Identifier
Created
Classification
Origin
05TAIPEI1881
2005-04-22 08:14:00
CONFIDENTIAL
American Institute Taiwan, Taipei
Cable title:  

TAIWAN'S NATIONAL HEALTH INSURANCE: TUNING UP A

Tags:  ECON ETRD TW 
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This record is a partial extract of the original cable. The full text of the original cable is not available.

220814Z Apr 05
C O N F I D E N T I A L SECTION 01 OF 04 TAIPEI 001881 

SIPDIS

STATE FOR EAP/RSP/TC
STATE PASS AIT/W AND USTR, USDOC FOR
4431/ITA/MAC//AP/OPB/TAIWAN/MBMORGAN

E.O. 12958: DECL: 04/20/2015
TAGS: ECON ETRD TW
SUBJECT: TAIWAN'S NATIONAL HEALTH INSURANCE: TUNING UP A
BROKEN DOWN VEHICLE

REF: A. 04 TAIPEI 4021


B. TAIPEI 478

Classified By: Director Douglas Paal, Reasons 1.4 b/d

C O N F I D E N T I A L SECTION 01 OF 04 TAIPEI 001881

SIPDIS

STATE FOR EAP/RSP/TC
STATE PASS AIT/W AND USTR, USDOC FOR
4431/ITA/MAC//AP/OPB/TAIWAN/MBMORGAN

E.O. 12958: DECL: 04/20/2015
TAGS: ECON ETRD TW
SUBJECT: TAIWAN'S NATIONAL HEALTH INSURANCE: TUNING UP A
BROKEN DOWN VEHICLE

REF: A. 04 TAIPEI 4021


B. TAIPEI 478

Classified By: Director Douglas Paal, Reasons 1.4 b/d


1. (SBU) Summary: Facing a severe budget shortfall for 2005
that is projected to increase dramatically in coming years,
the Taiwan Bureau of National Health Insurance (BNHI) and the
Department of Health in April began to implement several
measures designed to increase revenue and cut expenses. Even
together, the changes do not come close to closing the
National Health Insurance (NHI) financing gap. Public
response to individual measures to increase revenue has been
muted thus far, but BNHI officials tell us continued concern
over political fall-out is preventing Taiwan,s leadership
from approving badly needed increases in Taiwan,s health
insurance premium rate. A premium increase and changes in
co-payment requirements could bring BNHI's books back into
the black, but only radical reform of the NHI system will
eliminate the "black hole", the pricing differential between
the official NHI reimbursement price and what hospitals
really pay suppliers for medical equipment and
pharmaceuticals. Medical facilities use this price
differential to subsidize their administrative costs. In the
meantime, BNHI's efforts to control spending through capping
reimbursements are pushing many hospitals toward bankruptcy
and inspired more than 30,000 medical workers to take to the
streets on April 20. End Summary.


2. (U) AIT met with BNHI Vice President Lee Cheng-hua April
14 to discuss NHI's recent moves to address the agency's
projected FY05 budget shortfall of NT$171 billion (approx.
US$5.5 billion). This estimate does not include an
additional NT$40 billion that BNHI claims it is owed by the
cities of Taipei and Kaohsiung under a local expense-sharing
scheme that both municipalities have refused to pay since

2002. Part of that deficit will be covered by the last of
Taiwan,s legislatively mandated NHI reserve fund (NT$74
billion). But even after all reserves have been exhausted,
NHI is still expected to face a NT$97 billion deficit in
2005, and a NT$253 billion deficit in 2006. Under the
sobriquet of the "Multiple Tune-Up Policy", BNHI has created

a plan to continue near-term operations by cutting costs and
incrementally raising revenues through a series of piecemeal
measures.

============================
Chipping away at the deficit
============================


3. (U) As a first step towards chipping away at its budget
deficit, BNHI in February announced it had shifted NT$11
billion in public health expenditures back to the Department
of Health. Beginning on April 1, BNHI raised the upper limit
on salary subject to NHI premiums from NT$87,600/month to
NT$131,700/month. This means upper income earners now pay
health premiums calculated on a higher base salary. BNHI
expects this reform to generate an additional NT$3.4 billion
in revenue for 2005. BNHI also revised its policy for
calculating premiums for public employees including military
and civil servants and teachers. Prior to April 1, premiums
for government employees were calculated based on 82% of
their basic salary. Beginning in April, the premium is
calculated based on 87% of their basic salary. There have
been no public demonstrations nor has there been significant
public comment about these increases.


4. (SBU) BNHI also hopes the legislature will approve a plan
to double the excise tax on tobacco products from NT$5 to
NT$10 during the current session. Lee told AIT he foresees
no significant opposition in the LY to such a move. A
proposal to reallocate a portion of revenue collected from
emission taxes to support the NHI was rejected by LY members
and has been dropped. Finally, BNHI would like to raise
outpatient co-payments at bigger hospitals in metropolitan
regions. This would meet the dual goals of raising revenue
for NHI and encouraging patients to visit smaller hospitals
and clinics for routine outpatient care, freeing larger
hospitals to focus on treatment of more serious cases. BNHI
projects this could raise NT$5.3 billion in 2005. This
proposal is opposed by consumer groups concerned about
convenience and quality of care and by hospitals.

=====================================
Bank loans to fill the short-term gap
=====================================


5. (SBU) BNHI's dire financial situation has forced the
bureau to turn to the banking sector for funding. According
to Lee, BNHI in February borrowed NT$80 billion from a
consortium of eight Taiwan banks on commercial terms. The
loan carries a market rate of interest of 1.1% and will cover
the gap caused by the failure of Taipei and Kaohsiung to pay
their share of municipal health expenses, to cover over
reimbursements to hospitals (NT$27 billion),and to provide
BNHI with one month of working capital (NT$13 billion).
Opposition legislators have criticized BNHI for borrowing
money from the private sector and warned that future premium
increases should not be used to pay interest on the debt.

================
A penny saved...
================


6. (U) BNHI also plans to cut its reimbursement costs
through stricter management of services. The introduction of
integrated circuit (IC) health cards in 2003 allowed BNHI to
more easily monitor health system usage and identify those
patients whose usage of health services appears unusual or
excessive. Those users whose patterns of activity raise red
flags will be monitored by BNHI to identify problems. By
actively discouraging the commoen practice of
"doctor-shopping" and scrutinizing suspicious prescription
drug usage, BNHI hopes to deter fraud and discourage patients
and medical providers from abusing the healthcare system by
repeated unnecessary doctor visits, lab tests, and
prescriptions. BNHI plans to aggressively investigate fraud
and will work with DOH to increase public education and
awareness of the appropriate use of the healthcare system.


7. (U) Official statistics from BNHI show that the average
Taiwan resident visits a doctor over 15 times per year and
takes away 4 prescriptions each time. In an attempt to
control drug expenditures, BNHI is considering de-listing
1200 over-the-counter (OTC) medications currently eligible
for reimbursement. Beginning in July 2005, BNHI will no
longer reimburse hospitals or patients for these
pharmaceuticals. In 2004, BNHI spent NT$2.3 billion to cover
non-prescription drugs. Consumer groups and local
pharmaceutical associations oppose this reform, arguing that
Taiwan patients need professional guidance to ensure
medicines are taken properly.


8. (C) For several years, BNHI has used price/volume surveys
(PVS) to review its reimbursement rates and to adjust these
rates periodically to reflect actual prices paid by hospitals
to distributors. Pharmaceutical companies in Taiwan are
actively opposing reimbursement reductions expected to follow
the latest PVS. The International Research Pharmaceutical
Manufacturers Association (IRPMA) believes the PVS and
subsequent reimbursement cuts are non-transparent and has
joined Taiwan,s five other pharmaceutical associations in
refusing to provide price and sales volume data on 802
products requested by BNHI. Instead, they have proposed an
across the board 2.5% reimbursement cut on virtually all
pharmaceutical products, potentially saving BNHI
approximately NT$2.75 billion, a figure they believe is
equivalent to what BNHI would save after implementing PVS
inspired reimbursement cuts. BNHI has agreed to consider the
proposal, but BNHI Vice President Lee told AIT that the
industry proposal was too stingy and would not result in
sufficient savings for BNHI. He suggested a proposal in the
5-7% range would be more likely to pique BNHI's interest.
However, even this would have a minimal impact on BNHI's
overall deficit.

============================================= ===
...doesn't mean much when you're losing billions
============================================= ===


9. (C) These measures, even taken together, do not come
close to closing BNHI's fiscal gap. But political
considerations continue to block an increase in health
insurance premiums, the one reform that would quickly bring
Taiwan,s NHI back into the black. The current premium is
set at 4.55% of wages and was last raised in September 2002,
a move that faced heavy public opposition and cost then
Health Minister Lee Ming-liang his job. BNHI has the
authority to increase premiums to 6% of wages without
legislative approval but was unwilling to do so during last
year's election season. BNHI economists believe an immediate
increase to just over 5% could keep the NHI afloat for
another 2-3 years without necessitating major systemic
reforms. With LY elections next scheduled for 2007, BNHI was
considering proposing premium increases in 2005, according to
Lee. However, newly installed Premier Frank Hsieh reportedly
told BNHI President and CEO Liu Chien-hsiang that the current
political situation made discussion of premium increases
difficult to consider. Instead, BNHI will instead pursue its
"Multiple Tune-up Policy" while it attempts to build
consensus for a premium increase sometime in 2006.


10. (C) Minister of Health Hou Sheng-mou acknowledged that
the current policy does not address the core problems of the
NHI. But he hopes that by implementing a series of small
changes he can buy time to build consensus for a
"revolutionary" reform that will create a second-generation
NHI system that will tie premiums to household income instead
of salary and increase charges as health care usage
increases. In a March 20 press interview, Hou briefly
discussed the need for reform of insurance rates and
suggested that in a society with an aging population and
changing medical technology it is impossible to keep
insurance rates pegged at the same rate. Although Hou took
pains to emphasize the need to guarantee to the people that
the money would be used effectively, he insisted that
premiums must be increased in order to maintain the viability
of the system. BNHI Vice President Lee told AIT that he
believes to ensure the fiscal health of the NHI was to change
the law to allow premiums to be adjusted automatically to
reflect inflation and increasing healthcare costs. Taiwan
politicians lack the courage to risk political opposition and
approve necessary premium increases, he said, insisting it
was better to take the responsibility out of their hands.

===========================================
Doctors Protest BNHI reimbursement policies
===========================================


11. (U) Doctors and other medical personnel held a very
large demonstration April 20 to protest the NHI's current
reimbursement policy. AIT Econoff estimates over 25,000
people, from all parts of the island, rallied at the Chiang
Kai-shek Memorial and marched to the Legislative Yuan to
oppose BNHI imposed reimbursement caps (known as "global
budgeting") and a BNHI demand that hospitals refund NT$30
billion in disputed reimbursement payments. Protesting
medical workers say that the implementation of "global
budgeting" is driving hospitals into bankruptcy, forcing them
to cut salaries and services. When asked, they insisted they
were not opposed to the NHI system, but that they could not
effectively treat patients without adequate reimbursement
from BNHI. However, protesters informally surveyed by
Econoff were generally unwilling to support increasing
premiums and co-payments for patients, instead asking BNHI to
more effectively use its current resources. Chinese Medical
Association (CMA) President Huang Nan-ho claims that under
the current system hospitals are reimbursed for only 60
percent of their costs, and that one-third of Taiwan's 700
hospitals and medical centers are on the verge of bankruptcy.
BNHI's recent announcement that they would request refunds
of reimbursements from several hospitals which were overpaid
previously is further fueling the medical workers protest.
Organizers had predicted that 12,000 medical workers would
participate in the protest and were surprised that the actual
participation was more than double expectations.

===========================================
Hospitals want Suppliers to Feel their Pain
===========================================


12. (C) As BNHI's financial position continues to
deteriorate, the pressure from hospitals on medical suppliers
to provide further discounts is increasing. In concert with
BNHI's request that medical facilities return disputed
over-reimbursements from 2003-4, Taiwan's biggest public
hospital (Veterans General Hospital) has already informed
pharmaceutical suppliers that they must make cash "donations"
to the hospital based on their sales in those years.
Pfizer's Taiwan representative alleges that most have already
complied.

===============================
Comment: Living in a Black Hole
===============================

(C) 13. Comment: BNHI continues to search for ways to get
out of the financial straitjacket imposed by the combination
of rising healthcare costs and fixed premiums. Taiwan spends
only 6 percent of GDP on healthcare (compared to 15 percent
in the US) and Taiwan residents are frequent users. 97
percent of residents are covered by the NHI. BNHI believes
that the only way to keep the system afloat in the near term
is to pass the pain on to hospitals and medical suppliers,
including pharmaceutical companies, by capping payments to
hospitals and by continuously reducing reimbursement prices
for medical supplies. Hospitals then squeeze suppliers by
negotiating further discounts and pressing for "donations",
creating a spread between the actual and reimbursement price
(the black hole) that they count on to cover their
administrative expenses.


14. (C) As BNHI's financial position continues to
deteriorate, the pressure from hospitals on medical suppliers
to provide further discounts will increase, expanding the
"black hole" in the near term. Without it, Taiwan's national
health insurance system would face collapse. The NHI needs
radical reform to shift more of the burden of healthcare
costs to consumers, who receive high quality care at prices
US consumers would find staggeringly low, by increasing
premiums to better cover operating expenses and co-payments
to reduce frivolous use of services. Until hospital expenses
can be met from transparent revenues, efforts to implement
transaction price reimbursements that could eliminate the
black hole are unlikely to succeed. Given the timidity of
Taiwan politicians on changes to the healthcare system, it is
likely that only the imminent collapse of the system will
open the door to this kind of radical reform. End comment.
PAAL