The Looming Challenge for National Healthcare Insurance

For the time being, Taiwan’s highly popular universal healthcare program is still solvent. But due to rising costs and a rapidly aging population, the system may run out of funds within two years unless increased premiums and other reforms are put in place.

Taiwan’s National Health Insurance (NHI) system is currently living beyond its means. For the last two years, expenditures have outpaced revenues and only a reserve fund is keeping the system afloat.

The reserve fund is being steadily depleted, however. Experts say it will be empty by next year or the year after, at which point the government will have no alternative but to make the politically unpopular move of raising premiums. Even broader and more fundamental reforms may be needed.

But with a presidential election coming up in January, for the moment the government is holding off on announcing any changes to Taiwan’s compulsory universal healthcare system. The program enjoys a public satisfaction rating of around 87%, according to the National Health Insurance Administration (NHIA).

Instead, says NHIA Director General Lee Po-chang, the administration’s current focus is on improving management efficiency through the use of cloud computing and other advanced technologies adopted over the last several years. These systems help reduce waste by, for example, raising an alert when a patient takes the same expensive medical test at two different hospitals or identifying suspected fraudulent claims from dishonest doctors.

“Right now the financial status of the NHI is in good shape,” says Director General Lee. “However, due to factors such as an aging population and recent medical advances, financial pressure will continue to mount in the future.”

Cheng Shou-hsia, a professor with the College of Public Health at National Taiwan University, says that Taiwan in fact has one of the world’s most efficient universal healthcare services. “We do not burn too much money in the healthcare system,” says Cheng, a former deputy minister of health and welfare under the previous Kuomintang government.

Healthcare spending in Taiwan in 2017 amounted to a mere 6.4% of GDP, according to the Ministry of Health and Welfare (MOHW). In contrast, healthcare spending in the United States – the most prominent international example of a multi-payer healthcare system – amounted to 17.2% of GDP, the highest among OECD countries. At least in part, the high figure is generally attributed to inefficiencies created by the multitude of public and private health insurance systems and the voluminous paperwork involved (see the accompanying article). Switzerland and France, which have their own versions of universal healthcare, spend 12.3% and 11.5% of GDP respectively on healthcare.

Still, Taiwan’s system is not without its weaknesses, including the prospect of insolvency in a few years if the premium rate, currently 4.69%, is not raised. According to the NHIA, the total national health insurance fund – including the reserve surplus – stood at NT$227.6 billion as of the end of June last year.

At the same time, NHI expenditures have been growing at a much faster clip than the Taiwan economy for at least five years. Spending increased by 5.63% in 2016, in contrast to Taiwan’s GDP growth that year of 1.4%. In 2017, expenditures rose by 5.54%, nearly double the 2.84% GDP growth.

Starting in 2017, expenditures also began outpacing premium revenues for the first time since 2013 when “second-generation” NHI reforms were instituted to rescue the system from a deepening financial hole. The system operated at a deficit of NT$9.8 billion in 2017, and preliminary NHIA data shows further losses of NT$10 billion for the first six months of last year.

The second-generation reforms provided temporary financial relief by, among other things, raising the government’s contribution rate to the system to at least 36% and installing supplementary premiums on six categories of non-payroll income, such as stock dividends. “The supplementary insurance provided a large increase in income,” Cheng says. “That’s why there’s been a surplus until now.”

NHI expenditures in 2017 accounted for 53% of Taiwan’s total healthcare spending of NT$1,127 billion, indicating that Taiwanese still pay for much of their medical care out of pocket or through private health insurance.

How the system works

NHI’s structure as a “single-payer system” helps keep healthcare spending relatively low through the power of monopsony – a market situation where there is only one buyer. Every year, the NHIA adopts a system-wide global budget, which this year stands at NT$714 billion. It then uses its powerful market leverage with contracted providers – which include 93% of the island’s hospitals and clinics, as well as pharmacies, drug companies, and medical device makers – to hold spending within budget by playing a central role in setting drug and medical device prices, as well as medical service fees.

“Because we control the global budget, it is easy for our government to offer [reasonably priced] medical care to all the Taiwan people,” NHIA Director General Lee says.

Enrollment in the NHI system is compulsory for all local citizens. The program offers a comprehensive set of services, including outpatient visits, hospitalization, Western and Chinese medication, and dental treatment. By international standards, these services are cheap in Taiwan. For example, copayment for dental treatment and Chinese medical care is only NT$50 per visit.

NHI’s income is mainly derived from premiums shared by the insured, their employers, and the government. Additional sources of funds include public-welfare lottery earnings and a welfare surcharge on tobacco sales.

The amount of premium paid by the insured depends on their salaries. Typically, employees of private-sector organizations contribute 30% of the premium, the employer 60%, and the government 10%. The total is calculated by taking 30% of an employee’s salary and multiplying it by the premium rate. The government subsidizes the premiums in full for the poor and for veterans, while veterans’ dependents pay only 30%.

Each autumn the 35-member National Health Insurance Committee meets to negotiate the following year’s global budget, which must fall within an expenditure range set by the Executive Yuan. The Committee consists of representatives from business and labor groups, government officials, academics, and healthcare providers such as hospitals. Another committee determines a point-based fee-for-service schedule for paying providers, such as doctors and hospitals.

A budget cap is then set for four sectors: dentistry, Chinese medicine, Western-medicine clinics, and hospitals. Each sector receives a basic benefit budget (calculated based on such factors as the number of insured people and the expected aging of the population), along with a special program budget.

Each sector’s basic benefit budget is then allocated to six geographic regions based on their share of total spending and the number of beneficiaries. The individual regions manage their budgets through the nationwide point-based fee schedule and a region-specific conversion factor. Providers bill the regional NHIA according to the points they’ve acquired and receive payment equaling the number of billed points multiplied by a floating region-specific conversion factor.

“For a medical operation, we may give 10,000 points,” explains NHIA Director General Lee. “It doesn’t mean NT$10,000. Each point could be worth less than NT$1.”

An article published in late 2017 in the journal Social Science & Medicine notes that while the point-based fee schedule has been periodically adjusted in the past, “these adjustments usually were not based on the actual costs of service provision and did not reflect changes in the Medical Price Index.”

The prices of many services have been frozen, and the real prices adjusted by the Medical Price Index have gone down over time.

This point-based system contributes to one of NHI’s main deficiencies by incentivizing doctors to take on as many patients as they can and to provide these patients with services with a high profit margin, including radiologic imaging such as CT scans and MRIs. The risk also exists that the system encourages doctors to prescribe more drugs to patients, as the clinics and hospitals may also profit from the dispensing of medication.

Since the doctors are paid in points converted to fees for each service, the more patients they see, the more money they make.

Payment systems in other universal healthcare programs tend to operate differently. For example, the UK’s National Health Service pays a fixed sum to a medical provider or group of providers to cover care provided to a specified population across different medical disciplines. Any money left over is retained in the system. This encourages doctors to limit the number of patients and to keep them healthy by identifying health risks early.

In Taiwan, a clinic is allowed to accept 100 patients for each session, whereas doctors in Western countries may see just five or ten patients in the same time period. According to the NHI Annual Report for 2017, the average number of outpatient visits per person per year reached 15.1.

Doctors’ workloads

Joyce Lee, general manager of Amgen Taiwan and co-chair of AmCham’s Public Health Committee, notes that in Singapore if a doctor sees 20 patients in a day, it’s considered far too many, but in Taiwan the number can reach 80 to 100. Patients have the advantage of being able to see a doctor quickly, but in return each patient has much less of the doctor’s time.

Heather Lin, chief operating officer of the International Research-based Pharmaceutical Manufacturer’s Association, notes that the easy access to doctors can lead to wasted resources, as it encourages patients to go to the doctor for even trivial ailments rather than rely on self-treatment. In the U.S., she says, someone with a headache might first take over-the-counter medicine and rest for a few days, before deciding if it is necessary to see a doctor.

Incentives for doctors to see multiple patients are further exacerbated by the point system. In order to keep regional healthcare spending within the specified budget, the dollar value of a point falls when the total number of points billed in a region increases.

As a result, when medical providers in the region find they are getting less money for their services owing to the falling value of the points, they may compensate by seeing more patients. In a vicious circle, that causes the payments for their services to fall even further.

NHIA’s Lee also cites a problem of some hospitals performing extraneous tests to take advantage of the profitable reimbursements. When a patient comes in with a mild ailment, “they may be told ‘You have to do a check as to whether it is lung cancer or tuberculosis and we have to do a CT scan,’” Lee says. There are no co-payments specifically for these kinds of expensive tests.

“There’s an incentive for the physician to provide more medicine and tests than necessary,” says Lee Yue-chune, a professor with National Yang Ming University’s Institute of Health and Welfare Policy and a former deputy minister of health and welfare.

In an effort to address these problems, Taiwan in recent years has introduced some alternative options in the way medical providers are compensated, but so far these proposals have not been broadly adopted. One example is a “pay for performance” approach to disease management for conditions ranging from tuberculosis to schizophrenia. The intent of the program is to promote a holistic approach in which the quality and effectiveness of the treatment are used as the basis for reimbursement.

So far, NHIA’s main strategy for controlling inefficiencies has been to digitalize medical reports to create databases that can identify wastage. These databases are also useful in guiding the direction of government policies, as they offer valuable insights into the state of health of the population region by region. The NHIA’s advanced information and communications technology makes it possible to continuously review the records of all providers and patients.

For example, the “Central Intelligence System,” an automatic auditing system developed in 2014, can help in detecting suspect claims for reimbursement from healthcare providers. The computer automatically flags anomaly cases, which are then sent for professional review.

A typical example of fraud is when doctors falsely claim they treated a patient, usually a friend with whom they share the NHIA reimbursement. Another example, cited by NHIA Director General Lee, is when procedures are conducted by robotic surgery, which NHI does not cover, but the surgeons still apply for reimbursement by claiming he or she actually performed the operation themselves. “I am not happy about this,” he says.

One of the NHI’s support programs is the MediCloud System, which was created in 2013 and strengthened last year when CT, MRI, ultrasound, microscopic exams, and other medical imaging features were added. MediCloud enables any physician to view examination images and reports from major hospitals. This sharing of data aids in preventing duplicated tests.

Also created in 2013 was the NHI PharmaCloud system, which allows various medical organizations contracted with the NHIA to view the medications prescribed to a patient over the previous three months. The goal is to prevent doctors from prescribing duplicate or excessive medication.

Joyce Lee of Amgen says that she’s aware of the government’s moves to “input all your history and charts in the cloud” and that “we expect more interventions from government to make sure the healthcare system can be sustainable.”

In another recent effort to control waste, MOHW and NHIA are promoting a referral system to create a division of labor among medical institutions. The aim is to prevent major hospitals from being overcrowded due to the presence of out-patients with minor afflictions, which might prevent or delay emergency-room patients and the critically ill from receiving treatment.

The government is encouraging patients to go for treatment first to a local clinic, the lowest-level medical institutions in a four-tier system, followed by community hospitals, regional hospitals, and then medical centers.

IRPMA’s Heather Lin notes that medical-center physicians are currently very overworked, seeing scores of patients and spending time registering and uploading prescriptions. “How can they do research as a medical center should do?” she asks.

Under the new system, co-payments for visiting a medical center without referral from a local clinic have recently been increased from NT$360 to NT$420.

Some observers consider that the higher charge is still not steep enough to deter people from going straight to a medical center. Rachel Lu, dean of the Department of Healthcare Management at Chang Gung University, notes that the NT$60 increase is equivalent to the cost of a bowl of noodles.

Lu suggests that a better approach would be to make referrals compulsory, allowing patients to see a specialist only when the family doctor feels it is clinically necessary. This method has been adopted by the UK’s National Health Service.

“Maybe people would be willing to sacrifice freedom of choice in exchange for cheaper prices,” Lu says, while acknowledging that government officials may regard any restriction on freedom of choice for healthcare services to be “political suicide.”

Impact on new drugs

Another controversial aspect of the NHI system has been the impact on drug prices, especially for new and innovative medicines. Reimbursement prices tend to be much lower than in OECD countries because of the government’s single-payer status, and the hospitals then typically negotiate with the pharmaceutical companies for discounts.

Five years ago, the NHIA introduced the Drug Expenditure Allocation Ratio Target System (known as DET), which sets yearly targets for prescription medication expenditures. If actual expenditures exceed the annual target, a process to lower drug prices is automatically initiated the following year.

For years, drug companies have been warning that low prices discourage the launch of new, innovative products in Taiwan.

“The speed with which we introduce new drugs to Taiwan is much too slow,” says Amgen’s Joyce Lee. “That’s not because of the license approval process. The main reason is reimbursement.”

When any existing therapy is replaced, the price of the new medication is likely to be high because it is innovative, she says. Frequently NHIA takes a long time to determine the price it is willing to pay. That can be “really, really unfair to patients in Taiwan” who are kept waiting for the latest treatment, Joyce Lee says.

Without a reimbursement price, she notes, “a drug can be idling for many years in the self-pay market” if the government lacks enough budget or hasn’t made preparations for a special budget.

Another impact of the low reimbursement prices is that new drugs tend to be launched in Taiwan much later than certain other markets, says IRPMA’s Lin. Pharmaceutical companies want to avoid having a low price in Taiwan that other, larger markets might use as a reference point in setting their own pricing.

In this region, oncology and other drugs are often launched first in Hong Kong, Lin says, and sufferers in Taiwan may have to wait months to access the medication. If the situation worsens, she adds, it may become common to see patients flying to Hong Kong or Singapore to get needed medicine.

Joyce Lee points out that many multinational pharmaceutical companies hope the government can find a way to substantially increase funds allocated for new drugs. These companies “work for innovation, so of course in a market like Taiwan we don’t want it to be a tier 2 or tier 3 market.”

As mentioned above, a complicating factor is that the drug reimbursement price set by NHIA is hardly ever the price at which the drug is purchased by the hospitals. The hospitals normally insist on additional discounts, and have grown reliant on purchasing drugs at prices below the NHI reimbursement level as a source of income.

“Medications have become a major source of profits for providers in Taiwan,” concludes an academic article co-authored by Lee Yue-chune. That’s why you often receive a big bag of pills when you see a doctor in Taiwan for an ailment like the common cold.

Joyce Lee says that some manufacturers are having trouble breaking even in Taiwan because the bigger hospitals possess so much bargaining power. In urging the government to require hospitals to stick to the listed drug prices or defined minimal discount, she notes that “in Japan, with the government’s involvement, it took 10 years to reduce drug discounts to within 2%.”

Heather Lin notes that IRPMA has introduced to Taiwan the concept of risk-sharing mechanisms – also known as managed entry agreements (MEAs) – which allow pharmaceutical companies to share with the government the financial risks of introducing new advanced drugs to the market. The aim is to enable doctors to prescribe drugs as needed, without having to consider the financial implications.

One way of accomplishing this, she says, is for the government to first reimburse the cost of a new drug, but if the hospitals then find the treatment to be ineffective, the pharmaceutical supplier must pay back the amount that was spent. MOHW last September set out guidelines for entering into MEA schemes.

Another healthcare-related issue concerns the reported exodus of Taiwan’s chronically overworked doctors. “We’re seeing a brain drain,” says Lu of Chang Gung University. She notes that many physicians have been hired away by hospitals in Hong Kong, China, and Singapore that pay significantly higher salaries than available in Taiwan. Skilled medical professionals who stay in Taiwan do so either out of a sense of commitment to this society or a desire to be close to family here, she says.

Lee Yue-chune also points to a rise in private health insurance to cover services excluded or not fully covered by the NHI program. According to the academic article she co-wrote, “If this trend persists and results in a two-tier system, Taiwan’s NHI may risk compromising the [social] equity it has achieved over the last two decades.”

In the end, to bolster the NHI finances, Taiwan may have to institute broad-reaching third-generation reforms, but “so far there is no formal discussion of a 3G NHI system,” NHIA Director General Lee says.

Still, he predicts that premiums, which have been raised just twice since NHI’s inception in 1995, will most likely be raised two years from now. “If we cannot control this condition, a premium rise is the next step,” he says. He also downplayed the likelihood of any cuts to services, while raising the possibility that patients may need to pay out of pocket for more drugs, either in whole or in part.

In any case, reform is needed, says Joyce Lee, as by 2026 Taiwan will be a super-aged society, sending medical costs soaring. Without major changes by that time, the outlook is “very scary,” she says.