Press Release



Speech by SHW


Following is a speech by the Secretary for Health and Welfare, Dr E K Yeoh, at a luncheon meeting of the Zonta Club of Hong Kong East today (March 16):

I'm delighted to have been invited to address your distinguished audience and organisation and to meet some of the people who are helping to shape the future of Hong Kong. As professional people having to combine a working career with the added responsibilities of caring for the family, there are probably few things as important to you as your health. But in today's pressure-cooker society, keeping healthy can be difficult and potentially expensive.

A visit to the private doctor can set us back hundreds of dollars and when prescriptions are included, the medical bill can add up quite substantially. And, if we have to go to a private hospital then we're talking in multiples of thousands depending on the illness and the remedy. Not to mention the impact of the illness on our family and on our work. Of course, if we use the existing public health system we hardly have to dip into our pockets. The costs are subsidised by the taxpayer. Although in the end it is the taxpayer who picks up the tab.

So it is not surprising that health care, and health care reform, in particular, and how to better finance health services have been very much on the agenda of late, not only in Hong Kong, but all around the world. Some of the reforms which have been implemented and have been successful to varying degrees in addressing the original problem identified, but not infrequently were themselves associated with new problems. A review of these reform efforts provides insights into whether reality actually validates the theories behind these different prescriptions, the critical success factors for the reforms and the applicability of the reform in other systems. I therefore would like to speak today on 4 main types of health care financing which could provide insights for our future direction. These 4 types are based primarily on tax-revenue, compulsory individual medial savings, social insurance and the market respectively.

It is not feasible to have a one-size-fits-all model for health care reform, because the differences in cultural, social economic and political contexts make it neither practical nor acceptable for policy makers to replicate another country's health care system. The most pragmatic approach is to look at specific features of other models and determine whether and how these can be shaped and refined to suit one's own needs.

Hong Kong is an example of a health care financing system which is primarily based on tax revenue and has the advantage of being fairly straight-forward and efficient. Public health care services are almost exclusively funded by tax-based revenue (98%). At the same time, 91% of the private health care expenditure is financed by out-of-pocket payments, which are mainly for primary outpatient care and payment for private insurance premiums. Secondary care is mainly provided by the public sector, at very heavily subsidized prices.

Of course, one of the most critical aspects of a financing system is not so much its degree of simplicity or complexity, but its ability to achieve the objective of improving the health of the community as a whole. A sound financing system should also be able to reflect values which we cherish such as equity, accessibility, and affordability. Another equally important consideration is that a financing system must be sustainable in the long run. Hong Kong has been able to achieve an accessible, affordable and equitable health care system through subsidies provided by the government, but long-term sustainability is not possible without supplementary sources of funding. Continued total reliance on government funding is not viable for two reasons. One is that Hong Kong's tax base is narrow and therefore cannot cope with continued rises in health care expenditure. According to the Estimates for the year 2000 to 2001, expenditure on health will account for 14.7% of our total recurrent budget, which is the second biggest expenditure item after education. Even if we were to generate additional revenues through taxation, we would still have to compete with, and if we are successful, potentially crowd out, other important social programmes, such as welfare, housing and education, for finite resources. The second is that aging of the population with the associated prevalence of chronic diseases and technological advances will increase the need and supply for health care. Even though productivity and efficiency in the delivery of health care services have continued to improve and efforts to contain costs have been made, these cannot entirely make up for the increases in expenditure.

Let's now take a quick look to see how Singapore tackles the health care financing challenge. Singapore has implemented policies to ensure long term financial sustainability of its health care system by bringing in a compulsory individual medical savings scheme to supplement government funding. In addition, there is a Medifund scheme funded by the government to help those in need but whose balances in the Medisave Account cannot meet their medical bills. There is also a voluntary individual insurance scheme funded from Medisave Accounts designated to supplement Medisave to cover catastrophic illnesses which could incur high financial costs..

Singapore's total health care expenditure now accounts for a relatively stable 3.6% of its GDP. The split between public and private funding sources is 33% for government and 67% for private, which includes the monthly contribution of 6 - 8% of income by both employers and employees to Medisave Accounts. The ability of Singaporeans to use their Medisave Accounts to pay for both public and private sector services have taken some of the pressure off of the public system to be the main provider of health care, particularly with respect to more expensive secondary care. At the same time, users are able to exercise greater choice of providers in the public and private sectors.

For this benefit of greater choice, Singaporeans are required to contribute a relatively high proportion of their monthly income towards Medisave. As with many health care financing systems when changes are implemented, a cascade of other changes ensue. In the regulation and operation of health care services, Government has introduced pricing controls to contain costs. Government has also examined the cost effectiveness of many health care interventions and has stated explicitly that it will not subsidize heart, lung and liver transplants or extravagant efforts to keep gravely ill patients alive. Singapore has promoted individual responsibility and has reinforced efforts to contain costs to keep basic health care services affordable.

The US has a entirely different health care financing system and is currently at the end of a decade of restructuring which has been greatly influenced by large employers and driven by market-based competition. Traditional fee-for-service health care plans have been replaced by managed care, which requires providers to share the financial risk and has cost control as a major objective. In 1997, the US spent US$1.1 trillion on health care, with 46% of the funding coming from the public sector and 54% from private sources. Compared to other OECD countries, the US spent US$4,090 per capita on health care in 1997, nearly double the spending in Canada and Germany, and triple the spending in Japan.

While the private side is dominated by managed care and other health plans operated by private insurance, the public side has two major publicly funded programs - Medicare and Medicaid. They provide coverage to 80 million Americans for inpatient and outpatient care and are responsible for 1/3 of total health care spending. These are mandatory insurance programs which are limited to the elderly, the disabled, and some low income earners.

The use of managed care as a cost control mechanism is a reflection of the American system and characteristics. First, the population is heterogeneous, in terms of ethnic diversity and regional variance, and therefore has much more diverse needs. Second, the American public has traditionally disliked government intervention, along with a low acceptance of tax increases. Third, the private sector is the preferred provider and medium for managing costs.

Through the Medicare and Medicaid program, the US government provides some sort of coverage for the elderly and for those who lack the means to afford the services. However, the majority of the population must rely on a combination of managed care plans purchased by employers, private insurance, and out-of-pocket payments and 40 million individuals are not covered by some form of medical insurance. While strategies in both the public and private sectors have helped slow the rate of growth of health care spending since 1995 and is currently approximately 14% of GDP, they have also had a profound impact on both users and providers. For users, the choice of providers and services are limited by efforts to contain costs. For providers, most have had to join a large group practice and to bear the financial risk for treatment decisions. Physicians also contend that their autonomy has been curtailed. The US reforms have produced a leveling out of rises in health care expenditure, but whether costs will stay down is debatable.

One example of a social insurance scheme is the Health Insurance Scheme implemented in Taiwan. This mandatory universal system has been the main financing mechanism for health care since 1995. The scheme offered comprehensive coverage, with prices set by the Bureau of Health Insurance. Equal access to health care was a major objective of the scheme. 70 - 90% of inpatient care costs were paid by the scheme, while average out-of-pocket co-payments were no more that 6% of average per capita income.

For a short time, the scheme provided ready access to a wide range of health care services and insured affordability for users. However, these advantages were shortlived as rapidly rising costs and a low rate of premium collection necessitated a critical review of the scheme's financial viability in 1998.

Between 1995-1998, health care expenditure grew by 57%. Two major factors contributed to this problematic rise in costs. The first was low co-payments, particularly for outpatient care, which resulted in utilization rates to 15.1 visits per year and accounted for 70% of total expenditure in 1998. The second was a fee-for-service payment system which gave incentives to providers to induce greater service utilization in order to boost income. Other factors which also contributed included the resource allocation between inpatient and outpatient care, and a flat premium rate for the entire population, which did not reflect individual risk.

In response, the Health Insurance Bureau began to contemplate strategies to increase revenue and reduce costs. These include improvement of the premium collection rate, better capital management, changing the payment system from fee-for-service to case-based payment, auditing of contracted providers and monitoring of drug prices.

The Taiwan experience serves as a reminder that the pursuit of values such as equity, accessibility has to be considered in the context of affordability. It also needs to take place with simultaneous consideration for adequate checks and balances.

As evident from the examples that we've discussed, health care systems all over the world are faced with juggling equity, accessibility, affordability and quality with long term financial sustainability. While the problems are similar, the solutions cover a wide spectrum, depending on cultural, social, political and economic factors. Our greatest challenge in the long term is to make use of the experience from other countries while refining proven reform strategies to suit our own unique characteristics and values. It is also important that our reform process be evolutionary, building on our current strengths. But most of all, we must have shared commitment and long term vision.

After all, we are pursuing the same goal - better health for the community that is affordable and equitable. A system can only be viable if there is a system of shared responsibility between the Government and the individual, where those who can afford to contribute to maintaining their own good health; while those who are less fortunate can still rely on a system that provides a quality health service at a cost the community can afford.

Thank you.

End/Thursday, March 16, 2000