Health Affairs
May/June 2003
Does Universal Health Insurance Make Health Care Unaffordable? Lessons From
Taiwan
by Jui-Fen Rachel Lu and William C. Hsiao

…Taiwan’s single-payer NHI system enabled Taiwan to manage health spending inflation and that the resulting savings largely offset the incremental cost of covering the previously uninsured. Under the NHI, the Taiwanese have more equal access to health care, greater financial risk protection, and equity in health care financing.

Major Lessons

Taiwan offers an opportunity to study how an advanced economy can structure its health care system to advance societal goals. Taiwan learned from worldwide experience that while the free market can often produce products and goods efficiently, it is incapable of distributing the goods equitably because the income and wealth of households are not distributed equitably. Moreover, the health insurance market suffers major market failures from adverse selection and risk selection. When a society is seriously concerned about its people having equitable access to care and about pooling health risks efficiently, the free market is not a good choice. Evidence from the United States amply supports this conclusion also.

Taiwan established a compulsory national health insurance program that provided universal coverage and a comprehensive benefit package to all of its residents. Besides providing more equal access to health care and financial risk protection, the single-payer NHI also provides tools to manage health spending increases. Our data show that Taiwan was able to adopt the NHI without using measurably more resources than what it would have spent without the program. It seems that the additional resources that had to be spent to cover the uninsured were largely offset by the savings resulting from reduced overcharges, duplication and overuse of health services and tests, transaction costs, and other costs. The total increase in national health spending between 1995 and 2000 was not more than the amount that Taiwan would have spent, based on historical trends.

Additionally, Taiwan did not experience any reported increase in queues or waiting time under the NHI. Meanwhile, the government has taken regular public opinion polls every three months to gauge the public’s satisfaction with the NHI. It continuously enjoys a public satisfaction rate of around 70 percent, one of the highest for Taiwanese public programs.

One notable result that should interest Americans is that Taiwan’s universal insurance single-payer system greatly reduced transaction costs and also offered the information and tools to manage health care costs. Alex Preker, a leading health economist at the World Bank, came to a similar conclusion from his research of OECD countries. He concluded that universal health care led to cost containment, not cost explosion. Equally important, a single-payer system can gather comprehensive information on patients and providers, which can be used to monitor and improve clinical quality and health outcomes.

http://www.healthaffairs.org/1130_abstract_c.php?ID=http://www.healthaffairs.org/Library/v22n3/s15.pdf

Comment: Amazing! Single payer reform really does accomplish its intended goals. Taiwan now has equitable, affordable, comprehensive care for everyone. Taiwan has provided us with a real life laboratory for precisely the reform that we need in the United States.

So let’s fix our system… now!

Health Affairs
May/June 2003
Does Universal Health Insurance Make Health Care Unaffordable? Lessons From
Taiwan
by Jui-Fen Rachel Lu and William C. Hsiao

…Taiwan’s single-payer NHI system enabled Taiwan to manage health spending inflation and that the resulting savings largely offset the incremental cost of covering the previously uninsured. Under the NHI, the Taiwanese have more equal access to health care, greater financial risk protection, and equity in health care financing.

Major Lessons

Taiwan offers an opportunity to study how an advanced economy can structure its health care system to advance societal goals. Taiwan learned from worldwide experience that while the free market can often produce products and goods efficiently, it is incapable of distributing the goods equitably because the income and wealth of households are not distributed equitably. Moreover, the health insurance market suffers major market failures from adverse selection and risk selection. When a society is seriously concerned about its people having equitable access to care and about pooling health risks efficiently, the free market is not a good choice. Evidence from the United States amply supports this conclusion also.

Taiwan established a compulsory national health insurance program that provided universal coverage and a comprehensive benefit package to all of its residents. Besides providing more equal access to health care and financial risk protection, the single-payer NHI also provides tools to manage health spending increases. Our data show that Taiwan was able to adopt the NHI without using measurably more resources than what it would have spent without the program. It seems that the additional resources that had to be spent to cover the uninsured were largely offset by the savings resulting from reduced overcharges, duplication and overuse of health services and tests, transaction costs, and other costs. The total increase in national health spending between 1995 and 2000 was not more than the amount that Taiwan would have spent, based on historical trends.

Additionally, Taiwan did not experience any reported increase in queues or waiting time under the NHI. Meanwhile, the government has taken regular public opinion polls every three months to gauge the public’s satisfaction with the NHI. It continuously enjoys a public satisfaction rate of around 70 percent, one of the highest for Taiwanese public programs.

One notable result that should interest Americans is that Taiwan’s universal insurance single-payer system greatly reduced transaction costs and also offered the information and tools to manage health care costs. Alex Preker, a leading health economist at the World Bank, came to a similar conclusion from his research of OECD countries. He concluded that universal health care led to cost containment, not cost explosion. Equally important, a single-payer system can gather comprehensive information on patients and providers, which can be used to monitor and improve clinical quality and health outcomes.

http://www.healthaffairs.org/1130_abstract_c.php?ID=http://www.healthaffairs.org/Library/v22n3/s15.pdf

Comment: Amazing! Single payer reform really does accomplish its intended goals. Taiwan now has equitable, affordable, comprehensive care for everyone. Taiwan has provided us with a real life laboratory for precisely the reform that we need in the United States.

So let’s fix our system… now!

Washington Post
May 5, 2003
No HMO Fits All Anymore
By Bill Brubaker

Kaiser (Mid Atlantic) is seeking regulatory approval to offer a plan, as soon as this fall, that would allow patients to visit the doctors and hospitals of their choice.

Kaiser did not have much choice… The nonprofit insurer, part of California-based Kaiser Foundation Health Plan Inc., has been losing members and money.

Patients could participate in an HMO and receive treatment in Kaiser’s 29 medical centers or at 12 hospitals in the Washington-Baltimore region. That is the least expensive option.

Members could choose from a PPO network of more than 10,000 non-Kaiser physicians. A primary-care visit typically would cost about $20, and patients would have a larger choice of hospitals…

Or they could receive treatment from any doctor or hospital in the United States. That option, known as an indemnity plan, is the most expensive: Patients would pay 30 percent of any charges.

“You can move among the three tiers,” (vice president of sales and marketing Bill) Little said.

http://www.washingtonpost.com/wp-dyn/articles/A10965-2003May3.html

Comment: Free choice… But with financial penalties for exercising that choice.

If we had a single payer system, financial penalties would be removed and the patient would truly have free choice of providers. Competition between providers would then be based on the patients’ perceptions of quality and service. Wouldn’t it be better if all providers were playing on the same financial field? Then Kaiser could concentrate on efforts to improve service, as would all other providers.

Fix the funding system, and then compete on quality and service.

San Francisco Chronicle poll, 5/1/03

Results:
77% – Create single-payer system
3% – Make employers “play or pay”
2% – Restore clinics’ budgets
14% – Make cuts, we can’t afford the system we’ve got
3% – Take two aspirin and call Congress in the morning

About 1100 people voted in this poll, which totally lacks any scientific validity. But the poll does make one very important point. The California State Legislature is currently evaluating both an employer mandate model and a single payer model of reform. This poll demonstrates that legislators should not automatically dismiss the single payer model because it is not “politically feasible.”

Modern Physician Apr 1, 2003 Editorial An irresistible force By Joseph Conn

…on March 10, an officer (Stuart Butler, vice president of domestic and economic policy studies) of the conservative and politically influential Heritage Foundation testified before a Senate committee that a “social contract” exists in the United States to “ensure all residents have affordable access to at least basic health care . . . ”

So now, even the Heritage Foundation accepts the idea of universal coverage.

Butler concedes it would take a public/private partnership to cover everyone, but his plan, presented to the Senate subcommittee on aging, calls for phasing out what he calls the “regressive” tax breaks given on employer contributions to healthcare benefit plans. The excluded federal and state income and payroll taxes–estimated at $125 billion in 1988–would be better spent, he argues, providing “more progressive” tax credits or subsidies to individuals for obtaining health insurance themselves.

Butler did not urge employers to stop paying for their employees’ healthcare coverage, but that is inevitably what would happen without the tax breaks.

http://www.modernphysician.com/article.cms?articleId=1817

Comment: As we approach the inevitability of major reform of our highly flawed system of funding care, it is instructive to note policy issues on which groups as diverse as Physicians for a National Health Program and the conservative Heritage Foundation can agree.

Heritage believes in a “social contract” and PNHP believes in a “human right” to affordable, universal access to health care, though Heritage would limit that to “basic” care and PNHP would include all “beneficial” care.

Heritage recognizes a fundamental flaw in the regressive tax benefits of employer-funded health plans. The regressive nature is due to the fact that health plans provided by the employer are actually part of the employee compensation package. Since they are deductible to the employer, but not taxable to the employee, higher-income individuals receive a much greater tax benefit than do lower-income individuals. This is tax policy that benefits the wealthy but not the poor.

Remarkably, both Heritage and PNHP believe that our health care system should be funded through tax policies that are more progressive. This is a dramatic meeting of diverse minds. Both PNHP and Heritage believe that we should use the tax system in health care funding, and that the taxes should be more equitable.

Unfortunately, we are still in different worlds on the next step. Heritage would turn the hapless recipient of a tax credit loose in the overpriced and inadequate private individual insurance market where the masters of “market medicine” will relieve the patient of their funds without the necessity of providing adequate, affordable access to beneficial services. PNHP stands firm on the principle that only a publicly administered, single payer system of social insurance can ensure that everyone would have truly affordable access to all important beneficial services.

There is one important caveat. Although we agree that employment-linked insurance should be eliminated, we cannot do that until we have established a program of social insurance. In spite of the injustices of our current system, it is crucial that we maintain the employer’s role in providing coverage. Without it, tens of millions more would join the ranks of the uninsured.

We need to proceed, as expeditiously as possible, with our efforts to establish a single payer system. But, until we are there, let’s not dismantle the employer base of coverage.

Response of Kip Sullivan to Robert Blendon’s polls:

From Don’s comment:

Dr. Blendon could improve his credibility by conducting polls that ask about views on universality, comprehensiveness and affordability of social insurance. Rather than asking exclusively about government and taxes, the poll should begin with a statement such as “Medicare and Social Security are programs of social insurance that are designed to include everyone and to be funded equitably.”

Kip Sullivan’s response:

Don,

I have what I think is an even more important suggestion for Dr. Blendon. He should stop asking respondents whether they would pay $50 or $200 or $500 more “to insure the uninsured,” and instead start asking, “If a universal insurance program would reduce your premium and out-of-pocket costs by $500, and increase your taxes by $500, would you support such a program?” Blendon’s question and my proposed question make different assumptions about costs. Blendon’s question assumes there is no way costs can be lowered while coverage is expanded; my question does not.

The other problem with Blendon’s question is that it assumes financing of universal coverage must be regressive. (A per head tax of $50 or $200 is regressive; it takes a rising portion of income as income declines.) My suggested question also suffers from that defect. Blendon should explore how support for universal coverage is affected by progressivity of financing by asking some follow-up questions, such as, “If a universal insurance program would reduce your premium and out-of-pocket costs by $500, and increase your taxes by $200, would you support such a program?”

Blendon keeps asking Americans his loaded question, and, not surprisingly, their responses show they are reluctant to pour even more money into our dreadfully expensive system. From this Blendon concludes, “Americans say they want universal coverage but they don’t want to pay for it.” If Blendon wants to continue posing his loaded question, fine, but the least he can do is draw the appropriately narrow conclusion, which is, “Americans want universal coverage, but they don’t want to buy it at the current price at which coverage sells these days, and they don’t want to pay for it with a regressive tax.”

Kip

The San Francisco Chronicle is conducting a poll on health care reform. Two of the choices include single payer and “play or pay” employer mandate. Although the poll is not scientifically valid, a large response could demonstrate the level of passion that we have for reform.

To cast your vote: http://www.sfgate.com/ (The question is half way down the right column.)