Taiwan's Healthcare, lessons in civilization for the USA

Health Care in Taiwan: Why Can’t the United States Learn Some Lessons?
An article from the Winter Edition of Dissent Magazine, which you can subscribe to and get good stuff like this all the time.

By Ian Williams
Some years ago in New York I went to hear the Taiwanese health minister describe the country’s new National Health Service. He had just been to visit George W. Bush’s first secretary of health, Tommy Thompson. I could not resist and asked, “While you were in Washington, did you explain to the Republican secretary of health that you’ve introduced a socialized health system?” He looked me squarely in the eyes and said, “You know, it completely slipped my mind!” And well it might. We have heard much tendentious information about the alleged success of Chile’s privatization of social security, but little of the unchallenged efficacy of Taiwan’s health service.

Taiwan inaugurated its National Health Insurance program in 1995. Before then the three major social health insurance programs, Labor Insurance, Government Employee Insurance, and Farmers Insurance, left 40 percent of the population uncovered, many of them children and retirees. Dr. Michael Chen, vice president and chief financial officer of the NHI Bureau, says that there is now 99 percent coverage—he is not sure who the missing 1 percent are, but suspects that they are expatriates who have not registered (apparently, prison inmates are not covered but do receive care in the prison system). Indeed, many expatriates maintain their coverage—including the million or so who now work in mainland China. Conversely, foreign workers in Taiwan are also covered.

NHI premiums cover Western- and Chinese-style medicine, both in- and outpatient, prescription charges, home care, and dentistry. Almost all western-style hospitals and 88 percent of Chinese-medicine clinics are in the system. Though dentists have been opting out of the British National Health dental system in large numbers, almost 95 percent of dental clinics are in the Taiwanese system. Health care is provided by a competitive mixture of municipal and public (about one-third of the beds) and privately owned hospitals that also offer comprehensive primary care. Between them they employ almost two-thirds of doctors. Avoiding the severe conflict of interest that the British system has maintained, doctors contracted to hospitals cannot run private practices on the side.

TAIWAN IS a smaller (twenty-one million people), more compact country than the United States, but the NHI provides many pointers for Americans attempting to secure full health coverage. To begin with, Taiwan had a vigorous market-based health provision system, which has adapted itself, apparently very happily, to the new national service. The former KuoMintang government was an authoritarian social democracy, in the very limited sense that social provision was on the agenda. But corruption and capitalism were fully developed. The NHI was introduced in the early days of democracy, just as the KMT single-party system was being dismantled. It was a popular election issue.

The provision of health care is not nationalized, despite a degree of information and coordination that, for example, the British system cannot match after spending billions on computerization. Rather, the NHI is a classic single payer scheme—the government runs a compulsory, mostly premium-financed insurance system, which negotiates a single payment schedule with the private and municipal or government-owned providers.

On the face of it, the experience of the insured in Taiwan is certainly better than that of Americans dependent on the caprices of commercial health insurers. In 2005, polls showed a 72.5 percent satisfaction rate—and much of the dissatisfaction is with the cost, laughably small though it is by U.S. standards. When co-payments and premiums were increased in 2002, the satisfaction rate plummeted to 59.7 percent. To put this in perspective, the premiums at the maximum are less than $20 (U.S.) per month (the annual per capita GDP is $16,500 U.S.).

Taiwan has done this for proportionately, less than half the cost of the United States, with costs running at 6.2 percent of gross domestic product in 2005, compared with the following for other countries: United States, 15.2 percent; France, 10.1 percent; Canada, 9.9 percent; United Kingdom, 7.7 percent; Japan, 7.9 percent; South Korea, 5.2 percent (World Health Organization figures for 2003 published in 2006).

In absolute terms, the difference is even starker. In 2003, health spending per head in Taiwan was less than $800 per head of population compared to the U.S. level of approximately $5,500. In fact, by 2005, U.S. health care spending increased 6.9 percent to almost $2.0 trillion, or $6,697 per person, amounting to 16 percent of GDP.

With an aging population demanding more and more innovative medical interventions, the NHI faces similar problems to the United States in terms of the escalation of demand (and thus of cost), but it has contained the growth of health care costs as a share of GDP while expanding coverage to a far higher proportion of hitherto uninsured people than in the United States

The various constituencies seem to have cooperated to avert long-term financial problems, adjusting premiums, co-payments, and provider fees in a way that has left them all reasonably content, while providing protection for weaker and poorer groups and those suffering chronic illnesses. Even the generous safety net seems to have another net below, with exemptions for those who cannot pay, loan option to pay premiums, and referral to charitable organizations for payment when even that fails. For example, by the end of 2004, the NHI had issued 750,000 “Catastrophic Illness” cards, whose holders’ co-payments are either reduced or eliminated entirely. This makes sound social but bad financial sense, as these people account for almost a quarter of the bureau’s expenditure—but that is what national insurance is about.

A common argument against “socialized medicine” in the United States is that it leads to rationing and waiting lists for treatment. However, unlike the Canadian or British systems, and, indeed, unlike health maintenance organizations in the United States, there are simply no waiting lists, except perhaps for organ donor availability. That is in part because, although there is a government sponsored single-payer system, there is not a single provider, and the insured have free choice of doctors and institutions. Indeed, Deputy Minister of Health Tsay Jinn Chen refers to “doctor shopping” on the part of the insured, which introduces market discipline and ensures speedy treatment.

Transition Problems
Of course, the system did not start running as designed immediately. It has needed adjustment, not least to balance revenue and costs and manage demand in a way that does not impinge on health care. In fact, the system does seem to have a considerable degree of adaptability.

When the British National Health System was established in 1947, there were two major fiscal problems. One was that, as Health Minister Aneurin Bevan said, he had to “stuff the maws of doctors with gold” to get them into the system. That was in part because the government was, in effect, nationalizing the old hospitals and employing the doctors on a contractual basis. The other problem, which would be relevant for any U.S. introduction of national insurance, was the “overhang,” the pent-up demand for dentistry, prescription medicine, dentures, and glasses from millions of previously uncovered patients. In Taiwan, Chen described the new system as something like “an all-you-can-eat” restaurant for very hungry people, who no longer had to trade off other purchases against health care.

The introduction of co-payments in Britain in the early 1950s, as a result of the costs of the Korean War, occasioned a huge ideological battle in the Labour Party, with Harold Wilson, later the prime minister, leading a revolt on behalf of a completely free service. In retrospect, admirable though the motives of the Labour revolt may have been, Taiwan’s program of nominal co-payments, with suitable provision for the genuinely needy, seems a sensible way to manage and filter demand.

In order to contain costs, in 2005 the NHI introduced a referral system, aimed at dissuading the insured from racing to the most prestigious hospital or specialist with every headache. They can still do that, but now they face an increased co-payment if they skip referral. The co-payments should not dissuade anyone genuinely ill from seeking help—it is a mere $12 U.S. for an unreferred patient who chooses to go to an Academic Medical Center. For those who go first to a clinic, referred or unreferred, the co-payment is $1.50 U.S.

For some expensive high-tech and experimental procedures preauthorization is needed, but it would appear that this is less onerous than dealing with an American HMO. Equitably counterbalancing the co-payments are ceilings on in-treatment liabilities—for example, an annual cumulative ceiling of approximately $1,300 or 10 percent of per capita income for co-payments. The ceiling has a safety net hanging from it as well, with many exceptions for serious illness, childbirth, rural and outlying areas, and low-income families, to ensure that no one is deterred from seeking the help they need.

Prescription costs are managed similarly. First, the NHI bargains down drug prices and second, co-payments are on a proportional scale with a ceiling of approximately $6. Once again, there are many exemptions for the needy.

Health Care Delivery
The NHI benefits from a longstanding public health system that, even under the Kuo-Mintang, provided a network of inoculation and vaccination, children’s and women’s health care, and which had reduced or eliminated the diseases that otherwise would be prevalent in a subtropical developing country. The NHI is proud, for example, of its 95 percent inoculation rate against measles, which compares to 70 percent in Japan.

Although the competitive free market in health was probably an important factor in averting waiting lists, it did have other consequences, one of which, as Jui-Fen Rachel Lu and William C. Hsiao charge, is that “Taiwan has a fragmented health care delivery system that lacks continuity of care. Its clinical quality of care suffers from years of laissez-faire policy toward clinical practices.” (“Does Universal Health Insurance Make Health Care Unaffordable? Lessons From Taiwan,” Health Affairs, 22:3, 2003.) There are, however, more and more quality controls. By law, only licensed doctors can own a hospital or clinic, for example. Building on that, the persuasive power of the NHI has been creating a family doctor system, in which between five to ten primary care clinics in each area are networked with NHI contracted hospitals to provide an integrated care system, with referrals when needed but with primary care continuity.

It seems that the family practice is an innovation for Taiwan, but harnessed to the network, and with the detailed record keeping made possible by the NHI card, it ensures better primary care. A smart chip in the new insurance cards allows the NHI to look for examples of fraud, overbilling, and similar practices that bedevil Medicare. There are significant fringe benefits, too, for example, keeping track of organ donors, which is especially important in a society where donation is not that common.

NHI providers use the card for financial purposes but also increasingly for clinical record keeping. Since 2004, the IC card has given users access to details of serious illness and injury and major medical examinations and scans, avoiding unnecessary and expensive repeat tests of the kind that happen so frequently in the United States. It stores records of both prescriptions and drug allergies, thus averting the problems of adverse interactions between different medicines, and duplication of prescriptions for dangerous or expensive drugs. In previous years the system was prone to over-prescribing and prescription inflation, but the card checked that tendency. One of the most valuable applications of the NHI’s information system is that of tracking down suspected cases and heading off an epidemic disease, as in the case of SARS.

The card makes it much easier to monitor and detect fraud. In 2004, the NHI reduced or deducted claims from over a thousand institutions, 231 were awarded demerits, which affect their contract payment levels, and 90 were suspended from the system for periods of one to three months. Four were dropped entirely. The information system is so effective that a former CEO of the NHI Bureau once quipped that he knew immediately if the same tooth had “been pulled twice” from any individual.

Revenue and Costs
The IC card helps track payment of premiums and allows prompt reminders of missed premium payments, which ensures coverage for the insured and, equally vital, cash flow for the system. Since it was set up, the costs of the NHI have risen by an annual average of 5.5 percent, while revenues have only risen by 4.7 percent, hence the need for constant fine-tuning of co-payments and attempts to restrain expenditures, which are currently between $11 and $12 billion U.S. The fund is mandated to carry a one-month buffer but has rarely been able to do so. Solutions have included doubling the tobacco tax surcharge and raising the earnings ceiling on contributions, which currently stands at a little over $4,000 per month.

Premium collection is similar to that of Social Security contributions in the United States. Employers and the self-employed are legally bound to pay. However, unlike the US Social Security Fund, the NHI is a genuine pay-as-you go system. The aim is for the premium income to pay costs.

There is a continual tussle over who bears the cost of the national service—currently 27 percent is paid by the government, 35 percent by employers, and 38 percent by employees. The various partners try to shift the burden, and legislators are reluctant to incur popular displeasure by increasing costs to employees, while the influential employers’ organizations also have the ear of negotiators. They talked down the employers’ share of the premium from 80 percent to 60 percent. The government puts in another 10 percent.

The government share, including the tobacco tax surcharge and lottery proceeds, goes disproportionately—but appropriately—to finance the premiums of disadvantaged groups, remote rural dwellers, the indigenous peoples, and the poor. Although all contributors have access to the same services, there is a significant redistributive effect. Six categories of insured pay at different levels, scaled against income, with ceilings.

The insured pay for each dependent, up to a ceiling of three, while the employers pay for an average number of dependents, which takes away the incentive to fire or not hire fecund workers. For the “regional population,” in remote rural areas, the government pays 40 percent and the insured pays 60 percent of the premium, while for low-income households, the government pays the whole premium.

The single-payer system means that the NHI is a monopoly purchaser and so has greater bargaining power with the pharmaceutical companies and with the providers. As in Canada and the United Kingdom, the pharmaceutical companies have to accept reasonable prices, because the NHI has a weight in prescription pricing that is deliberately denied Medicare in the latest U.S. Medicare prescription plan.

Facing up to the pharmaceutical industry allows the single-payer system to control costs, and the technology of the NHI card allows controls of overcharging. It even encourages best practices, such as appropriate use of antibiotics for upper respiratory chest infections, or antacids for stomach problems. The twenty-nine million monthly claims going through the system allow effective analysis of costs and billing patterns.

The NHI does not seem to have abused its monopoly power to drive down doctors’ earnings, as there is vigorous competition among practitioners and institutions for patient patronage, even at the fees collectively agreed upon. The ease of payment, with the government writing the checks, seems to have been a good enough trade-off for the doctors. There is nothing to stop a doctor setting up private practice—except a shortage of clients. The system was originally based on fee for service but then transitioned to a “case-payment” system based on fifty-three items. The program’s chief financial officer, Michael Chen, says that the idea is that the NHI is purchasing “not just medical care, but health, as evidenced by initiatives aiming at encouraging ‘pay for performance.’” The 95 percent inoculation rate against measles suggests the success of the program.

The NHI Committee for the Arbitration of Medical Costs considers not only the overall figures but also individual providers’ performance based on support for patients’ rights, accessibility and satisfaction, efficiency of service, and similar criteria. The committee rewards providers if scored for “excellence” through the “quality assurance funds.”

And in the Superpower?
When General Motors offloads its health care system onto the United Auto Workers, one suspects that disaster has been postponed rather than averted. The Taiwanese example of the single-payer system should prove attractive to everybody but executives and shareholders of health insurers. Many features of the Taiwanese system lend themselves readily to the United States, which is not surprising, because, as Chen admits, the primary model for it was Medicare. But the adjustments the Taiwanese made point to the road not taken in the United States. Avoiding the commercial health insurers for a single-payer system with universal coverage offers great efficiencies at almost every point of the provision network.

The Taiwanese system begins with an idealistic premise—of universal, high-quality health coverage—but then addresses in a most pragmatic way the actual behavior of the constituencies involved: the medical providers, the pharmaceutical companies, and the patients. The frequent readjustments do not pander to the moral panic of freeloading or fraud that often governs legislation and decision-making in the United Kingdom and the United States, but rather to actual, observable behavior.

Of course, the U.S. federal system offers an obstacle to any outright imitation, but no more so than the Canadian provincial system, and, as so often, states could be convinced to participate easily by offering, for example, a proportion of the tobacco taxes on a use-it-or-lose-it basis. Imagine the possibilities if the $250 billion U.S. global tobacco settlement had been allocated to a health insurance scheme instead of, in effect, providing walking around money for the states party to the settlement.

Isn’t it strange that Taiwan, so long dear to the hearts of anticommunist conservatives in the United States, should produce such a socially innovative model? But maybe the source of the model will overcome some of their reflexive opposition.


Ian Williams’s last book, The Alms Trade, on the development of charities and not-for-profit organizations, has just been reprinted by Cosimo Press. His other works include Rum, Deserter, and The UN for Beginners. He is a regular columnist for the Guardian online and writes for many other publications. More work can be found at www.deadlinepundit.blogspot.com