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Testimony by William C. Hsiao, PhD, FSA

Harvard School of Public Health

Before the Joint Select Committee on Health Care Reform
State House, Augusta, Maine
October 19, 2010 10:30 AM

In the late 1980's, Taiwan, with its 20 million people, was faced with a similar set of problems to those that are confronting the USA and Maine today. Many Taiwanese had no health insurance, rapid health cost inflation put the existing health insurance plans and patients under heavy financial pressure, the government-run health insurance for employees of large companies was bankrupt, the quality of health care was inconsistent, and health care delivery was plagued with over-treatment, waste, abuse, and fraud. Rising public discontent caused the Premier to appoint a Task Force in 1988 charged with designing health system reforms to achieve the following goals: universal health insurance, improved access to and quality of health care, and limiting health care cost inflation to an affordable level.

The Task Force recommended a compulsory national health insurance plan (NHI) that would cover every Taiwanese, financed by a payroll tax of 4.25%; employers, employees, and government would share in paying the premium. The government would subsidize the premium for the poor, farmers, veterans, and self-employed workers. The NHI would be a single payer plan run by the government. The organization of the delivery system--a competitive market system with a mix of public, non-private, and for-profit hospitals and clinics--would remain unchanged, and primary care would continue to be delivered by private solo practitioners. However, the single payer system would alter the payment method and set uniform payment rates and regulations. The government accepted the recommendations of the Task Force and an NHI law was passed in 1994. However, the law excluded the recommended reform of the payment method. The program was implemented in 1995. In only one year, 92% of the Taiwanese people enrolled in the NHI; today, just about every resident of Taiwan is enrolled.

The Taiwanese government established one organization to manage and administer the single payer NHI program. Under this single payer system, every Taiwanese was enrolled in the NHI plan that provided a uniform and comprehensive benefit package. It went beyond the coverage of preventative, primary, and tertiary services, also covering prescription drugs, dental care, Chinese medicine, and home visits by nurses. The NHI agency was the single channel of payment to all providers and set uniform payment rates and rules for providers. Hence, the providers only had to follow one set of rules to receive payment for the services they rendered, use a uniform record-keeping system for patients, and follow a single process in filing claims. Every enrollee was issued a "smart card" and a nationwide electronic record and claim filing system was established. Most of the processing and administrative work was done electronically and through the Internet. As a result of this system, current administrative costs for the NHI agency are less than 2% of the total NHI premium.

The smart card and electronic record system give providers comprehensive information about the medical history, past diagnoses, and treatment of a particular patient. Consequently, providers can reduce duplication of services and provide more continuity of care. The uniform record-keeping system of the NHI facilitates the creation of provider and patient profiles which can identify over-treatment, waste, and abuse in health care delivery--information the NHI agency can then use to reduce inappropriate practices.

Evaluation of Taiwan's NHI shows that it has improved access for poor and low-income people and that it narrows the disparity in the use of health services between the rich and the poor. Children and senior citizens received more preventative and primary care. Patients suffering from strokes and heart attacks accessed health centers with greater competency to treat their conditions, resulting in better health outcomes. The single payer aspect of the NHI produced a one-time reduction in health expenditures by curbing the waste, abuses, and fraud in health care delivery and by reducing the administrative costs of the health care system. Single payer also reduced the annual rate of health expenditure inflation in Taiwan by about 2% per year. This was accomplished by establishing an overall budget for health spending and was executed down to the level of hospitals and practitioners through global budgets and greater use of formularies. As a result, NHI was able to maintain the same payroll tax rate for several years while maintain financial soundness. Several years after its implementation, Taiwan's NHI had to raise its payroll tax rate from 4.25% to 4.55% in 2003 because an aging population and expensive new technologies caused health costs to rise faster than increases in the payroll tax base. Taiwan's experience has been the same as other advanced economies that have funded NHI programs by a payroll tax. Taiwan is now trying to shift to an income-based tax to finance the NHI.

However, Taiwan faces continuous strong inflationary pressure because its fee-for-service payment method was not reformed under NHI. Fee-for-service payment incentivizes provider to induce demand, resulting in an average of fourteen visits per person per year in Taiwan. It also encourages solo practitioners and hospitals to compete with each other rather integrating their services. A fragmented health care delivery system is inefficient and does not provide the best health care for chronically ill patients, nor does it offer continuity of care. Taiwan introduced global budgets to control health expenditure inflation, but this has caused providers to limit their services and distort their service provisions. The quality of some health services may have suffered. These problems are the challenges facing Taiwan today.

Taiwan holds valuable lessons for the USA and Maine. By the early 1990's, Taiwan had a health system similar to the one in the USA today. Taiwan acknowledged that their system was broken, resulting in lack of universal insurance coverage, inequity in financing, disparity in access, uneven quality of health care, over-treatment, waste and abuse, and rapid inflation of health expenditure--all of which made health care unaffordable. The reforms adopted and implemented in Taiwan show how a single payer NHI can provide universal health insurance coverage and improve access while reducing administrative burdens on physicians, reducing administrative costs on the health care system, and controlling the health expenditure inflation rate. However, Taiwan still has to reform its fee-for-service payment and its fragmented delivery system. The USA and Maine can learn from what Taiwan has done well and can leap-frog past where Taiwan has lagged.