Beveridge vs. Bismarck
Taiwanese love to complain about their country and how it is going down the drain. And they also like to idealize how much more advanced and modern America is by comparison. When I was in Taiwan this past summer, everyone was bitching about the poor quality of health care. It is true, there are a lot of problems with health care in Taiwan. For instance, doctors give out antibiotics like it was candy, and rarely give enough for a full treatment. But that’s because Taiwanese patients are upset if they aren’t given pills. When I was in Taiwan I couldn’t even find out what pills I’d been assigned or why. I had to look up the brand names on the web to find out. All that is true, but Taiwan is still doing far better than the U.S. according to Paul Krugman:
Let’s start with the fact that America’s health care system spends more, for worse results, than that of any other advanced country. In 2002 the United States spent $5,267 per person on health care. Canada spent $2,931; Germany spent $2,817; Britain spent only $2,160. Yet the United States has lower life expectancy and higher infant mortality than any of these countries. But don’t people in other countries sometimes find it hard to get medical treatment? Yes, sometimes - but so do Americans. No, Virginia, many Americans can’t count on ready access to high-quality medical care…. Americans are far more likely than others to forgo treatment because they can’t afford it. Forty percent of the Americans surveyed failed to fill a prescription because of cost. A third were deterred by cost from seeing a doctor when sick or from getting recommended tests or follow-up.
Why does American medicine cost so much yet achieve so little?… The U.S. system is much more bureaucratic… because private insurers and other players work hard at trying not to pay for medical care. And our fragmented system is unable to bargain… for lower prices. Taiwan, which moved 10 years ago from a U.S.-style system to a Canadian-style single-payer system, offers an object lesson in the economic advantages of universal coverage. In 1995 less than 60 percent of Taiwan’s residents had health insurance; by 2001 the number was 97 percent. Yet… this huge expansion in coverage came virtually free: it led to little if any increase in overall health care spending beyond normal growth due to rising population and incomes….
If Taiwan is going to improve its system, it will likely be by moving even more towards a European model, not by copying the mistakes of the US. But which European model will Taiwan adopt? Will it be “the Beveridge system (also called compulsory social insurance) seen in countries such as the UK and in northern Europe” or will it be “the Bismarckian system (also called social insurance) widely used in Germany, other European countries and Japan”? In America we can only wish that we were having such debates!
(Via Alas, a Blog)
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Comments
Jim.
Thanks for your detailed analysis. Your comments help me better understand the concerns Chou Li-fang raised in the article I linked to above (at the bottom).
To be fair to Krugman, I think there is a difference between saying that the initial switch brought in more users at no additional cost and saying that it is sustainable system.
An anthropologist and documentary filmmaker, 
I heard about your post on this Krugman article praising Taiwan’s healthcare system and had to check it out. To be fair, I haven’t read PK’s article, and it is true that Taiwan has a lot to be proud of — the National Health Insurance covers almost everyone and is extremely popular with patients. But to suggest as Krugman does that the cost has been virtually free is wrong. In fact, the Taiwan health insurance system is sick. It faces severe challenges that will result in the collapse of the system without some radical treatment.
Of course the current system is popular. When patients can walk into a doctors office an average of 16 times a year, see a physician and walk out with an average of 4.3 prescriptions per visit (even though you may have no idea what you are taking) at a per visit out of pocket cost of 100-200NT — well, what’s to complain about? Nothing, unless that is you are the one trying to keep the whole scheme afloat.
The fact is that the NHI is seriously underfinanced. Premiums no longer are sufficient to cover expenses and BNHI was forced to begin borrowing from the private markets to finance its operations in 2005. While BNHI has some limited authority to raise premiums on its own, they need LY approval to raise them by enough to cover their expenses. No prizes for guessing how many LY members are in favor of raising premiums — especially when every few months seems to bring a new election that the media eagerly dubs a bellweather for the administration/opposition.
Instead, NHI has moved to encourage medical centers and clinics to self-finance through what has become known in healthcare economist circles as the “black hole”. Essentially, the process works like this: BNHI sets reimbursement prices for pharmaceuticals (both branded and generics). Hospitals then go to the manufacturers and say “give me at least a 30% discount off the reimbursement price or we will take your drug off our formulary. Generics (which are generally reimbursed at 85-90% of on-patent drugs) don’t have R&D costs so they can afford to give a large discount and try to make up the difference in increased volume. Patented drugs have less margin, but still must make deep cuts to keep their products on the hospitals forumularies. The hospitals pocket the difference between the actual price and the reimbursement price. They then use that difference to fund their operations and, especially for private hospitals like Changgung Group, make a profit. These “black hole” profits have kept the system afloat. Think that lots of prescriptions is just a cultural relic of Chinese medicine? Think it’s because you really need 4.3 drugs per visit? Think again. Everytime a hospital gives you a drug (reimbursed by BNHI) they are squeezing more profit out of the system.
But because BNHI’s budget woes mean it is unable to keep reimbursing at the same level, hospitals are forced to cut costs and press for even steeper discounts to stay afloat. Small hospitals and clinics, especially in rural areas, are closing. The number of hospitals and medical centers in Taiwan has fallen by about one third since 2002. A BNHI plan to extend a cap on hospital reimbursements island-wide is likely to result in an increase in hospitals refusing to treat patients who have expensive or difficult to treat ailments - a trend we saw when the pilot scheme was unveiled last summer. Manufacturers of patented pharmaceuticals are beginning to not release their products in Taiwan. This means that Taiwan patients are eventually going to get the kind of health care they are paying for: cheap and second-rate.
This is not to suggest that Taiwan should move towards a US-style system. But rather to simply to point out that good health care isn’t cheap. Someone is paying. In Taiwan, big pharma is footing most of the bill — and you thought they had no heart. But its not likely that they are going to be willing to do so indefinitely. Without serious NHI reform that includes indexing premiums to some combination of income, consumer price inflation, and health care price inflation, educating the public about the risks of overmedication, and revising the NHI reimbursement system, Taiwan is going to face the total collapse of a noble experiment. At best, NHI will continue to limp along for several more years while a two-tier health care system develops. One will provide cheap and universal service. The other will provide first class service for those who can afford to pay out of pocket. So, Krugman and his generation in Taiwan can praise Taiwan’s healthcare system all he wants — there are some real positives here. But without real reforms of NHI the system isn’t going to be around for anyone in 10 years.