Taiwan Has Raised Health Insurance Premiums. What Reforms Are Next?

Taiwan Has Raised Health Insurance Premiums. What Reforms Are Next?
Photo Credit: CNA

What you need to know

Patrick Ng speaks on how the country’s healthcare system will be and should be reformed after the pandemic.

At the crest of interest in Taiwan’s response to Covid-19 last April, The News Lens published an op-ed by Patrick Ng on the international spotlight placed on Taiwan’s healthcare system. A year later, Taiwan has started administering its first vaccines after quality control tests. In the second part of the interview, Ng answers questions on how the country’s healthcare system will be — and should be — reformed after the pandemic.

What reforms are being discussed or likely to pass in the near future?

Raising health insurance premiums

Increasing health insurance premiums has been a hot topic for quite some time. At the start of the year, the government raised premiums from 4.69% to 5.17% and supplemental premiums from 1.91% to 2.11%. However, a small fixed percentage premium hike is only a temporary solution to an escalating problem. Even with the increase, the NHI Administration projects the reserve fund will be exhausted by 2023.

But there is more to the NHI budget story than just insurance premiums. While there are certainly a number of reforms that could rein in costs, we must look at the numbers from a demographic and economic lens as well.

Taiwan is undergoing a demographics shift with residents living longer and having fewer children. The life expectancy in Taiwan continues to rise after reaching a high of 80.9 years in 2019. At the same time, the National Development Council (NDC) reported fertility rates declined from 2.7 births per woman in 1977 to 1.1 births in 2017. Between 2000 and February 2021, the percentage of the population over 65 nearly doubled from just under 9% to 16% while the proportion of 0-14 year olds nearly halved from 21% to 12.5%. The end result is an aging yet shrinking population that will pose significant financial challenges to the NHI in the near future.

Firstly, the number of working age people who can pay NHI premiums will decrease. The NDC projects those over 65 will account for over 40% of the population by 2065. Alarmingly, the dependency ratio, the ratio of workers to non-workers, which currently hovers around 3:1, is predicted to tip over 1:1 at that point. This means the number of elderly will exceed the labor force, increasing the financial burden on the working population.

Secondly, an aging population typically leads to higher costs of care and an increase in healthcare utilization. In 2015, medical expenses for those over 65 were already three times more than the national average due to chronic diseases and treatments for cancer.

From an economics lens, the fallout from a declining population can be contained if matched or exceeded by an increase in productivity (GDP/capita). However, if Taiwan’s growth in per capita GDP can’t catch up with the population decline, the nation could experience a recession. This would affect Taiwan’s national budget and how it provides services like those covered by the NHI. A reduced national budget could force the government to increase the proportion of spending on the NHI to maintain current services. Given this population shift, raising current insurance premiums merely passes on the larger healthcare financing, quality, and waste issues for someone else to solve in the future.

New rules for overseas Taiwanese using NHI as a health safety net

The cost to see a doctor or to get medical treatment in Taiwan is much lower than in other developed countries. For example, the out-of-pocket cost of heart bypass surgery or hip replacement in Taiwan is about one-fifth of the cost in the US. Flying back to Taiwan for medical services is cheaper than receiving treatments in the U.S., though it incurs the costs of plane tickets, food, and accommodation. Those who live abroad for a long time also have to pay a reinstatement fee to resume NHI coverage. But overall, the cost is so negligible that overseas Taiwanese prefer to return to Taiwan when they need treatment.

This raises the question of equity. People who work in Taiwan pay into NHI based on their income. They are then able to access medical resources at a subsidized rate. However, overseas-based Taiwanese can pay the lowest monthly premium (NT$749, or US$23) even if they earn high salaries abroad, because foreign income is not factored into NHI premium calculations. The NHI then serves as a health safety net when they become sick and unwilling to pay for higher costs of care elsewhere.

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Photo Credit: Shutterstock
People line up at a hospital in Taipei, Taiwan.

The logical solution is to factor worldwide income into NHI payments not only for overseas-based Taiwanese but for all residents paying into NHI in Taiwan. Unfortunately, this can be difficult to enforce without comprehensive income tax agreements with other countries. Another option is to require submission of income tax statements from previous countries of residence to calculate NHI premiums. There is little doubt there are people who exploit the NHI to their advantage. But these loopholes can be identified and closed through legislation and enforcement.

Collecting equitable premiums from Taiwanese abroad and from those who earn foreign income while in Taiwan is one way to help keep NHI sustainable, but it is unlikely that those revenues alone would be significant enough for NHI’s survival. The government might have to focus on preventing tax evasion and raising taxes on assets to match those of other developed countries. It could also increase tax revenues by investigating cases of underreported salaries, rethinking the capital gains tax on equities and property, and enforcing landlord payments on unreported rental properties. The government can also use levers such as increasing sales tax to help fund priorities like the NHI.

One of the aims of the NHI since 1995 is to “safeguard the right to health care of all of the citizens.” The NHI has been successful in ensuring that Taiwan’s citizens do not become destitute from catastrophic illness, and they are able to seek care regardless of their financial circumstances. The government should continue to ensure the NHI’s long-term sustainability in conjunction with other national priorities.

What are some of the reforms that are not being discussed that you think deserve consideration?

Focusing on chronic disease prevention and health promotion

As the popular saying goes, “An ounce of prevention is worth a pound of cure.”

The NHI gives financial incentives to hospitals and physicians to treat patients, but there is little incentive to prevent illness. To reduce future costs to the NHI, we must make the appropriate public health investments to start preventing diseases now.

Because the NHI is a single-payer system, it has the power to link payments to metrics that can drive change in the healthcare system. It could increase the use of preventive medical services using value-based payment models. It could also track how these services are being used and the government can report on health outcome measures for every institution providing these services.

It is easy to see Taiwan’s healthcare values by looking at the numbers. Taiwan’s national health expenditure in 2019 was NT$1.24 trillion, amounting to 6.54% of GDP. Health care expenditure (e.g., for hospitals, clinics, medical equipment, treatment costs) was 87.62% of the total budget, a 3.75% increase from the previous year. Public health expenditure was only 3.59%, a decrease of 8.05% from the previous year. The amount of money poured into disease treatment is disproportionately high compared with the spending for preventing diseases and improving population health.

Given the level of health care spending, are Taiwan residents becoming healthier? One study found that between 2005 and 2014, diabetes incidence in Taiwan increased by 66% with almost 875,000 new cases. More than half of all patients with diabetes were 65 and older which can lead to greater treatment costs when patients have multiple co-morbidities. The prevalence of obesity has doubled as well. Between 1993-1996, only 11.5% of Taiwanese adults were obese compared to 22.8% by 2013-2016.

Taiwan does deserve credit for its healthcare system. It has put considerable effort into helping those with chronic conditions manage their diseases through programs such as the Family Practice Integrated Care Project. The government has also started pay-for-performance programs in 2007 to incentivize healthcare providers caring for patients with chronic diseases. Having a family physician manage a chronic disease over time and coordinate treatment can help lower long-term health care costs. As the patients recover, they can be transferred to facilities of primary care.

However, the government also needs to invest in the prevention of chronic diseases. Efforts can be directed towards preventing at-risk groups from ever developing chronic conditions. If they do not fall ill, the healthcare system will save a large amount of money and be able to invest it back into society.

Investments in public health and preventive medicine improve health outcomes and save money in the long run. A study on the return on investment of public health interventions in high-income countries found a median return of 14 to 1. These programs prevent injury and illness, which are especially important as the population ages.

It is a matter of political will to reform the healthcare system. Given the demographic change in age structure, elderly voters are becoming a larger share of the electorate. While I am not a political scientist, it stands to reason that the government allocates more resources for the health care of the elderly population and less for that of the younger generation though the ROI is higher. Reforming policy is highly politicized and prone to narrow interest group demands. The success of reform will depend on how policymakers navigate both political and economic circumstances.

READ NEXT: With Vaccines in Hand, What’s Next for Taiwan’s Covid-19 Response?

TNL Editor: Bryan Chou, Nicholas Haggerty (@thenewslensintl)

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