Ref : CB2/PL/HS

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
Government Economist

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 subsidy.

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 premium.

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 on health.

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 performed.

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 thoughts.

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 team.

32. The meeting ended at 10:46 am.

Legislative Council Secretariat
2 September 1999