My last foray into international health care systems focused on Singapore, a tiny island nation whose much-lauded health care system represents an interesting public-private mix. But there’s another island, not too far away, that also makes for a compelling case study in health care — in this instance through a single-payer system: Taiwan.

A handful of commentators have already hooked onto the fact that Taiwan’s health care system provides an instructive example of single-payer: Merrill Goozner and Ezra Klein both noted a well-written Congressional Quarterly article on Taiwan’s system earlier this year, and British analyst Ian Williams writes lauds Taiwanese health care in the winter 2008 edition of Dissent magazine.

The buzz around Taiwan’s National Health Insurance (NHI) system stems from the fact that some of its vital stats are stunning, particularly in comparison to the United States. NHI covers 99 percent of the Taiwanese population; in the U.S., 15 percent of the population lacks health insurance. Taiwan spends a mere 6.2 percent of its GDP on health care; the U.S., 16.3 percent. Administrative costs make up only 1.5 percent of NHI’s budget, while administration accounts for about 7.5 percent of American health care expenditures.

Single-payer critics habitually fret about long wait times, but a 2005 article in the journal International Medical Management (IMM) reports that wait-times are almost non-existent in Taiwan, and that Taiwanese doctors cycle through patients speedily enough to “see approximately 50 percent more patients than their counterparts in the U.S. on a weekly basis.” All in all, Taiwanese are far happier with their health care system than we Americans are with ours: last year the national satisfaction rate with health care in Taiwan was 77.5 percent. By way of contrast, an August Commonwealth Fund poll shows that 82 percent of Americans think that the U.S. healthcare system should be fundamentally changed or completely rebuilt.

Admittedly, Taiwan’s single-payer system certainly isn’t all sunshine and rainbows–but it is instructive for those thinking about how to best reform the U.S. system. 

The Birth of Single-Payer

Taiwan hasn’t always had universal coverage or a top-notch single-payer
system—in fact, NHI is only 13 years old. Before that, Taiwan had a
highly fragmented system of insurance that managed to cover just 57
percent of the Taiwanese population.

Single-payer came on the heels of democratic revolution. Taiwan was
under Chinese-enforced martial law, which prohibited the formation of
political parties, from 1949 to 1987. During that period, the KMT party
nominally ruled—but when martial law was lifted in 1987, a new party,
the Democratic Progressive Party (DPP), hit the scene, and one of its
primary agenda items was universal health care.

Princeton scholar Tsung-Mei Cheng credits the emergence of the rival
DPP as a real catalyst for health care reform. The KMT, nervous that
the minority DPP would steal its thunder, introduced its own universal
coverage bill into parliament in 1993. According to Cheng, this plan
was debated for a year-and-a-half before it passed, and its
stipulations were implemented over a mere three months. And so, in 1995, National Health Insurance was a reality.

Funding and Coverage

As a single-payer system, the Taiwanese government is the sole
purchaser and administrator of health care. The NHI is funded through
premiums in the form of a payroll tax of 4.55 percent on wages and
salaries. Responsibility for paying this premium is divided among
individuals, employers, and the government in different ways for
different groups of people. A farmer, for example, pays just 30 percent
of his premium while the government pays the other 70 percent.
Self-employed people pay 100 percent of their premium, while military
personnel, veterans, and low-income households have their full premium
covered by the government.

Ultimately, according to Cheng, the aggregate of these divvied up
payments means that households pay 38 percent of the total premium
bill, employers pay 37 percent, and the government covers the remaining
25 percent. Money-wise, the average premium payment for a Taiwanese
family of four is only $650. (In comparison, the average premium for
family health coverage through an employer in the U.S. was $12,106 in
2007, of which covered workers paid an average of $3,281).

Taiwan’s low premiums do have a downside, however. Folks have gotten
pretty content with not spending all that much on health care—and
that’s including co-pays of about 10 percent for inpatient care and 20
percent for outpatient care, which everyone outside of soldiers,
veterans, and the poor most pay. When premiums were bumped up by 7
percent in 2002, satisfaction with the system briefly dipped down to 60
percent. (Around the same time, Taiwan’s Supreme Court ruled that no
one could be denied care because of an inability to pay for it–an
important decision that effectively made health care a right, and thus
guaranteed true universality of NHI).    

In a government-run single-payer system like Taiwan’s, technical health
care issues like higher premiums are inherently political issues, tied
to the political establishment. As Cheng told PBS
in April, politicians have been wary of increasing premiums since 2002
“because everyone is concerned about courting the voters’ favor.”
Unfortunately, NHI needs steady revenue to help cover the cost of the
benefits it offers, which are comprehensive. In a 2003 Health Affairs article,
Cheng notes that NHI covers “inpatient care, ambulatory care,
laboratory tests, diagnostic imaging, prescription and certain
over-the-counter (OTC) drugs, dental care (except orthodontics and
prosthodontics), traditional Chinese medicine, day care for the
mentally ill, limited home health care, and certain preventive medicine
(pediatric immunizations, adult health exams including pap smears,
prenatal care, and well-child checkups),” and even “expensive treatment
for HIV/AIDS and organ transplants.”

The combination of generous benefits and relatively meager
contributions from the insured has created a system where there are
insufficient resources left for other aspects of  health care outside
of coverage. “There’s very little R&D,” Cheng told PBS, as a
commentator on its Sick Around the World special. “The budget
just isn’t there…There is no technology assessment, or very little,
except for drugs, and there’s just slower overall adoption of new
technology… There’s very low doctor-to-population [1.5 for every
1,000 people], nurse-to-population ratios [3.6/1,000]. So overall, you
feel the tightness everywhere.”

Still, all is not lost. As National Public Radio noted
earlier this year, there’s a relatively simple way to help the budget
solution: the government can shunt more of its resources into NHI.
Given that Taiwan only spends 6 percent of its GDP on health
care–among the lowest proportion in the world, and far less than the
16 percent spent by the U.S.–it certainly has a lot of wiggle room to
spend more without threatening its overall fiscal future.

Care Delivery and Provider Payment

Because 91 percent of health care providers contract with the NHI,
patients have a lot of choices, and until 2005 could see whichever
doctor they wanted, whenever they wanted, thanks to the absence of a
referral system.

Unfortunately, no referrals meant that lots of patients were popping in
to see doctors and specialists for outpatient services, which
ballooned: according to Cheng, in Taiwan, “outpatient visits averaged
14.4 per capita in 2001, compared with 5.8 for the United States
(1996), 6.4 in Canada (1998), 6.5 in Germany (1996), and 16 in Japan
(1996).” The ease with which patients could see costly specialists,
even for minor ailments, helped office visits account for nearly
two-thirds of national health insurance expenditure in recent years, as
compared with one-third in the U.S. And so, in 2005, an optional
referral system was set up to help constrain costs and/or eke more
money out of the people going hog wild on health care. Now, patients
can still go straight to whatever specialist they want—but if they do
so without first getting a referral, their co-pay is higher.

Budget-wise, the NHI program operates through global budgeting, or
fixed expenditure
caps on health care (i.e. the government will set a yearly  budget for
a hospital, and the hospital must operate within that pre-set budget).
Doctors are generally paid a lot less than they are in the U.S. and
their compensation is determined through the so-called “Global Budget
Payment System.” The core of this system is a combination of
fee-for-service and resource-based relative value system. In a
traditional fee-for-service system, a surgeon gets a specified amount
for performing, say, an angioplasty. But in Taiwan, the NHI would say
that a doctor receives “10 points” for performing such a procedure; the
amount of compensation to which “10 points” translates to depends on
the fixed budget under which the doctor is constrained. If doctors
accrue so many points that they exceed the pre-set global budget for
their hospital–in other words, if they do too many procedures–then
the monetary value of their points will be reduced. This way the system
is built to control costs (by keeping things within budget constraints)
and contain over-treatment (because if point values decrease, doctors
aren’t guaranteed to profit from doing more of a given procedure).

Smart Cards

Taiwan’s health care system is probably best known for its cutting-edge
adoption of IT through the ‘smart card’ system. Smart cards are patient
identification cards that people take with them to the doctor’s office.
There, the cards are scanned and the physician can get access to
medical history (allergy information, medication information, etc),
insurance data (coverage information, tracking of premium payment, and
reminders of missed payments), and public health info (immunization
charts and organ donor information). After a patients’ visit is
finished, the bill goes directly to the government and is paid
automatically. About 99 percent of all claims are processed
electronically, through ‘smart card’ technology, which helps keep
administrative costs remarkably low. Other IT resources also keep
things efficient. IMM notes
that, “at China Medical College Hospital outpatient clinics, computer
stations in every exam room allow doctors, nurses, and assistants to
collaborate to set appointments, make prescriptions, see lab results,
as well as make medical records (history of present illness, chief
complaint) all while the patient is present in the room.”

Like the Global Budget Payment system, the smart card also has a role
to play in combating over-treatment. The card’s coordination with NHI
central allows for oversight of billing irregularities to help cut down
on fraud and unnecessary care. The card doubles not only as a financial
tracking device, but also as a sort of ‘health care consumption
tracking device’ that allows for NHI to investigate instances of health
care over-use.  Cheng explains how this process works: “If a patient
goes to see a doctor or hospital over 20 times a month or 50 times in a
three-month period, then the IT picks that person out, and the person
then gets a visit from the government, the Bureau of National Health
Insurance, and they have a little chat. And this works very well,
because after this, the utilization among this particular group of
people goes down an average of 35 to 60 percent.” This may seem
overly-paternalistic to Americans, but Taiwan’s cost-containing efforts
seem to be working: it spends just 15 percent of what the U.S. does on
per capita  health care.

The Bottom Line

Taiwan’s health care system isn’t perfect. The big problem is that it’s
underfunded and politicians aren’t always willing to offer the tough
remedies necessary to bring the system into financial balance lest they
alienate voters in the process. But obviously the much less efficient
American system is also plenty politicized in its own right. Can we
really say that the profit-motive of pharmaceutical companies and
device makers is any less corrosive than the pandering of politicians?

What’s important to take away from the example of Taiwan is the
critical role of four health care variables: universal coverage, the
political will for reform, a focus on controlling costs by discouraging
over-treatment, and cutting-edge health care IT. If the United States
refocused its health care priorities on these issues, we’d be in
a lot better shape than we are today.