An Overview of Health Care Financing in Taiwan: Analysis of Issues Concerning Health Insurance

An Overview of Health Care Financing in Taiwan

Taiwan is a small island in the eastern part of Asia (midway between the Japan and the Philippines) that is constantly under political debate and diplomatic isolation. Taiwan has been independent since the 1950s, yet China has claimed sovereignty over Taiwan and insists nations cannot have official relations with both countries (Adams, 2010). Taiwan is not formally recognized by the United Nations (UN) and World Health Organization (WHO) which has brought concerns to whether it can survive as an independent-sovereign nation-state (Lu, 2014). Its political status remains a controversial topic both domestically and internationally. Despite these challenges, Taiwan is considered to have achieved an economic miracle with its rapid transition from an agricultural-based to an industrial-based economy. Yet, together with economic development, Taiwan is witnessing an unusually rapid demographic transition. It has a total population of 23.3 million, making it the 17th most densely populated country in the world (Statista, 2008). Taiwanese people are living longer but not healthier and fewer children are being born. The infant mortality rate is at 4.3 deaths/1000 live births and the birth rate in Taiwan is currently below the rate needed to sustain population growth as the current growth is caused by longevity (WPR, 2019). Life expectancy in Taiwan has increased to levels seen in OECD countries, with women living on average to 83.4 years old and men to 76.8 years old (WPR, 2019). It is estimated that people aged 65 and over will account for 24.1 percent of the population by 2030 (WPR, 2019). The leading causes of deaths in Taiwan are non-communicable diseases (accounting for around 80% of deaths), majority caused by cancer, cardio- and cerebral-vascular disease with other dominant health problems that include stroke, diabetes mellitus and accidents (WPR, 2019).

Following the WHO’s global call to achieve universal health coverage by 2030, Taiwan underwent a large transformation in their health system in March 1995 when they adopted a nationwide health insurance (NHI) system (Lu, 2019). It was previously known as the Bureau of National Health Insurance and merged three existing health insurance programs: government employee insurance, labour insurance and farmers’ health insurance which had only covered 59% of the population at the time (NHIA, 2016). The NHI is a state-run national health insurance agency based on a single-payer model with a global budget that now covers 99.99% of the total population (NHIA, 2016). Through political evolution and reform, Taiwan has strengthened their health care system to serve as a learning model for other countries.

The overall intention of the NHI was to provide health security to all citizens and provide equal access to healthcare, including groups outside the working population. The NHI system is a social insurance program that is organized by the government under the jurisdiction of the Ministry of Health and Welfare (MoHW). The principle goals of the NHI are to provide equal access to health care for all citizens, control total health spending within a reasonable level and promote efficient use of health care resources.

In Figure 1, the organizational structure of the system demonstrates the role of each institutional actors towards achieving the principle goals and smooth running of the NHI. The NHI Administration (NHIA) is the administrative agency that wields a monopolistic power as the single buyer of and payer for health care services including drugs and health care providers (Wu, Majeed & Kuo, 2010). Their responsibilities include managing health insurance affairs, medical quality, research and development, manpower training and information on the health system. The ministry’s NHI committee helps plan and monitor NHI-related tasks, and its NHI Dispute Mediation Committee deals with NHI related disputes (NHIA, 2016). A separate group of specialized groups and offices in six regional divisions across Taiwan handle insurance enrollments, premium collections, utilization review and reimbursements, and the management of contracted medical institutions with twenty-one liaison offices to serve the public (NHIA, 2016). Figure 1: Organization Structure of the Ministry of Health and Welfare (NHIA, 2016)

Health Expenditure

When the NHI was first initiated, there was a push to ensure that the % of gross domestic product (GDP) spent on national health expenditures (NHE) would not create a burden to the overall economy of Taiwan (Cheng, 2003). Before the NHI, Taiwan’s NHE as % of GDP of 4.31 in 1991 with a population of 20.5 million and now in 2017, total health spending in Taiwan was 6.44 % of GDP with a population of 23.5 million (DoS, 2019). Its nominal GDP in millions NT$ has increased by 71.3% (DoS, 2019). Public health expenditure as of % of current health expenditures (CHE) accounts for 63.5% with out-of-pocket payments as % of CHE are 35.52% (DoS, 2019). The compulsory contributory health insurance schemes as of % of public CHE was around 69.9% before the integration of NHI which rose to 89.9% in 2017 (DoS, 2019). Figure 2 shows the breakdown of health expenditures where the NHIA is 53.69% of the total government budget and out-of-pocket expenditures takes 33.63% of the private sector (DoS, 2019). These out-of-pocket costs include household expenditure on medical equipment and instruments, household expenditure on medical (including outpatient and inpatient care, dental prosthesis & orthopedics, sanatorium, nursing homes, childbirth recovery center, traditional medical treatments, etc., and household expenditure on health care appliances (Adams, 2010). The NHI system operates under financial self-sufficiency and pay-as-you-go principles. In the beginning, it adopted the fee-for-service approach as the primary payment system, taking previous standard payment rates from the government/employee schemes as a basis. [image: ]However; this led to an uncontrolled increase in medical expenses, affecting the quality of care. Until 2011, Taiwan was running a deficit until they implemented the 2nd Generation NHI which included reforms to stabilize the NHI finances which is seen in Figure 4. Taiwan’s NHI seems to be a striking example of a huge expansion in coverage, but with little corresponding increase in health care expenditure per person. The health care financing model is progressive and has pushed its rank to 9th place in the Bloomberg Health Care Efficiency Index (2018), making it one of the best in the world (Miller & Lu, 2018). Interestingly, Taiwan’s health care costs far less than highly developed countries in Europe and North America (Switzerland and Canada spent 11.6% and 10.4% of GDP per capita on health expenditures in 2016) (Statista, 2008). Although Taiwan’s unemployment rate is at 3.7% and out-of-pocket spending is increasing, its health finance system prevents catastrophic costs to households and public satisfaction remained high at 85.8 percent in 2017 as seen in Figure 3 (CEIC Data, 2008; Statista, 2008: NHIA, 2016). Figure 3: Trends of NHI Satisfaction Rate (DoS, 2019)

Figure 2: Breakdown of % Health Spending (DoS, 2019)

Figure 4: Finance trends after 2nd Generation NHI (NHIA, 2016)

Financial Flow

The financial flow in the Taiwan’s health system for NHE is divided into three groups: financial resources, financial allocation and financial agents. The financial resources involve where the money comes from: the government sector, enterprise and private non-profit organization and households (who comprise of over half) (NHIA, 2016). Financial allocation looks at where the money is being spent: general administration (2.15%), public health (4.37%), personal health care (88.17%) and capital formation (5.31%) (DoS, 2019). Personal health care refers to services in the health care basket which will be discussed later. The financial agents are those who are the liaisons to deliver the health services which include the public sector (central government, county/city government, public medical institutions and the NHIA) and the private sector (out-of-pocket, enterprise and private non-profit organization, and private administrative fee of health insurance) (NHIA, 2016).

Specifically looking at the revenue collection for the NHI, it is financed by taxes, premiums and a very small copay and coinsurance components (NHIA, 2016). Every citizen and resident are covered and required to pay a monthly premium except those from low-income and disadvantaged populations (NHIA, 2016). Majority of the revenue is from the payroll-based premiums which are contributed by salaried workers and their employers, non-salaried workers and unemployed persons, and subsidies from veterans, individuals from low-income household, prisons, and disadvantaged groups (DoS, 2019). The agency involved to review the premium rates and the scope of insurance is the NHI Committee, comprised of the insured, medical service providers, employers, experts, impartial public figures and representatives from relevant agencies (NHIA, 2016). Their responsibilities include negotiating, determining and allocating total annual medical payment expenses to balance the system’s operations which led to the classification system (NHIA, 2016). The NHI enrollees are categorized into six different classification for the insured and their insured units (see Figure 5). Figure 5: Calculating Premiums (NHIA, 2016)

Regarding health providers for cost control, the Bureau of the NHI (BNHI) first imposed global budgets sequentially on primary care, hospital care, and renal dialysis (Lu, 2014). It continues to update and has added diagnosis-related group (DRG) payment systems based on Taiwan’s inpatient care (NHIA, 2016). It is now a full-scaled global budget payment system which has lowered the growth rate of medical expenses to 5% and a medical quality assurance program with medical groups was implemented to oversee quality control (PWC Taiwan, 2018). The NHIA has also determined clinical services guidelines for treatment and drafted standards for professional review, case histories, and much more to improve medical quality (NHIA, 2016). The NHIA is consistently revising new treatment items reflecting technological process and real clinical needs with also strategic funding in areas such as nursing staff. To incentivize medical service providers, the BNHI introduced capitation and pay-for-performance for the treatment of breast cancer, cervical cancer, diabetes, tuberculosis and asthma (Lu, 2014). This list continues to grow based on population data with the goal to encourage medical service providers to focus on holistic care and prevention methods.

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Coverage of the Statutory Financing system

The NHI is designed to ensure that everyone had equal rights to health care, including groups out of the working population. The statutory financing system covers not only persons who are citizens of the Republic of China [ROC] (Taiwan) but also new immigrant residents, foreign white-collar workers, overseas Chinese and foreign students, and military personnel who have lived in Taiwan for over six months (NHIA, 2016). Taiwan pushed the vision of equal access to treatment and right to medical care by also providing health insurance to inmates at correctional facilities and ROC nationals who have lived abroad for an extended period and wish to re-enroll. These changes reflect society’s expectation of fairness and justice for health, providing coverage up to 99.9% of the population and more (NHIA, 2016).

As discussed earlier, the NHI classifies the premiums in six categories as seen in Figure 5. Salaried workers are responsible for 30% of their personal and dependents’ premiums where employees pay approximately 30-60% depending on the occupation (NHIA, 2016). The other 10% is covered by the government (NHIA, 2016). For workers with large families, the employers cover the worker and 0.7 of the dependent, while the worker must pay the premium themselves up to three dependents (NHIA, 2016). Non-salaried workers (self-employer, unemployed, no regular pay) must pay insurance premiums for themselves and their dependents but the amounts are based on different calculation methods which is influenced by their self-reported income (NHIA, 2016). The government also introduced supplementary premiums to include large bonuses, part-time income, professional service income, dividend income, interest income and rental income that was not originally included in the six classification (NHIA, 2016). By expanding the premium base, it was able to ensure persons have a fairer burden and improve NHI’s deficit. To cover low-income and disadvantaged populations, the system receives supplementary funds in the form of premium overdue charges, public welfare lottery earnings distributions and tobacco health and welfare surcharges (NHIA, 2016).

Once insured, persons receive a health insurance card which works with the e-health technology that is found in every health clinic. With the card, the scope of the medical coverage provides medical services at organizations such as hospitals, clinics, pharmacies and medical examination organizations when they get sick, injured, or birth. The NHI currently covers outpatient care, inpatient care, traditional Chinese medicine, dental care, child delivery, physiotherapy, rehabilitation, home health care, chronic mental illness rehabilitation, and many more (Wu et al., 2010). The scope of medical payments include diagnosis, examination, lab tests, consultation, surgery, anesthesia, medication, materials, treatment, nursing, and insurance covered hospital rooms (Wu et al., 2010). This health basket essentially covers all health care services. The public can also freely choose to receive medical care services at any NHI contracted hospital, clinic, pharmacy or medical laboratory (approximately 92.74% of all health organizations are under NHI); even while overseas if they have an unforeseen illness or injury (NHIA, 2016). They simply apply for reimbursement of medical expenses paid overseas within six months after receiving emergency treatment, outpatient treatment, or hospital discharge.

Taiwan’s health system does not include a gatekeeper position but there are patient cost-sharing mechanisms in place. To encourage patients to seek treatment at local clinics, a penalty fee is placed on outpatient visits to hospitals without first receiving a referral from primary care, but it is very low. To constrain growing utilization rate due to moral hazard, the BNHI incorporated co-payment of US2$ for each out-patient visit to clinics, US$5 for each visit to medical center outpatient clinics, and a 10% co-insurance for inpatient services (Chen, Bernell & Mcmullen, 2008). It also capped the total amount that each patient pays for each admission is 6% and for each year, 10% of the average national income per person (Lu, 2014). However; these copayments are waived in cases of major illnesses and injury, child delivery, and those who see care in the mountain and offshore island areas (rural Taiwan). The main purpose of these cost-sharing mechanisms is to encourage the public to first seek care at primary care level hospitals and clinics, and if needed to be referred to the appropriate specialist hospital department for further care. This would help specialized, large hospitals to focus on serious illnesses and medical research while primary-level hospitals and clinics become the frontline of primary care. However; although the burden of health is aimed to be equal for all Taiwanese citizens, research showed that richer families continue to pay more through out-of-pocket or private insurance than poor families to gain greater access to quality health care (Chen et al., 2008). The gap between the rich and poor is widening but there is little research done to understand the situation.

Private Health Insurance

Even with the introduction of NHI, the public still relies on voluntary health insurance which was dominated by American insurance companies in the past (Liu & Chen, 2002). The incentive for private health insurance is used to pay for amenities such as their copayments, hospital room upgrades (public sector has up to three beds in a room), or services not covered by the NHI basket could include elective surgeries (Liu & Chen, 2002). The private health insurance premiums take in consideration of age, gender but are unrelated to the level of health risk such as drinking and smoking. These expenses are considered out-of-pocket and is up to the individual for purchasing. Almost all policies exclude new subscribers over aged 64 and with an increase in range of NHI copayments, private insurance is appealing to help patients with copayments for outpatient care (Liu & Chen, 2002). Private health insurance is available for individuals who have high-incomes (particularly those in Taiwan who own a house as it is quite expensive). Research also showed that individuals with four members or more had a higher percentage of private health insurance purchasing compared to smaller families (Liu & Chen, 2002). There is a small percentage of health care organizations (around 8%) that provide health care services to private health insurance purchasers with debates about better quality of care (NHIA, 2016). Interestingly, the implementation of NHI did not increase or decrease the purchase of private health insurance. The Taiwanese government also encourages the purchase of private insurance against financial crisis with a tax deduction policy because it can assist with the rising health expenditures that the government pays to cover citizens (Liu & Chen, 2002).

Out-of-pocket payments

[image: ]As the NHI is a compulsory enrollment system, it is inevitable that some low-income families and economically disadvantaged groups will not be able to afford these health premiums. To combat this, the NHIA provides a widespread of assistance measures aimed at maintaining a strong safety net and promoting the spirit of mutual assistance. These measures are aimed to those suffering with catastrophic illnesses such as cancer, kidney diseases requiring dialysis, hemophilia, mental illness and economically-disadvantaged citizens (NHIA, 2016). There are also measures in place for those living in rural areas (such as mountains and offshore islands), and patients suffering from rare or critical illnesses. In 2016, approximately 26.1 billion ($NT) in premium subsidies was provided to approximately 3.01 million individuals (DoS, 2019). A breakdown of the financial assistance provide to the disadvantaged population can be seen in Figure 6. Figure 6: Financial Assistance provided by the NHIA (DoS, 2019)

The NHIA provides interest-free loans to people facing economic hardship to pay for their NHI premiums and unpaid out-of-pocket expenses to safeguard their right to care. In 2016, 2,339 loans were taken out which amounted to 170 million ($NT) (DoS, 2019). For those who did not qualify for relief loans and could not pay for overdue premiums, they were given permission to repay the fees in installments (around 91 000 cases were approved in 2016) (DoS, 2019). Persons can also seek assistance from public interest groups, companies, and personal charities to cover their premiums (8,489 cases were successful covered in 2016) (DoS, 2019). The NHI had a strong principle of providing equal access to medical care and treatment is always covered regardless if premiums were unpaid or not, if citizens have their insurance card. Although; if the insurance card is lost/stolen at the time of treatment, persons must pay out-of-pocket and have the right to request for reimbursement within six months. This move embodied the government’s goal of protecting the weakest in society and prevent catastrophic household costs. As mentioned earlier, the system receives supplementary funds in the form of premium overdue charges, public welfare lottery earnings distributions and tobacco health and welfare surcharges. The program is called “Program to Ease the Medical Care Burden of disadvantaged Persons” where the NHIA actively selects and notifies people eligible for this program to help pay for their overdue health insurance premiums (DoS, 2019). In mid-year of 2017, the cumulative subsidies totaled to 3.66 billion ($NT) and benefited 213, 137 persons (DoS, 2019). Patients who qualify for NHIA subsidies also do not have to pay the co-pay rates or it is much lower to lower out-of-pocket costs (NHIA, 2016). The NHIA also uses special funds to pay for drugs designate by the MoHW to treat rare diseases and ease the economic burden of care for these patients (NHIA, 2016).

To encourage medical providers to work with people with disabilities, dental services are offered a higher reimbursement rate to encourage dentists to provide dental care to those who are medically vulnerable (DoS, 2019). With people who have catastrophic illnesses such as end-stage renal life, chronic mental illness, etc., they are given a different insurance card to exempt any out-of-pocket costs. In 2016, the NHI medical expenditures covered approximately 181 billion ($NT) which a high percentage was focused on purchase of drugs (DoS, 2019). Additionally, out-of-pocket spending was increasing due to the prevalence of multiple chronic diseases and to prevent redundant treatment plans, medications and examinations, the NHIA created the Hospital Integrated Care Program where participants have lower copayments, registration fees, reduced wait times and increased care safety and quality (NHIA, 2016). This prevents multiple visits with doctors and tailor patient-centered care with less costs and wastage to the health system.

Evaluation & Conclusion

Since the introduction of the NHI, the NHIA has achieved its goal of easing the public’s medical care burden with the support of the people in Taiwan and the medical community. The NHIA has succeeded in easing the NHI premium burdens, reducing administrative expenditures, shortened waiting time and minimizing the administration cost (which is less than 1% of the GDP for THE per capita) (Miller & Lu, 2018). The NHI system faced many challenges in its integration years with 40% public satisfaction but after introducing new forms, the NHI is considerably strong (Adams, 2010). Its new goals are to focus on making the most of resources and providing continuous, holistic care with introducing the Integrated Home Health Care Program (NHIA, 2016). Taiwan’s major challenges lie within the rising of health care expenditures, overcrowding and heavy staff workloads, rising medical-legal disputes and medical violence (patient to medical staff) (Lu, 2014). However; the NHIA is continuously listening to the citizens and reforming the program that the country believes in as seen in Figure 4 with the 2nd Generation NHI.

Around the world, Taiwan is a leading model for health systems and it has been internationally recognized for its efforts. The NHI is not only progressive but receptive to change. It took a societal approach to consider human rights and the principle of fairness with revisions over the years which is impressive considering its disadvantaged position in the political realm (which includes its status with the WHO and the UN). Most data online can only be found on the NHI database. However; the Taiwanese culture is about being humble, and open. In 2017, the NHIA had over 700 foreign visiting guests from over 54 countries worldwide to learn about the health care financing system (DoS, 2019). Taiwan’s health system is formidable because it has managed to deliver high standards of care while keeping costs down, enabling all citizens to receive a comprehensive health care.

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14. Breakdown of Taiwan's Health Spending
15. Ministry of Health and Welfare & it's subordinate organization (Public) Other Public Sector National Health Insurance Administration (Public) Out-of-pocket (Private) Enterprise and Private non-profit institution (Private) Private Administrative Fee (Private)