LC Paper No. CB(2) 2740/98-99
(These minutes have been
seen by the Administration)
Ref : CB2/PL/HS
LegCo Panel on Health Services
Minutes of special meeting
held on Wednesday, 21 July 1999 at 8:30 am
in Conference Room A of the Legislative Council Building
Members Present :
Hon Michael HO Mun-ka (Chairman)
Dr Hon LEONG Che-hung, JP (Deputy Chairman)
Hon HO Sai-chu, SBS, JP
Hon Cyd HO Sau-lan
Hon CHAN Yuen-han
Hon Mrs Sophie LEUNG LAU Yau-fun, JP
Dr Hon YEUNG Sum
Hon LAW Chi-kwong, JP
Dr Hon TANG Siu-tong, JP
Member Absent :
Hon YEUNG Yiu-chung
Member Attending :
Hon Emily LAU Wai-hing, JP
Public Officers Attending :
Mr Gregory LEUNG, JP
Acting Secretary for Health and Welfare
Mr Eddie POON
Principal Assistant Secretary for Health and Welfare (Medical) 3
Dr T A SAW
Deputy Director of Health 1
Dr W M KO
Deputy Director, Hospital Authority
Mr K Y TANG
Miss Kinnie WONG
Assistant Secretary for Health and Welfare (Medical) 7
Attendance by Invitation :
Dr Michael C M LEUNG
Department of Economics
The Chinese University of Hong Kong
Dr P L LAM
Department of Business Studies
Hong Kong Polytechnic University
Clerk in Attendance :
Ms Doris CHAN
Chief Assistant Secretary (2) 4
Staff in Attendance :
Miss Mary SO
Senior Assistant Secretary (2) 8
The Chairman welcomed Dr Michael LEUNG, Dr B L LAM and representatives
of the Administration to the meeting.
I. Health care financing
(LC Paper Nos. CB(2)2494/98-99(01) and CB(2)2593/98-99(01))
2. Dr Michael LEUNG briefed members on the salient points of his paper
(LC Paper No. CB(2)2494/98-99(01))comparing the Health Security Plan (HSP)
proposed by the Harvard team in its consultancy report on Hong Kong's health
care system with the health insurance system in Japan. In particular,
Dr LEUNG said that lessons could be learnt from the Japanese experience
in health care financing which deployed global budgeting and negotiation
on payment fees in controlling health care costs.
3. Dr P L LAM highlighted the main features and advantages of a voluntary
health care insurance system as detailed in his paper (LC Paper No. CB(2)2593/98-99(01)).
In particular, Dr LAM proposed that the Government should reduce its funding
to the Hospital Authority (HA) and use the savings to subsidize privately
purchased health insurance premiums. To compensate for the reduction in
Government funding, user fees in public hospitals and clinics should be
raised to recover 30% of the costs in seven years' time, as opposed to
the existing level of 3%. If this was implemented, inpatient fees
for general wards, for example, would be increased from the existing $68
per day to about $900 in 2006. He pointed out that although there
would be a big jump in the user fees, they should not pose a heavy financial
burden to the patients as the insurance coverage would subsidize part of
the user fees. Dr LAM further said that in order to address the problem
of insurance companies refusing to insure people who were unemployed, elderly
and chronically-ill, Government subsidy to the insurance premiums should
be on a family basis so as to entice insurance companies to provide an
insurance policy covering all family members. Dr LAM added
that in order to encourage people to purchase private health insurance,
tax incentives should be provided to employers and employees.
4. Prior to responding to the above two papers prepared by Dr LEUNG
and Dr LAM, the Government Economist declared that the views he expressed
at the meeting were his personal views as the Administration had not yet
reached a decision on the way forward on the health care system.
5. The Government Economist said that in assessing whether a health
insurance system was desirable for Hong Kong, careful consideration should
be made as to whether the system as proposed could meet the objectives
of cost effectiveness and equity. The Government Economist agreed that
user fees would need to be raised significantly in order to improve cost
effectiveness. For the determination of user fees, it could be made
either through negotiations between the Government and the health care
providers or through market competition. In either case, more flexibility
would need to be provided in the system for it to be workable. He
further said that it would be at variance with the principles of
"equity" and "user-pay" if some people had to pay for the same type of
service just on account of their higher income. In his view, Government
subsidy to the poor and low-income groups would be inevitable. The
key question therefore was which form of subsidization should be adopted
to best meet such social need.
6. The Government Economist pointed out the inherent problems of adverse
selection and moral hazard in an insurance system. In respect of
the former, the insurance companies would, in order to avoid loss, charge
a premium that would be above the level commensurate with the average risk
for the entire population. To alleviate this problem, mandatory health
insurance for both the healthy and the less healthy groups might be the
solution. As regards the latter, some of the insured would be inclined
to seek more medical care than would otherwise be the case if they had
to pay the medical expenses out of their own pockets. This drawback
could nevertheless be ameliorated by co-payments or deductibles.
7. Acting Secretary for Health and Welfare (Atg SHW) echoed the Government
Economist's views. He further said that with the implementation of
a private insurance system, it was inevitable that some money would be
diverted to organizations or bodies acting as intermediary for profit purposes.
Atg SHW also expressed concern about the proposal's impact on the lower
middle-income group, who might not want to, for financial reasons, to purchase
private insurance even at a reduced premium made possible through Government
8. In response, Dr LAM said that it was unlikely that the proposed HSP
would be supported by the middle-income groups, and reiterated the advantages
of a voluntary insurance system as detailed in his paper. Dr LAM
further said that money diverted to intermediary bodies was acceptable
if they could deliver the requisite services.
9. Dr LEONG Che-hung enquired whether using the actual expenditures
of HA between 1989/90 and 1996/97 as the basis for projecting health expenditures
up to 2016 was accurate. Dr LEONG further enquired whether contributions
of 1% and 1.5-2.0% of wages to pay to the HSP and Savings Accounts for
Long Term Care (MEDISAGE) respectively were adequate to cover an individual's
medical expenses, and if so, how long could these rates remain unchanged.
10. The Government Economist replied that he could not comment on the
accuracy of the projection using the actual expenditures of HA as one of
the data sources, as he had not studied the projection model in detail.
Nevertheless, he pointed out that in considering changes to the health
care system, it should be borne in mind that the trend of ageing population
would have a significant bearing on the future health care expenditures.
The present indications were that the trend of ageing might intensify in
the next 20 years. On the question of adequacy of the contributions
to the HSP and MEDISAGE, the Government Economist said that this would
very much depend on the type, level and quality of medical services promised
to be delivered under the new health care system.
11. Dr YEUNG Sum urged that extreme caution should be taken in determining
whether the existing health care system should be replaced by a health
insurance system. He expressed concern about raising the user fees
to recover 30% of the costs in seven years' time, as this would deny people
of lesser financial means to have access to essential health care.
He further expressed concern about moral hazard inherent in the health
insurance system. To illustrate this latter point, he cited the Taiwan
experience whereby the Taiwanese Government was now contemplating either
increasing taxes or insurance payments to reduce the deficit in the public
health care expenditures.
12. Dr LAM responded that by raising the user fees, the Government could
use the savings to subsidize the premiums for people who could not afford
to pay. He further pointed out that patients would, in practice, not be
required to pay the full user fees, as such fees would be partially covered
by the health insurance. Dr LAM further said that under a voluntary insurance
system, the problem of moral hazard would be modest as the insured would
be required to pay some portion of his or her covered medical expenses.
13. Miss Emily LAU expressed support for the implementation of a voluntary
health insurance system as Government subsidies could be better targetted
to benefit only those who could not afford to pay, and for the raising
of user fees so that the expenditures of HA could be capped. In respect
of subsidizing people who could not afford to pay premiums, Miss LAU enquired
about the criteria for selecting those in need.
14. In response, Dr LAM said that for administrative convenience, all
people regardless of their financial means would be entitled to a Government
subsidy to pay for private health insurance premiums. Dr LAM further said
that assuming that the user fees were raised to recover 30% of the costs
by 2006, each of the approximately 2 million households then would receive
a Government subsidy between $6,000 and $7,000. According to the
insurance industry, the premium for an insurance policy covering all family
members, save that of the elderly parents, ranged between $10,000 and $20,000.
If the insurance policy would also cover the elderly family members, Dr
LAM pointed out that the Government subsidy should cover up to 50% of the
15. Miss LAU remarked that it was unfair that both the rich and the
poor were entitled to the same amount of Government subsidy to pay for
premiums. In response, Dr LAM said that similar situation existed
under the current health care system, having regard to the fact that the
bulk of public expenditure on health was financed through general tax revenues.
Under the proposed voluntary insurance system, people would still be required
to bear a large portion of their premiums. They could, however, choose
the insurance providers and the level of medical services.
16. Given a large increase in user fees, Miss LAU further enquired
whether a means testing mechanism would need to be introduced for identifying
those patients who should be exempted from paying user fees.
17. Dr LAM replied that in order to assist people who could not afford
the increased user fees, an annual health spending limit based on the ability
to pay (e.g. 6% of the family income) should be set. In this way,
spending above the limit would be covered by the Government. Miss LAU questioned
the feasibility of this arrangement, as not all people would declare all
of their incomes. Moreover, it was difficult to administer because
of the problem of verifying the amounts spent before granting subsidization.
18. The Chairman said that about one-fourth of the patients last
year were exempted from paying the $68 daily hospital fee, and another
10 to 20% of them were exempted from paying one-half of such fee.
In the light of this, he enquired about the estimated number of patients
who would be fully and partially exempted if the daily hospital fee were
to increase to $900 to recover 30% of the costs.
|19. Atg SHW said that he shared Dr YEUNG's concern about the impact
on the poor and the sick if the user fees were raised substantially to
recover costs. He pointed out that about half of the income of HA
was generated from sources other than fees, such as interests, with the
remaining income from hospital/clinic fees and charges. If the Government
funding to HA was reduced, income from interests would inevitably fall.
In order to compensate for the loss of interest income, user fees would
need to be further raised. For this reason, to achieve 30% recovery
of costs, the daily inpatient ward fee would greatly exceed the projected
$900 (at current price level) by 2006. Due to an upsurge in user
fees, Atg SHW added that the number of patients who needed to be exempted
from paying the full or part of the user fees because of their inability
to pay would be greatly increased. As a result, the level of
user fees would need to be set at an even higher level to make up for the
shortfall in income arising from these exemptions. This, he pointed
out, would mean that people who could afford to pay the user fees would
in effect be paying much more than 30% of the cost. As to the information
requested by the Chairman, Atg SHW said that the Administration would study
the matter and report back to the Panel.||Adm|
20. The Chairman further said that in the absence of negotiated payment
rates between the Government and the medical providers, the insured would
be prone to use public hospital facilities since the coverage of privately
purchased insurance was often inadequate to cover expenses in private hospitals,
particularly in the case of serious illness requiring extended period of
hospitalization In reply to the Chairman's enquiry as to how
this situation would impact on public health expenditure, the Government
Economist said that as pointed out by Dr LAM in his submission to the Panel,
a system could be designed whereby people could have a basic insurance
plan covering the basic services, and in addition choose an enhanced insurance
plan for the enhanced services desired. Given the huge market for
basic health insurance, insurance companies would set the premiums competitively
at a more affordable level in order to secure business. As
such, it was envisaged that Government subsidy to basic health care would
be contained. Similarly, market competition would encourage insurance companies
to come up with different types of enhanced health insurance plans to suit
the needs of those people desiring higher quality of services.
21. Miss CHAN Yuen-han said that she preferred the current health care
system to remain unchanged. Miss CHAN further enquired whether it
was possible to maintain the status quo while capping the Government budget
22. In response, Dr LEUNG said that in view of the highly questionable
long-term financial sustainability of the current health care system, he
was in support of exploring an alternative arrangement to improve financing
and delivery of health care. He added that it would be more appropriate
for the implementation of the new health care system to be introduced upon
the recovery of the economy.
23. Dr LAM said that a voluntary insurance system would address many
weaknesses in the current health care system, such as compartmentalization
of health care delivery. To address the concern about raising the
user fees, he said that the percentage of cost recovery and the amount
of insurance subsidy were parameters which could be adjusted. Dr LAM further
said that a voluntary insurance system was preferable to a mandatory one,
as the insured had the incentive to take better care of his/her health
in order to keep the premium low.
24. Atg SHW said that capping the Government budget on health would
lead to lower quality care and less access to public health services.
He further said that these weaknesses would become more acute with the
growing ageing population.
25. Dr LEONG expressed support for revamping the current health care
system, and hoped that the Government had the determination to pursue it
to the end.
26. Responding to the concerns raised by Mrs Sophie LEUNG regarding
adverse selection and moral hazard, Dr LAM reiterated that as the Government
subsidy to pay for premiums was on a family basis, the insurance companies
would be encouraged to come up with an insurance plan covering all family
members. As regards the question of moral hazard, Dr LAM said that
this problem could be remedied to a large extent by co-payments and deductibles.
27. In reply to Miss Cyd HO's comments about the lack of a centralized
databank for assessing quality of service and projecting health care expenditure,
the Government Economist said that there should be no information deficiencies
in this regard. For example, the Government routinely conducted population
census to keep up-to-date on the demographic changes and the urban concentration
in Hong Kong made data on fertility, mortality and morbidity more readily
and completely obtainable. Atg SHW accepted Miss HO's criticisms,
and said that work was now underway to collate the data collected by individual
hospitals so that meaningful comparisons and analyses could be made.
Deputy Director, Hospital Authority supplemented that since the establishment
of HA, substantial effort had been put in to improve the availability and
quality of information pertaining to the diseases pattern of Hong Kong
as well as utilization of hospital services. Nevertheless, it was
not expected that information generated from HA operations would be as
comprehensive as certain other countries as the public hospitals were not
charging for each service item utilized by patients, nor were hospitals
funded according to the number of treatment or investigation procedures
28. Mr LAW Chi-kwong enquired whether using the mandatory or voluntary
insurance system to increase health care financing would be in breach of
the provisions of the Basic Law. The Chairman further enquired whether
expanding the tax base would be in breach of the same. Atg SHW replied
that he did not have an immediate answer but would give this question further
29. The Chairman enquired as to how the implementation of an insurance
system would impact on the public's spending pattern. The Government Economist
replied that individual spending might be cut back to accommodate the insurance
payments, particularly if the economic growth and income growth continued
to be slack. He noted that a similar phenomenon occurred in the Mainland
where people were recently required to pay their own due for medical and
other social services, consequential to reforms in the respective areas.
30. Dr TANG Siu-tong enquired whether there was any contingency plan
to deal with the dissolution of the HSP. Atg SHW replied that the
Administration had not considered this aspect in its review of the current
health care system. No decision had been made to set up the HSP in
the first place.
II. Date of next meeting
31. Members agreed that the meeting would next meet on 9 August 1999
at 8:30 am in Conference Room A of the Legislative Council Building to
conclude the discussion on the consultancy report prepared by the Harvard
32. The meeting ended at 10:46 am.
Legislative Council Secretariat
2 September 1999