~from Mr. Chih-Liang Yaung, Minister of Health

To date, the average National Health Insurance (NHI) premium is NT$20,000 per person per year, of which 62% is covered by the government and employers. Thus, the average Taiwanese citizen pays a yearly premium of NT$7,600 and in return gains access to comprehensive healthcare. This is a major feat when compared with other countries around the world and is quite praiseworthy.

For the purposes of achieving a health insurance system that is fairer, more efficient, and of a higher quality, we have researched the work of many scholars and experts and proposed a Health Insurance Revision draft amendment, also known as the “second-generation NHI law”. The keys to this reform lie in opening the gates to broader participation from all corners of society so that the rights and responsibilities which stem from the NHI can be jointly shared, creating a financial system that ensures revenue-expense correlation and fair premium rating, promoting a quality-oriented payment system which is based on ‘pay for performance’, and increasing more transparency and open access to information regarding healthcare quality and finances. The amendment is not only a reform plan that aims to solve current NHI problems, but the result of a consensus among scholars, experts, and representatives from all manner of trades and professions who have been engaged in the multi-year discussion. Therefore, it is imperative that this bill be brought into effect as soon as possible.

    After going through numerous public hearings and intensive review at the Legislative Yuan, the second-generation NHI amendment has attracted a great deal of attention from various groups in society. Many issues regarding the amendment have been brought up and broadly discussed on media platforms and in academic forums. We have been perceptive to all opinions and have adopted many constructive suggestions as a result. However, as some misunderstandings still exist among the general public as to what exactly second-generation NHI entails, we have been prompted to compose this article in an effort to provide further explanations and clarification. We hope that after receiving the most correct information, the public will be able to see the full picture of this issue, and hence wholeheartedly support reform.

Myth I: Are salaried workers going to bear higher financial burdens under the second-generation NHI?

    The current premium structure of NHI is based on regular salary income. However, in recent years, total regular salary income has constituted about only 60% of total taxable income. In addition to their salaries, some people receive income from other sources, such as rent, interest, stock dividends, and bonuses, which are not included in the current NHI premiums calculation base. As a result, wage-earners have been shouldering a majority of the NHI finances.

    According to the design of the second-generation NHI, its premium calculation structure will reach beyond the current base of individual regular salary income (NT$3.37 trillion), and extend to total household income, which is composed of non-regular salaries (NT$690 billion), interests, stock dividends, rent income, business profits, business execution income, and property transaction income (NT$1.5 trillion). On the new calculation base, premium rates are determined according to total household income. Not only does the new base expand beyond limited regular salary income, it also draws more resources from asset income than from non-regular salary and allows substantial reduction in premium rates, which is actually fairer to salaried individuals.

Myth II: Does the second-generation NHI put more financial burden on the middle class?

Not all of the middle class would feel more burdened from the second-generation NHI, because the premium rates are calculated based on “number of household members.” In the case of a multiple-member household, its premium will not rise but may actually be lowered; the same fact holds true even for a middle-class family with a relatively high income.

For example, if an employee earns a salary of NT$182,000 per month without any other source of income, his or her annual premium under the current system is NT$33,876 per person per year (182,000 × 5.17% × 30% × 12 months). An additional member in the household increases the total household premium to NT$67,752. It could easily exceed NT$100,000 by adding one more dependent to the household, and a four-member household could be as much as NT$130,000+ per year (182,000 × 5.17% × 30% × 4 persons × 12 months) for a household of four persons. Furthermore, the current system demands that employers of small and medium sized businesses and self-employed professionals pay the maximum premium of NT$182,000, which is 100% borne by the individual. A four-member household would therefore be subjected to a total premium of NT$450,000+ per year (182,000 × 5.17% × 100% × 4 persons × 12 months).

According to the design of second-generation NHI, a household with an annual income of NT$2.18 million will bear an annual premium of NT$58,968 (182,000 × 12 months × 2.7%). For most households, except for a single-person with no dependents, this household premium rate would not only remain the same as under the current system, but the average premium per person would in fact decrease with the addition of household members.

    Under the design of second generation NHI, a new cap is instituted on the calculation base (if for instance using NT$7.5 million as an upper limit) so that, given the current financial calculation, regardless of how high income may be, the maximum premium would be around NT$200,000 (NT$7.5 million × 2.7%) per household per year, or a monthly rate of less than NT$20,000.

Myth III: Will the burden on single people definitely increase?

    Under the current individual-based premium calculation system, the more dependents in a household, the higher the total premium will be. But this often results in an unfair situation where household income does not correspond equally with the burden received. In order to solve this problem, second-generation NHI will use total household income as the calculation base. Since households of the same income will bear the same premium regardless of the number of their members, multi-person households will bear fewer burdens and hence reap greater benefits from second-generation NHI.

Because taxable households, in which members file tax returns together, are the calculation units in second-generation NHI, the term “single households” refers to individuals who file tax returns by themselves and have no dependants, rather than being single with regards to marital status. It is actually a common misunderstanding that unmarried singles will be subject to higher premium burdens. The key to a seemly premium increase for individuals with the same income level lies in the absence of dependents who can share the household premium. For a single unmarried person with dependents (for example, a certain Ms. Chan is unmarried and has declared her parents as dependents) or a single person with a lower income (for example, a certain Mr. Chen who is unmarried and works part-time), his or her premium burden may stay the same or even be reduced.

Myth IV: What problems will second-generation NHI solve in terms of the premium burdens on the public?

    In short, under the current NHI system, the premium burdens on single employees are light, while those on self-employed persons with multiple dependents are too heavy; this situation runs against the spirit of social insurance. In addition, the abovementioned fact that non-labor income (the product of assets) is not included in the calculation basis is also unfair to salaried citizens. Therefore, the implementation of second-generation NHI will allow a premium decrease for individuals who earn single salaries and have multiple dependents, and a potential premium rise for individuals who have multiple sources of income and fewer dependents. The aims of second-generation NHI are to reallocate financial burdens and to promote social fairness. It is designed to avoid deficits and overcharges while not allowing any one to escape from his or her social responsibility. Judging by all criteria, the NHI premiums in Taiwan are among the lowest around the world, especially when considering the scope of benefits offered (see Appendix Table).

Myth V: Will the public lose control of the NHI Supervisory Committee, which will have too much power in its hands?

   The merging of the NHI Supervisory Committee and the NHI Medical Expenditure Negotiation Committee is a crucial step in the reforms proposed in second-generation NHI and is also a recommendation made by many scholars. This measure aims to promote the linking mechanism between revenues and expenditures. The merged NHI Supervisory Commission (hereinafter referred to simply as “the Commission”) will review premium rates and benefit packages, and negotiate stipulation and distribution of the global budget for healthcare payments. Some people feel uneasy about the seemingly excessive amount of power to be handed over to the Commission (those in academia currently argue that it is too little). However, these concerns have been fully discussed during the amendment review process at the Legislative Yuan, and the worries of many legislators have been resolved. A consensus among the legislators has been reached that: there should be provisions in the NHI Act which spell out the items subject to the Commission’s review and negotiation, and that such provisions should be approved by a competent authority or be referred to the Executive Yuan for approval. Matters to be approved by the Executive Yuan shall also be submitted to the Legislative Yuan for future reference. The above recommendations have been incorporated into the latest version of the amendment.

Therefore, the Commission will serve as a platform which facilitates communication and negotiation between people of all fields. Since its decisions are subject to the administrative department’s approval, there are minimal risks of power abuse.

Myth VI: Will the administrative department (Department of Health) no longer bear major responsibilities under second-generation NHI?

    The Department of Health (DOH) under the Executive Yuan, the competent authority of the NHI, is not only responsible for the NHI policies, but also must approve or report to the Executive Yuan any matter that has been reviewed, negotiated, or stipulated by the Commission. Therefore, the DOH will continue to assume major responsibilities with regards to an array of matters including the premium rating system of second-generation NHI, the review of benefit packages, and the negotiated stipulation and distribution of the global budget for healthcare payments.

    In addition, the DOH is still required by law to oversee the stipulation and amendment of other NHI-related laws and regulations, such as enforcement rules of the NHI Act, medical care rules, special contracts with healthcare institutions and their management, reviewing mechanisms, and supervision over the BNHI. These responsibilities will not be lessened by the implementation of the second-generation NHI. The DOH will continue to serve the public as the supervisor of NHI.

Myth VII: Does second-generation NHI only focus on revenue reform and ignore expenditure control?

As many people learn about second-generation NHI by the NHI Act Amendment, they may be tempted to believe that the reform only focuses on improving revenues while ignoring expenditure-related problems. However, this is not true at all. Ever since the NHI came into effect fifteen years ago, the payment system has been under constant reform. We have gained a lot of ground in terms of medical expenditure control and improvements in healthcare service efficiency.

For example, the implementation of the global budget payment system allows better control over the growth of annual NHI healthcare payments, which has fallen within a reasonable range as a result. The introduction of relative values that objectively adjust payment criteria has facilitated a balance between medical specialties. Furthermore, we have actively promoted a case-payment design and the Diagnosis-Related Group (DRG) system. We field-tested several disease management and integrated healthcare programs, such as the healthcare payment improvement plan and a family physician system. Our other efforts have been devoted to the continued reform of drug list. For instance, in 2009, the total price of drugs was drastically reduced by NT$15 billion. For the past several years, the DOH has been renovating the payment system through various administrative measures so that the goals of reducing waste of medical resources and advancing quality of care can be achieved. The DOH has also been actively urging individual healthcare institutions to take responsibility to alter healthcare behavior as a way to move towards a more efficient way of utilizing NHI resources and to better secure the public’s health. Therefore, the scope of second-generation NHI reform is mainly on healthcare quality improvement. It stresses that the insurer and the contracted healthcare institutions should publicize data involving NHI-related quality of care on a regular basis so as to enable the public to have a choice between institutions and hence improve the quality of their care.

Myth VIII: How are premiums calculated under second-generation NHI, and how do they compare with the existing system?

The sum of the NHI negotiated global budget, which must settle at a point between the upper and lower limits range approved by the Executive Yuan, is determined by representatives of the payers and healthcare providers sitting at the Commission’s negotiation table. The premium rate is obtained by subtracting the government share (no less than 35%) and employer’s share (approximately 33%) from the global budget and then dividing by total household income (the amount declared in income tax returns, plus the estimated income of the nontaxable dependants according to their premium paid for other social insurance plans). The current estimate for premium rates is no more than 2.7%. As brighter economic growth is foreseen for Taiwan this year, total household income may increase and further decrease this rate. Since this year’s tax season is over, one can simply multiply his or her declared total income by the estimated premium rate, and the product will be an estimated annual premium under second-generation NHI. When compared with the current system, this number may appear smaller for some people, while it may be larger for others. The above is a simple formula provided for your reference.

   For example, one can multiply his or her declared total household income by 2.7%. The obtained number should be comparable with his or her current monthly NHI premium multiplied by twelve. For individuals exempt from income tax, income should be calculated as the amount of their premiums paid for other social insurance plans (such as labor insurance and a national pension).

   Formula of second-generation NHI:

Monthly premium = Total household income × premium rate ÷ 12. To illustrate, a double-income family with two children and a NT$50,000 per month salary for each adult would calculate their monthly household premium as follows:

50,000 (NT$) × 2 (persons) × 2.7% = 2,700 (NT$)

Conclusion

There are several urgent problems with the current NHI system, including a failure to be sustainable, unfairly over-burdening the public financially, and lacking a financial balancing mechanism, which has created a serious deficit and led to a huge increase in out-of-pocket services. If not reformed, the system will become one in which only the better-off have access to quality healthcare. Second-generation NHI, like any other country’s healthcare system, is not a perfect and absolutely fair system. However, most Taiwanese people acknowledge the progress made by first generation NHI. A reform is inevitably accompanied by disputes, which is the labor pain of the public. We will highly appreciate any and all support from all facets of society.

Appendix table Comparison of health insurance premium rates in different countries.

Note:

1. Premium rates of social health insurance in different countries vary with demographic structures, individual-based or household-based systems, benefit packages, and sharing rates.
2. In the Taiwan column, the number appearing in parentheses is the estimated rate under second-generation NHI.
3. The above premium rates are adapted from data in Germany and France as of January 2003; those in Canada as of 2003; those in Japan and Netherlands as of 2004; and those in Korea as of 2007.
4. AWBZ: Algemene Wet Bijzondere Ziektekosten, the Exceptional Medical Expenses Act; ZFW: Ziekenfondswet, the Sickness Funds Insurance Act.
5. Despite a lower premium rate, people in Korea bear a personal share as high as 50%, and have a smaller scope of benefits compared with what is offered in Taiwan.