By Carl Redondo, Regional Benefits Consulting Leader, Hewitt Associates, Hong Kong
HK$50 billion to seed new private healthcare system in Hong Kong
A cornerstone of Donald Tsang's 2009-10 policy address in October 2009 was the plan to introduce a supplementary healthcare system for Hong Kong. The Government is to provide incentives and subsidies to the system to total HK$50billion under the umbrella of healthcare reform. The sums involved are significant and the ambition of the system is both exciting and bold. To quote directly from the policy address:
The announcement in the policy address was built on a comprehensive public consultation carried out by the Food and Health Bureau from March to June 2008. This study shone a light on the concerns of the Hong Kong public as well as taking their opinions on known healthcare issues like ageing populations and increasing medical costs. The study then went on to lay out the key areas of the system that needed to be reviewed and a recommendation for further public consultation. The policy address endorsed this study, committed to the development of the system and kicked off the latest round of public consultation.
2008 consultation: private healthcare for the public
Healthcare reform is a hot topic in most major global economies at the moment and it was no surprise to find the Hong Kong public well versed in the major issues. The three areas driving transformation in global healthcare are:
- Rapidly ageing populations in most developed economies
- The increasing occurrence of lifestyle-related diseases
- Rising medical costs due to advancement in technology
All of these issues are relevant for Hong Kong and in fact the ageing population issue is as severe in Hong Kong as anywhere in the world. The other Hong Kong-specific factor that was mentioned is the relative lack of social security which leads the public at large to save excessively to protect against catastrophic healthcare needs in old age. There was wide recognition from the public that the current healthcare system needs to be reformed to keep pace with changes in the external environment. The public recognised that the current public financed system was unsustainable and that individuals should take more responsibility for their healthcare costs —particularly in relation to lifestyle-related diseases.
Given this platform of broad agreement for reform, the consultation then gave a strong steer as to the key characteristics to be considered in the formulation of the specific system design. These areas were:Individualism – in line with the broad culture of Hong Kong, much of the public opinion favoured individuals being able to select coverage that suited their needs and affordability. Although taxation should be used to ensure basic coverage, individuals should then be able to differentiate according to their means and needs.
Voluntary – the public gave clear guidance that the system should be introduced as voluntary. The public felt that the government’s role is to structure the system such that it encourages rather than forces participation.
Risk pooling – one of the biggest concerns from the public is how to cope with catastrophic healthcare needs. Many of the public currently save significant amounts of their income to protect against this situation and would welcome an opportunity to pool this risk efficiently.
Private healthcare is coming: but more consultation first
The headlines last October made it seem that Hong Kong was on the verge of groundbreaking healthcare reform but that has not been the case. In recent months, the government, via the Food and Health Bureau, has begun a further round of public consultation to support the detailed system design.
The public and the medical profession is being asked to help ensure the system is a success. As a voluntary system, participation will be a key success factor. The system will need economy of scale to make it attractive to providers and users. As a result, the government wants to make sure the services, subsidies and incentives make it attractive to the public. The flip side to this is that the system needs to be independently sustainable in the long term otherwise it just becomes a different version of public healthcare.
The government is also hoping that the introduction of a market based system will support the introduction of innovation and competitiveness that is absent from the current market. This requires firstly the participation of the medical providers as well as a regulatory framework that supports innovation and competitiveness. The government is working hard to ensure the medical professions – both academic and commercial – take an active role in designing the system.
A gaze into the future: older but healthier
Healthcare reform is tough to implement and just as tough to get right. Hong Kong has more chance of making it a success than many countries for two reasons:
a manageable yet sizeable population; and deep government pockets.
Almost all business models benefit from economies of scale up to a point before then suffering from diseconomies of scale. Healthcare is no exception. Hong Kong currently has some of the best "healthcare per dollar" in the world suggesting that the population is close to the right size for implementing effective healthcare systems. The new system should be able to get participation high enough to be competitive whilst remain small enough to keep the costs of regulation and/or management low.
Most countries are looking to implement healthcare reform as part of broader cost cutting exercises. This influences public perception and the example of US healthcare reform highlights how sensitive an issue this can become. This is unlikely to be the case in Hong Kong. The level of overall government budget surplus is well documented and it is likely that the government can and will commit subsidies to ensure the system has every chance of succeeding.
The system itself is undoubtedly going to be voluntary and likely to combine a savings component with access to insured components to provide more efficient catastrophic cover. Hewitt is in favor of combining the healthcare system with the existing MPF retirement system to generate immediate economies of scale and operational efficiencies. This combination would also rightly blur the lines between the false distinction of "retirement" and "healthcare" savings.
As a voluntary system it is difficult to force employers to contribute to the plan although we hope the system will be open to employer contributions. We would encourage employers (depending on the design of the system) to look to contribute to the system on behalf of their employees. Healthcare is one of the benefits most valued by employees, and so any employer spend to the system is likely to be see a positive response from the workforce.
Hong Kong already boasts the second highest life expectancy in the world, improving the healthcare system looks set to increase this even further. We look forward to the end of consultation and the start of the reforms.
Paul Arkwright
Publisher
