at the time before Taiwan had its NHI which ultimately enabled the successful introduction of the NHI: 1. Strong public demand for universal health insurance 2. Entrenched political party with parliamentary majority challenged by rival party and determined to stay in office 3. Economic prosperity that made financing universal health care possible

  45. LESSONS FROM KOREA’S EXPERIENCE (SR) PRIMUM NON NOCERE! (First Do No Harm!) 1. Efforts to reformmust avoid shocking any part of the system too drastically 2. Make changes gradually over time and allow long phase-in periods 3. Never cut the income of any powerful interest group -- it is the kiss of death. Instead: a. Buy in all constituents by temporarily spending more money on them b. Control gradually over time the future growth of incomes to make the system efficient and affordable

  46. GENERAL LESSONS LEARNED Advantages of a single payer system: -Low administrative cost - More equitable for both financing of and access to care - Ideal platform for cost- and quality control through its monopsony power, potential superiority of IT infrastructure, and potential for use of evidence-based medicine to improve quality

  47. GENERAL LESSONS LEARNED (Continued): Disadvantages of a single payer system: - Policy and managerial errors can have major system-wide impact, e.g., under-funding, mispricing - Political interference - system bows to pressures from the public and their representatives, e.g., Taiwan public’s resistance to premium increases led to NHI’s financial crisis in 2002

  48. GENERAL LESSONS LEARNED (Continued): Alignment of incentives for providers and for patients /consumers are essential for both cost containment and longer-term financial sustainability of the NHI: A. For providers: Payment system should incentivize toward evidence-based medicine to promote quality and efficiency B. For patients/consumers: Provide clinically appropriate care without falling victim to the “Tragedy of the Commons”*

  49. THE END

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