18 March 2000

Health care financing models should take stock of lessons 
from launching provident funds

(Keywords: health financing reform, saving, insurance)

          After years of deliberation on the need for retirement scheme for the population, after extensive scrutiny on the relevant bill and the subsidiary legislations to bring the Mandatory Provident Fund into effect, the fund will finally kick off by the end of this year.

          The Mandatory Provident Fund will finally kick off by the end of this year. In spite of all the preparation and publicity, misunderstanding still prevails. Many are under the erroneous perception that with such a provident fund, they can look forward to a retirement where everything will be provided for, if not better than, at least at their current living standards.

          This is obviously not the case. In short, such "save and invest" scheme, though essential, is not the be all and end all solution.

          By next month, Government is expected to release its consultation paper on health care reform, in particular a health care financing reform that hopefully will bring a viable health care system with high standards forward. It is a necessary move. Needless to say, many solutions and formulae are being considered. Yet before the hammer falls, it would be prudent for the Administration to take stock of the problems so far encountered in the launching of the Mandatory Provident Fund before a final conclusion is reached.

          Reports are that the Secretary for Health and Welfare favours a mandatory "saving" system rather than a compulsory insurance scheme. Let us examine their merits and downsides.

          An insurance scheme as implied is a risk sharing exercise. Looking at it from a negative angle, it may be said that the healthy will be subsidising the sick. Furthermore, the fact that other people's money are being used could lead to a tendency to overuse. The system could be abused by both the users and the providers alike, through unnecessary inflating the demand.

          Examples abound. In Taiwan, health care spending jumped some 57% after the introduction of mandatory insurance. In the United States, where health care is very much insurance based, health care spending occupies 14% of Gross Domestic Product, the highest in the world.

          Yet, insurance is perhaps the only way where enough revenue could be collected and accumulated in a relative short time to finance health care effectively without increasing further load on public coffer. Furthermore, risk sharing may well be the only way to maintain catastrophic risk both on a medical and financial basis. Even in Singapore, where a compulsory saving system originated and flourishes, the government still encourages individuals to take up separate catastrophic insurance coverage.

          What about "forced savings"? Yes, since the money so accumulated is for oneself only, the element of abuse will be reduced to a minimum especially when the unspent could be ported to one's descendants.

          Yet, any saving scheme will beg the following questions. What percentage of saving should be forced onto the public to ensure that there will be enough to cover health care needs way into your retirement and yet not having to dig too heavily into your current wallet? When can the savings account be put into use, given that it will take time to accumulate enough to be effective? How are we going to finance our health care budget in the transitional period?

          Be it a "forced saving" or an "insurance risk sharing" (compulsory or voluntary) scheme, the aim is to enable the users to be able to partly pay their health care cost. It is thus imperative that Government must first come clean with no uncertain terms that the future health care cost is to be borne both by the users and public coffer.

          Irrespective of what directions health care financing will take, Government must assure that the poor and indigent will not be so disadvantage. Furthermore, considerations or solutions must be sought for the housewives and the minors who receive no income and thus have no means to contribute to any scheme ultimately adopted.

(Hongkong Standard)