tsung-mei cheng, is a health policy research analyst at the Woodrow Wilson School of Public and International Affairs at Princeton University.
Illustrations by gordon studer
Published May 4, 2020
The idea of single-payer (government) health insurance — sometimes made more appealing to Americans by calling it Medicare for All and first proposed by Senator Bernie Sanders in 2017 — has gained considerable traction thanks in large part to the Democratic presidential primaries. A January Kaiser Family Foundation poll found that a narrow majority of Americans (56 percent) favor Medicare for All. But the candidates who want a single-payer system haven’t spelled out precisely what they mean. And most Americans, it is safe to say, have at best a fuzzy idea about what a true single-payer approach is and how it would work.
If Americans are somewhat familiar with any single-payer system, it’s the one in Canada. Here, I outline another single-payer system built almost from scratch more recently — and in a place that’s even more affluent than Canada: the island of Taiwan. Arguably the most startling aspect of Taiwan’s National Health Insurance (NHI) system is how they manage to get high-quality outcomes for a small fraction of what Americans pay — and how well they have managed the coronavirus pandemic. But I get ahead of myself.
The Origin Story
Before Taiwan chose to go the single-payer route, it had a crazy-quilt of 13 separate insurance schemes — Labor Insurance, Government Employees Insurance, Farmers Insurance and so on — which together covered just 59 percent of the population. And a disproportionate number among the remaining 41 percent were people who could least afford to go without: children, women, the elderly and disabled, and informal sector workers who had to pay out of pocket for needed care or forego it. Impoverishment from costly illnesses was commonplace, and health disparities were wide.
But when Taiwan decided that enough was enough, it plowed through a thicket of obstacles in relatively short order. After some seven and a half years of planning and 18 months of toiling through the legislative process, the government implemented its national insurance program in March 1995 — a full five years ahead of the original schedule. And once in place, it was implemented in startlingly little time: by the end of 1995, 90 percent of Taiwan’s then 21 million residents were enrolled.
What made it possible for Taiwan to build a health care system that covered everyone so quickly — and, as I shall document, worked so well? The answer lies in the window of opportunity that Taiwan was lucky to have at the time of the ambitious undertaking. By the 1980s, Taiwan had enjoyed decades of rapid economic growth that had earned it the honorific of “Asian tiger” (along with Singapore, Hong Kong and South Korea). As can be expected, Taiwan’s public began to demand more and better health care. At the same time, a rapidly rising political opposition was vying to replace the long-ruling Nationalist Party, which had taken over from the Japanese at the end of World War II. This created tremendous pressure for the government to show that it could deliver. Finally, Taiwan was fortunate to have opted for the single-payer approach at a time when it was politically possible to roll over incumbent interests who had a stake in business as usual.
The government based the decision to go with single-payer on the recommendation of Princeton health care economist Uwe Reinhardt (who was my late husband). Reinhardt recommended the single-payer approach for three reasons. First, single-payer systems can control costs as long as the government authority has the ability to dictate prices that squeeze most of the surplus (economists call them “rents”) out of health care providers. Containing the rapid rise in health care costs was a government policy goal. Second, a single- payer system offers optimal equity in access, covered benefits and fairness of financial contribution. This was another government policy goal. Third, single-payer is relatively simple, and therefore less expensive to administer than the alternatives, and is easily understood by the public. The NHI’s sparkling performance over a quarter-century in terms of cost control, universal coverage and superior health outcomes makes clear that Taiwan made the right choice.
How it Works — and Works Well
In addition to setting prices for health care goods and services and paying the providers, the National Health Insurance Administration (NHIA), an agency under the Ministry of Health and Welfare, is responsible for enrollment, premium collection, claims processing, medical reviews and quality monitoring — especially with respect to overuse such as excessive non-invasive imaging (think CT and MRI) and “me too” duplication of prescription drugs. The NHIA performs these functions through six regional offices with a total staff of fewer than 2,900 (and a powerful IT system) at a cost of less than 1 percent of the total NHI budget.
Reinhardt described successful health insurance market reform as a three-legged stool. Leg one is guaranteed enrollment regardless of preexisting conditions; leg two is mandatory universal enrollment; leg three is government subsidies sufficient to make sure everyone can afford the premium.
You can’t have just two out of three, or the stool collapses. The NHI sits on such a threelegged stool. As a result, over 99.9 percent of Taiwanese are insured and have equal access to services regardless of how sick or how poor they are.
Premium-based financing proved to be a wise choice. Many Taiwanese were used to paying premiums to their previous health insurance schemes, so paying the NHI instead seemed natural enough.
Compare that to the system in the United States, even after passage of the Affordable Care Act. The Obama administration certainly got the point of the three-legged stool analogy, but did not go far enough with government subsidies and therefore failed to achieve universal health insurance for all Americans. Then Congress and the courts eliminated mandatory coverage in 2019 and limited government subsidies, which meant that millions more Americans still lack insurance.
Unlike most single-payer systems in the world that rely on general taxation for financing, Taiwan chose a premium-based system that derives its revenue from three sources: employers, government and the insured themselves. Revenue from regular payrollbased premiums, currently levied at the rate of 4.69 percent of wages or salary, account for 81 percent of the total NHI revenues. Revenue from a supplemental non-payroll-based premium (from large work bonuses, part-time wages, professional services income, interest, dividends and rents), which was first imposed in 2014, accounts for 8 percent. Meanwhile, subsidies from general government revenues account for 9 percent, while funds from other sources (a tobacco tax and a tax on lottery winnings) provide another 2 percent.
Premium-based financing proved to be a wise choice for Taiwan. Many Taiwanese were used to paying premiums to their previous health insurance schemes, so paying the NHI instead seemed natural enough. On-time NHI premium payment is 98 percent. Moreover, the approach largely insulates NHI financing from unexpected changes in general tax revenues and competition from other government programs. As a result, Taiwan was able to stay on track on national health expenditures despite the 2008 financial crisis, which caused many OECD countries to cut health budgets.
Officially reported out-of-pocket spending by patients totaled 34 percent — a pretty big share on first glance. But the 34 percent included items such as baby diapers and infant formula. Thus, out-of-pocket spending associated with medically necessary care is far lower.
Everyone in Taiwan is in a single risk pool, since there is a single payer (the NHI) and universal coverage. This is in sharp contrast to the United States, where myriad insurance risk pools cover Americans by age and health status (Medicare, CHIP), social-economic status (private insurance, Medicaid, CHIP, etc.) or special occupational status (VA). The complexities of the U.S. multi-payer system make it hugely expensive to administer and difficult to contain the costs of services, which together go a very long way toward explaining the high cost of American health care.
A common misconception about singlepayer systems is that the government must be in charge of delivering health care services as well as financing services, which can in practice mean rationing of care, long waiting times and no choice of providers. The most frequently cited examples are in the Canadian and UK systems.
Waiting times and rationing of care are indeed problems that plague both systems. But Taiwan’s single-payer system delivers health care largely through private providers. Private hospitals account for over 83 percent of all hospitals and 68 percent of all hospital beds. Almost all clinics are private. Ninetythree percent of all providers contract with the NHIA to deliver services. And by no coincidence, Taiwanese enjoy easy access to care — 85 percent of patients can reach a hospital or clinic in less than 30 minutes, and waiting times are minimal — 83 percent of patients wait less than 30 minutes at clinics before being seen by doctor.
Waiting times for elective treatments and surgeries are also far shorter than in other wealthy OECD economies. As the table below shows, in 2015 the waiting times for hip replacement, knee replacement and cataract surgery were far shorter in Taiwan than in Australia, Canada, Finland, the Netherlands, England or Scotland.
The Taiwanese, it’s also worth noting, enjoy complete discretion in their choice of hospitals, doctors and other health care providers — no referrals or prior authorizations required. Where Taiwan could do better (for a price) is in the area of adopting new technology. There is usually a lag of a couple of years for — and longer for more expensive — new technologies. While individual patients may feel the consequences, this situation could easily be remedied by spending a little more on health care.
Competition and Markets
It may come as a surprise to many that market mechanisms are alive and well in Taiwan’s government-run single-payer system. The health care “market” in Taiwan takes the form of competition for patients by providers through the quality of service they offer rather than on the price, as prices are set by the NHIA. Since patients, as noted, can freely choose their providers — money follows the patient — they are sought after by providers.
NHI benefits are uniform for all insured, unlike in the United States, where insurance coverage varies from policy to policy and many Americans are underinsured because they have “cheap” policies that provide inadequate coverage. NHI benefits include pretty much everything you can think of — inpatient and outpatient care, prescription drugs, dental care, Chinese medicine, renal dialysis, prenatal care, child delivery, physical rehabilitation, home nursing care, chronic mental health care, preventive services such as pediatric and adult check-ups, immunizations and cancer screening. Indeed, NHI benefits are more generous than those provided by Canada’s single-payer system, which does not cover outpatient prescription drugs or dental care.
One might guess the reason the NHI costs so little is that the Taiwanese use it sparingly. In fact, the opposite is true. There are no limits on how often one may see a doctor or go to a hospital.
To be sure, Taiwanese are subject to copayments and coinsurance for services received. But generous ceilings and exemptions apply. For example, anyone with one or more of 30 “catastrophic” illnesses or conditions (for example, cancer, chronic mental illness, endstage renal failure) are exempt from copayments. This means that as a practical matter, financial barriers to adequate care are simply not a problem in Taiwan — unlike in the United States, where they loom large for many.
One might guess that the reason the NHI costs so little is that the Taiwanese use it sparingly. In fact, the opposite is true. There are no limits on how often one may see a doctor or go to a hospital. And the average number of doctor visits per person per year in Taiwan was 12.1 in 2017 — high by OECD norms as the table on page 95 shows, despite Taiwan’s lower doctor- and nurse-population ratios.
Why, then, is Taiwan’s health care system so inexpensive? First because (as noted earlier), the government sets prices. The prices of a variety of services and pharmaceuticals are very low in comparison with the United States and other OECD economies — a reality made possible by the single payer’s capacity (and will) to refuse to pay more than it deems sufficient.
The other major factor that contains costs is global budget setting. The annual procedure involves an elaborate process of consultations and negotiations among multiple stakeholders lasting weeks, which is finalized in early fall following approval by the premier. There are five sectoral global budgets, one each for hospitals, primary care, dental care, Chinese medicine and renal dialysis, all of which must fit within one overall global budget.
Insights for the United States
Despite vast differences between the two cultures and insurance structures, Taiwan’s high-performing single-payer NHI does offer some insights.
Distributive Ethics Matter
In his final book, Priced Out, Reinhardt observed:
Health reformers in Europe, Canada, or, say, Taiwan (which operates a government-run single-payer system) usually begin their debate on health reform by making explicit the ethical principle that should constrain health policy. … In Germany, for example, policymakers frequently recite the principle of social solidarity. … The U.S. is different … in that it has never been able to reach a politically dominant consensus on a distributive ethic for American health care. My personal experience is that merely bringing up the topic of distributive ethics for health care can easily raise the ire of an audience, because it is viewed as “too personal,” “too political,” and “too divisive.” So instead, we prefer to discuss health reform mainly in technical terms — usually economic terms — and let social ethics fall where they may.
The United States stands out today as the only country in the developed world that does not recognize health care as a right and have health insurance for everyone. This is an “American exceptionalism” that Americans cannot take pride in.
Taiwan provides health insurance with generous benefits for its whole population at a cost of 6.1 percent of GDP, or just 36 percent of what the United States spends as a percentage of GDP. On a per capita basis, the contrast between Taiwan and the United States is even starker: Taiwan’s per capita health spending of $3,047 (in terms of purchasing power) was just 30 percent of U.S. spending per capita of $10,207 in 2017.
Why the yawning difference? Taiwan’s NHI demonstrates the potential of a muscular single- payer authority to control costs. Government- set prices and global budgeting — in which total spending is set in advance and thus providers must compete for scarce resources — are the NHI’s two most powerful cost-containment tools. And thanks to the fact that the government, rather than for-profit private insurers, runs the system, marketing costs, administrative cost and profits (above the cost of capital) are not part of the equation and naturally make the system less expensive.
No Surprises or Price Discrimination
Since the government sets all health care prices, and extra billing above the government- set fee is not allowed (except for a few government-specified medical devices, such as artificial joints), Taiwan is noted for its conspicuous absence of “surprise” medical bills. By the same token, Taiwan does not have to cope with price discrimination, in which hospitals charge vastly different amounts for identical services.
The NHI’s powerful IT system not only generates huge savings in administrative costs, it is also the engine that drives quality control and innovation of the health system.
Note, too, that, although hospital mergers do take place in Taiwan, such mergers only expand the market share of acquiring hospitals, but cannot create market power that increases the prices of services and products. The United States, by contrast, has seen rapid concentration in the market for hospital services precisely because size provides more bargaining power with insurers.
Indeed, it appears that consolidation on both the hospital and insurance sides of the equation in the United States has made a mockery of the idea that competition can contain prices.
The simplicity and IT-enabled efficiency of Taiwan’s NHI make its overhead cost extremely low. NHI’s administrative cost accounted for 0.87 percent of the total NHI expenditure in 2018.
This is far, far lower than the average of 3 percent of total health spending in OECD economies (in 2014), and strikingly lower than U.S. insurers, whose administrative cost is 7 percent for traditional government-run Medicare and Medicare’s private plans (Medicare Advantage) combined, and 13 percent (no misprint) for private health insurance plans. It long has been known that excessive administrative costs are a significant part of the waste in U.S. health spending. One study reported that major reforms could save $350 billion annually — nearly 15 percent of U.S. total health spending in 2012, when the estimate was made.
The latest NHI satisfaction poll, conducted in November 2019, showed a satisfaction rate of 90 percent, a new high for the NHI. Reasons given for patient happiness: easy access to health services, reduced financial burden of medical care and the “reasonable” premiums. Many Taiwanese-Americans continue to pay their NHI premiums and go back to Taiwan for their medical care.
Perhaps not surprisingly, though, providers in Taiwan are less satisfied with the NHI than consumers of medical services. However, provider dissatisfaction is falling. The poll cited above showed that 34 percent of physicians were satisfied, up from 17 percent in 2018. The “not satisfied” group dropped by half in two years, to 20 percent in 2019. Among the “not satisfied” group, 40 percent cited dissatisfaction about the NHI payment system, 43 percent about the global budget and 6 percent about the professional medical review’s lack of transparency.
The NHI’s powerful IT system not only generates huge savings in administrative costs, it is also the engine that drives quality control and innovation of the health system. Consider three examples:
- The NHI MediCloud, introduced in 2016, is a complete electronic medical record system that stores each individual patient’s complete medical history, including prescription medications and imaging, surgical and dental records. Access to such data (with patient consent) enables providers to perform a range of interventions for the patient, from diagnosis and treatment planning to post-acute care and chronic disease management, more efficiently. Furthermore, the Big Data thus collected on the entire population is invaluable for policymakers, clinicians and researchers in exploring the potential of precision and personalized medicine to transform care.
- My Health Bank, another NHI cloudbased IT innovation, is an electronic personal health record that contains the patient’s medical and dental history for the past three years and is readily available for patients to view online or to download. My Health Bank also provides risk-profile analysis (for example, chronic kidney disease GFR score), intervention recommendations and hyperlinks to health education websites to facilitate patient education and self-care.
- The NHIA maintains a public, webbased, user-friendly service giving consumers access to a detailed provider-quality information database. This allows patients to understand and measure the treatment they will be getting and also helps them make evidenceinformed choices as to where to get care. The approach is in sharp contrast to the United States, where consumers are urged by their insurers and employers to “choose wisely,” but information on quality and cost are woefully inadequate and unreliable — or simply don’t exist.
Live and Learn
Taiwan is the poster child for how a wellrun single-payer system can do the job efficiently and still enjoy high public satisfaction. Taiwanese regard the NHI as a national treasure and the guardian of social peace.
But a single-payer Medicare for All for the United States may be a bridge too far, if only because the $3.6 trillion (in 2018) American health care system has effectively been captured by interests ranging from private insurers to hospitals to physicians to organized groups of chronic illness sufferers seeking preferential access.
A plausible alternative (or transition) to a single-payer national health care plan is a public option in which government administered insurance would compete with the private insurance industry and would be available to all Americans who prefer to use it. The original Affordable Care Act did contain a public option, but it failed to pass the Senate due to insurance industry opposition. And the Kaiser poll cited earlier found that roughly two-thirds of Americans still favor the concept — which is probably why some of the Democratic presidential candidates like the idea.
But the pros and cons are a subject for another day.