Healthcare financing reform — Scaremongering again?

 In Healthcare, Healthcare Financing

The healthcare reform consultation document released recently by the Hong Kong government is encouraging in so far as the operational reforms are concerned, but disappoints in its presentation of the funding issues, due to inconsistent and contradictory conclusions. Also, it is not clear why estimates are provided for some of the funding proposals and not for others. If the government is inconsistent in its presentation of relevant data and analyses, then obviously the document will not be conducive to rational deliberations or permit sound policy proposals.


Hong Kong people are told that healthcare financing reform is a very pressing policy issue because healthcare expenditures are projected to rise dramatically in the next 30 years – that as a percentage share of GDP, the public healthcare expenditure will increase by 90% by year 2033. The culprits are said to be population ageing, technological advancements, rising public expectations and the occurrence of lifestyle diseases. From the government’s presentation, it appears that run-away healthcare costs are inevitable and even beyond policy intervention. But how far is this true?


The government names population ageing as a major cause of healthcare spending increases. We doubt if ageing is such a significant cost driver (see South China Morning Post, 7 June 2006 as well as our healthcare reform proposal of June 2007). According to reports published by the Organisation for Economic Co-operation and Development (2006) and the European Commission (2001), ageing was not a significant factor for healthcare spending increases over the past several decades in the countries concerned. Projecting into the future, the OECD report estimates that demographic effects will increase average public healthcare and long-term care spending in OECD countries from 6.7% of GDP in 2005 to 8.6% of GDP in 2050, an increase of 1.9 percentage points of GDP in 45 years. This represents an average annual growth rate of 0.6% or an increase by 28% in 45 years. The European Commission report, on its part, estimates that ageing will increase healthcare and long-term care spending in EU countries from 6.6% of GDP to 8.8% of GDP, an average annual growth rate of 0.7% or an increase of 33% in 50 years. Growth rates of similar magnitude in healthcare spending attributable to the ageing effect have also been projected for Australia, Canada, and USA by other research studies. If these projections are correct, surely the impact of ageing on healthcare spending looks far from alarming.


On technological advancement, a Canadian economist and expert on healthcare issues, Professor Robert Evans has opined that “new technologies may be inherently either cost-enhancing or cost-reducing … it is the way in which they are taken up and applied that determines their impact on costs.” In other words, the cost pressure of technology is not entirely uncontrollable, it depends on how technology is garnered for healthcare benefits.


Indeed, local research has commented on both ageing and technological advancement in relation to healthcare expenses. The government is basing its case for urgent healthcare financing reform on projections made about Hong Kong’s healthcare spending through to 2033 by Professor Gabriel Leung of The University of Hong Kong. However, Leung has also noted that population ageing and associated healthcare use per se actually contribute relatively little to overall spending growth. Rather, the key cost driver of healthcare spending growth is technology. In this light, Leung suggests controlling the adoption of high-cost, low-benefit medical technologies through, for example, the establishment of a technology assessment agency akin to the National Institute for Health and Clinical Excellence in the UK.


If the use of new technologies is not entirely beyond the control of policy instruments, would it not be plausible that rising public expectations on frontier technologies can also be suitably circumscribed? Is it definitely impossible to reason the public into seeing the fallacy of a blind faith in frontier technologies?


By the same token, is it not possible to arrest the incidence of lifestyle diseases through health education and preventive care? Presumably, education and prevention would be a lot more cost effective as policy interventions?


Furthermore, the government has proposed the establishment of a primary care system and a territory- wide electronic medical records system. We take the view that these two reform initiatives can be significant cost-containing policy tools and should be implemented without delay. Hong Kong society should be interested to know how far the two initiatives can help reduce future cost pressures if implemented.


Leung emphasized in his research paper as well as at a recent healthcare panel in LegCo that his projection model is only an actuarial model which cannot take account of changes brought about by policy interventions. In other words, the future trend of healthcare spending remains to be examined if all the cost-containing policies mentioned above are introduced. It also means that the “healthcare costs running out of control” premise on which the government is basing its case for urgent financing reform cannot but look suspect.


Therefore, we urge the government to establish more accurately the culpability of individual healthcare cost drivers and reexamine its grounds for urgent and fundamental healthcare financing reform. All potential cost-containing policies should receive due evaluation, while the implementation costs of all reform options proposed by the government should be estimated. All findings and data related to such evaluation and estimation should then be publicly released so that society would have some benchmarks to guide their judgements on the impact of reforms on the future development of healthcare costs. It is only by so doing that more rational and informed discussions can take place before any fundamental financing reform is prematurely rushed into.



George Cautherley (高德禮)

Convenor, Healthcare Policy Forum (醫療政策論壇召集人)

26 March 2008



An abridged version of this article entitled “Health care finance plan needs a second opinion” was published in South China Morning Post on 26 March 2008.





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