Insurance & Healthcare: In Search of a Sustainable Scheme

The Voluntary Health Insurance Scheme (VHIS) proposes to require all individual indemnity hospital insurance schemes in the market to comply with a set of minimum standards designed to address a number of issues, thereby improving the accessibility, quality and transparency of private health insurance. Dr Ko Wing Man, BBS, JP, Secretary for Food and Health, explains the rationale behind the effort to recalibrate Hong Kong’s healthcare sector in an event held by AmCham’s Pharmaceutical Committee

By Kenny Lau


Comparable to those of other advanced economies, Hong Kong’s healthcare system is efficient and reliable, providing a well-regarded sanctuary of recovery for millions of people when they become ill. Courtesy of heavy government subsidies, it is affordable and accessible to all.

The private healthcare sector in Hong Kong, meanwhile, is complementary to the public system, forming as a part of a “dual-track” system and offering additional choices in professional healthcare services.

Dr Ko Wing Man, BBS, JP, Secretary for Food and Health
Dr Ko Wing Man, BBS, JP, Secretary for Food and Health

“A characteristic of Hong Kong’s healthcare system is the co-existence of the public and private healthcare sectors,” says Dr Ko Wing Man, BBS, JP, Secretary for Food and Health, speaking in a recent event held by AmCham’s Pharmaceutical Committee.

“The public sector is the pre-dominant provider of hospital services, bearing about 88 percent of the demand for in-patient services,” Dr Ko points out. “The private sector, on the other hand, is the major provider of outpatient services, and it provides an alternative to those looking for more personalized services.”

“It is the government’s policy to ensure a balanced and sustainable development of the two sectors,” he says.

“The government will continue to uphold the dual-track healthcare system and strengthen its commitment to the sustainable development of public system as the safety net for all.”

A Growing Challenge

Similar to other developed countries, Hong Kong is now facing a number of challenges in the sustainable development of its healthcare system due to various factors, including an aging population and a growing demand for healthcare services. The proportion of elders in the city is currently one in seven, but it is estimated to reach one in three by 2041, hence creating significant pressure on the supply of medical services in the coming decade or two.

Moreover, lifestyle-related diseases such as diabetes and heart disease have become more common in Hong Kong as people shift into a more affluent but sometimes less healthy style of living in the form of poor habits. While advancing medical technology is essential to saving lives or simply improving the quality of life, it is nevertheless a significant contributing factor to the escalating medical costs in recent decades.

“Confronted by these challenges, it is necessary to identify suitable measures to maintain the long-term sustainability of our healthcare system,” Dr Ko stresses, noting the discussion on healthcare reform in Hong Kong has been ongoing for over two decades.

The discussions on healthcare reform and healthcare financing began in 1993, when the document entitled Towards Better Health, commonly known as the “Rainbow Document,” was published in a consultation to explore options for a different charging scheme in the public healthcare sector. In 1999, it was recommended that a system based upon social health insurance be set up in the so-called Harvard Report.

Later on in 2000, a consultation, dubbed Lifelong Investment in Health, was an effort to learn of the feasibility of a mandatory medical savings account. In 2008, the First Stage Public Consultation on healthcare reform was launched, introducing a wider scope of potential financing options for consideration, such as mandatory health insurance, voluntary health insurance, and personal healthcare reserve.

“As these rounds of consultations revealed, the public had reservations against any financing option of a mandatory nature,” Dr Ko notes. “As a result, the government proceeded to develop options along the voluntary principle. This culminated in the Second Stage Public Consultation in 2010, when the proposed Health Protection Scheme, which is now renamed Voluntary Health Insurance Scheme (VHIS) in our current proposal, was put forth.”

A Wholly Approach

The Voluntary Health Insurance Scheme is meant to be a supplementary financing arrangement that complements the public healthcare system, Dr Ko points out. “It is not intended as a total solution to the problems of our healthcare system, but one of the turning knobs in readjusting the public-private balance.”

“By enhancing the accessibility, quality and transparency of private health insurance, VHIS provides a choice to those who are willing and able to use private healthcare services, thereby alleviating the pressure on the public healthcare system,” he explains. “It will help promote synergy between the public and private sectors and more efficient use of public and private healthcare resources.”

In addition to VHIS, a number of initiatives to redress the public-private balance will be implemented, including partnership programs, he adds. “In the process, we will be reviewing the regulation of private healthcare facilities to ensure patient safety and price transparency, healthcare manpower planning to ensure a sufficient number of doctors and healthcare personnel to serve the public in the future, as well as enhancing primary care to ensure the public can receive appropriate medical care in a timely manner.”

About 2.79 million people in Hong Kong, or about 40 percent of the population, are covered by some form of private health insurance, and among them about 2 million are covered by indemnity hospital insurance.

However, well over half of those covered with private health insurance still pertained to the public sector in terms of hospital admissions, according to the Thematic Household Survey conducted in 2011.

One of the reasons is that of the inadequate protection of private health insurance, including insufficient benefit coverage or limits, or uncertainty over whether hospital expenses are claimable under the insurance policy, Dr Ko notes. “This phenomenon reflects that private health insurance has the potential of playing a greater role in financing healthcare.”

“In order to address the concerns of the public over existing private health insurance products, we propose to regulate all individual indemnity hospital insurance products in the market,” he says. “Under VHIS as proposed, the government will stipulate 12 minimum requirements with which these products have to comply.”

“Minimum Requirements”

The minimum requirements in the proposed VHIS will be prescribed through a “standard plan,” which must be offered as an option to consumers. However, products without indemnity hospital components, including outpatient products and non-indemnity products such as hospital cash plans and critical illness plans, would not be subject to the proposed requirements.

These requirements are designed predominately to enhance the accessibility and continuity of insurance protection, improve the quality of private health insurance, and provide greater transparency of private health insurance and private healthcare services.

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“By these so-called minimum requirements, we do not intend to prescribe a ‘one-size-fit-all’ uniform product to restrict variety, but to set out the minimum protection that any individual indemnity hospital insurance product must offer to consumers,” Dr Ko emphasizes.

“Instead, it will provide simplicity, clarity and certainty to consumers who do not possess professional knowledge about health insurance,” he says. “On top of the minimum requirements of a standard plan, insurers may offer ‘flexi’ or ‘top-up’ plans to provide consumers with choices of additional benefits, such as higher ward class, higher benefit limits, or out-patient coverage.”

The proposed requirements are in fact nothing novel, Dr Ko points out, adding that governments in many overseas countries with a significant private health insurance market have all prescribed a set of basic requirements similar to those proposed in the current form of VHIS for private health insurance products.

Government Support

The successful implementation of the VHIS hinges on, among other things, government support both in terms of funding and policy measures, Dr Ko points out. One of the key government measures supporting the scheme, for instance, is the establishment of a “high risk pool,” which is said to enable high-risk individuals to gain access to private health insurance.

In other words, a group of individuals who would not otherwise quality for a private insurance scheme would be made eligible for a policy under a VHIS standard plan, which will be financed by the premiums collected from policyholders as well as government funding, he explains. “Without this mechanism, many high-risk individuals could only fall back on the heavily subsidized public hospital services for meeting their medical needs.”

To encourage people to sign up for health insurance, tax deduction is proposed for individuals taking up indemnity hospital insurance policies that are in compliance with the minimum requirements of VHIS, Dr Ko notes. Dependents of taxpayers will also benefit as claims can be made for tax deduction on policies covering their dependents.

Moreover, a public consultation on strengthening the regulation of private healthcare facilities has also been rolled out, he adds. The aim is to enhance the safety, quality and transparency of private healthcare services and to address public concerns over occurrence of medical incidents or disputes over fees and charges of private hospitals.

The proposals will thereby strengthen the regulation over ambulatory facilities where high risk medical procedures are performed, and enhance the price transparency of private healthcare facilities, including disclosure of price information, written quotation of fees and charges, packaged pricing for common procedures, and disclosure of historical bill size statistics.

“Our policy is to facilitate private hospital development with a view to increasing the overall capacity of the healthcare system in Hong Kong,” Dr Ko says, noting the development of a new private hospital of 500 beds in Wong Chuk Hang and a plan for a new teaching hospital affiliated with the Chinese University of Hong Kong, in addition to ongoing redevelopment of some existing private hospitals for extra capacity.

“In parallel with taking forward the VHIS, the government will continue to strengthen its commitment to public healthcare,” he stresses.

“The government’s recurrent expenditure on medical and health services will reach almost HK$55 billion this year, accounting for about 17 percent of total government recurrent expenditure.”

“We will also invest substantially in public hospital development projects, including the development of an acute general hospital in the Kai Tak Development Area, Tin Shui Wai Hospital and Hong Kong Children’s Hospital, and the expansion of United Christian Hospital,” he adds, noting a cost of HK$81 billion and an additional capacity of about 2,800 hospital beds.

“We treasure public healthcare as the cornerstone of our healthcare system, and we will continue to uphold it as the safety net for all Hong Kong people,” Dr Ko says.

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