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Single-Payer Health Care in Taiwan

Borrowing Ideas, Improving on Medicare


January 2009

Public Citizen Health Letter

Few countries have an opportunity to create a health system anew. Even those that embark on drastic reforms have to take into account the existing resources: providers, infrastructure, financing mechanisms and the culture of care, all of which have to be combined and balanced against patient needs. The difficulties of bringing all these into alignment lead most nations to make limited adaptations at the margin rather than tackling major changes. Occasionally, however, a nation will launch a really new system, and that is what Taiwan did in the early 1990’s. As the United States once more contemplates the prospect of health reform, it needs to look at how others have achieved universal health care. The Taiwanese system and its evolution are therefore of interest.

Taiwan, which has a strong capitalistic economy, opted for a system that is programmatically decentralized but fiscally centralized. One of the cornerstones of the reform is a single payer that collects and pools revenues and purchases health services for the entire population. But the delivery of care is largely in private hands, and the locus of service depends on a combination of patient choice, geography and the linkages between the different levels of care.

A bit of history

Prior to 1995, some 59 percent of Taiwan’s population was covered by one of 13 different health insurance schemes, most of which followed occupational lines,  e.g., labor insurance, government employee insurance, military personnel insurance and farmers insurance. The 41 percent who were uninsured had very restricted access to medical care, resulting in wide socio-economic disparities among the population. It was these inequities that prompted policy makers to rethink how health care was delivered and paid for. The new system had two major goals: to equalize access for all citizens and to control total health spending. 

Taiwan’s process of health reform was characterized by leisurely planning but hasty enactment. The country devoted seven years to redesigning its health system and followed the dictum of thinking globally while acting locally. Taiwanese policy-makers and health care experts examined the health care systems of more than 10 countries, including Medicare in the United States, choosing those structures and practices that best furthered their objectives. As a result, Taiwan’s National Health Insurance (NHI) is commonly described by its managers as a vehicle “made from imported parts but assembled in Taiwan.” At the end, the NHI timetable was determined by political considerations. The need for the party in power to pre-empt the opposition, which had long advocated for universal health insurance, resulted in a compressed implementation schedule. After 18 months of parliamentary debate, the NHI bill was passed in July 1994. The Bureau of National Health Insurance began operating in January 1995, and the plan was launched a mere two months later.

Given the complexities of health care and the short time span between approval and delivery, it is not surprising that the plan got off to a rocky start. Providers had difficulty adjusting to some of the changes, but the public welcomed the change. Over time, the NHI has introduced the latest information technology, made adjustments in how services are paid, equalized access to care and strategically modified some of its incentives in order to curtail some practices and promote others. 

Basic Principles

Whether or not it started with these specific guidelines at the outset, the Taiwanese NHI is now characterized by the following:

Universal coverage

The NHI is described as a “mandatory social insurance system whose main purpose is to ensure that everyone is insured.” Starting from slightly more than half of the population insured before the new system began, the NHI had covered 96 percent of the population in less than two years; it is now estimated to enroll 99 percent of the total. Because the previous insurance schemes were employment-based, the increase in coverage that accompanied NHI benefited mainly the elderly, children, students and housewives.

Comprehensive benefits

The state sets uniform benefits so that everyone has the same coverage. This includes ambulatory care, in-patient care, emergency care, prescription drugs, lab tests, rehabilitation, mental health services, dental care, prevention and home care. Moreover, the system covers both Western allopathic services and Chinese medicine. There is cost-sharing, but this is designed to reflect the types of consumer behaviors the system seeks to promote. Most preventive services are free, and regular office visits have a modest copayment (approximately $5 per visit), from which certain groups are exempt. Hospitals stays have a 10 percent co-insurance, but the total is capped at 6 percent of the average national income per person for each admission and at 10 percent for each calendar year. Co-payments have been waived for the very poor, veterans and aboriginal populations.

Freedom of choice

Patients have a free choice of a primary care physician, through which they are expected to go through for referrals to ensure continuity of care. Patients can also opt to go directly to specialists, but they are subjected to a higher charge. Pre-authorization is required for some high-tech and experimental procedures. In addition, the charges to patients who are not exempt from cost-sharing increase with level of health care complexity. Thus a visit for a given service will cost more at the secondary or tertiary level than it will at the primary level.  

Public/private delivery of care

Taiwanese health services are delivered by either public employees in government-owned facilities or by private providers who contract with the state. In 2006, the NHI had contracted with over 18,000 medical care facilities, more than 91 percent of Taiwan’s total. In addition, the NHI contracts with pharmacies, home care institutions, laboratories and rehabilitation and other specialized providers. The goal is for all facilities to be under contract with the NHI.

The central government exerts its power as the single payer by setting the scope of the benefits package, deciding the extent of cost-sharing, contracting with providers and other vendors (including the pharmaceutical companies), setting fees and budgets and monitoring service utilization and costs. 

Cost control through global budgets

Before the NHI went into effect, and in the early stages of the system, providers in Taiwan were paid on a fee-for-service basis. And because physicians were allowed to prescribe and dispense pharmaceuticals freely, they tended to overprescribe and kept their visits short. Fee-for-service promoted demand, and led to a rise in utilization of services and the proliferation of new medical technology. This in turn resulted in a rapid escalation in spending, which the NHI addressed by modifying the modality of paying providers. In order to control induced demand and reduce the number of visits per person, Taiwan introduced a sliding fee schedule which paid doctors less for visits above a given volume. In addition, the insurance system reduced the high profit margin by lowering the reimbursement rates for drugs and promoting the use of generics. Another change was the gradual introduction of paying physicians per case rather than per procedure. The “case payment” method currently covers 53 diagnosis related groups. Finally, the NHI has phased in global budgets for different types of services (dental, inpatient, hospital care), which are centrally allocated to the different regions. This has artificially capped payments, with some grumbling on the part of providers. The system is also introducing pay-for-performance measures designed to reward certain provider behaviors indicative of quality care. The latter is still being done on pilot basis, with results being carefully monitored. 

Administrative and operational efficiency

As a single payer, the central authority has the ability to monitor care and keep close tabs on health spending. The fact that there is a set benefit package for everyone simplifies administrative transactions. Moreover, provider and patient profiles enable the system to identify outliers and reduce fraudulent claims, overcharges and duplicate services and tests. In addition, there is only one system to report procedures and file claims, thereby greatly reducing administrative costs. Because hospitals and clinics are required to submit completed claims within 24 hours after delivery of service, the Bureau of National Health Insurance is able track in almost real time what is happening in the Taiwan’s health system.

Probably the most visible symbol of the system is the "smartcard" carried by all who are enrolled in the system. Its introduction in 2004 was hailed as a “major breakthrough in the digitalization of NHI-related medical care information.” In addition to establishing the identity of the holder, the card allows for the flow of information through Taiwan’s medical network while employing a number of safety features to protect against counterfeiting and security breaches. By inserting the card into a reader, the physician can obtain the patient’s history and list of medications. The information system allows all medical providers to file expenditure claims electronically, thereby shortening the time between the delivery of care and its payment.

As a result of these governance and data-gathering systems, the direct operating cost of Taiwan’s NHI program is approximately 2 percent of total expenditures. This is in marked contrast to the transaction costs of commercial insurance in the United States, which are estimated to account for 10-12 percent of premium revenues.  

Social solidarity/horizontal equity 

The way in which health services are financed can not only achieve administrative and programmatic objectives, but also foster social solidarity and redistribute wealth. The financing of Taiwan’s NHI comes primarily from payroll taxes. This tax was originally set at 4.25 percent of income, and has since been raised to 4.55 percent. This premium is paid by households, employers and government. The share of each of these groups varies by demographic subgroup and has a highly redistributive effect, with those whose incomes are higher contributing a larger percentage. For example, a public employee will pay 30 percent of the premium, while his employer will pay 60 percent and the government, the remaining 10 percent. Self-employed persons, be they in business or in the professions, pay the entire premium themselves, while government subsidizes the entire premium for veterans, military personnel and those in the lowest income groups. This redistributive effect is somewhat attenuated by cost-sharing, which is uniform across income levels except for the very poor. Nevertheless, the overall impact has been beneficial, with the equity in financing health care in Taiwan having improved since the NHI went into effect.

Growing pains

Taiwan takes pride in its system, which is in many ways innovative and successful. It is therefore engaging in “medical diplomacy,” introducing its NHI at different international forums and publishing its reports in English and other languages to reach a global audience. Some of this is designed to bolster its political case for inclusion as a member in the World Health Organization, a much-coveted entry into participation in the United Nations that has been barred by China because of its antagonism to Taiwan. But at least a portion of the “cheerleading” reflects a need for well-deserved recognition on the part of other countries that have struggled with the same issues with less-favorable outcomes.

Despite its successes, Taiwan has been facing increasing budgetary deficits. Although the system’s financing is based on principles of self-sufficiency and pay-as-you-go, in recent years the collection of revenues has been outstripped by rising medical costs, causing serious shortfalls. These have been met with rising premiums and more stringent cost controls, including closer oversight of utilization data. The NHI has also adopted an agenda of “micro-adjustments” to better align expenses with revenues. The system is sufficiently nuanced and complex to allow changes in multiple aspects. Moreover, it has been able to secure strong political support, with 80 percent of the Taiwanese population expressing satisfaction with their national health care.

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