The Asian Wall Street Journal
April 14, 1999
Why is it Compulsory?
The government of Hong Kong recently spent HK$7 million (US$907,000) for a
team of researchers from Harvard University to tell it what was wrong with
its health care system - something that anyone who slept through half of
econ. 101 could have done. What is astounding about the Harvard report is
that it fails to even mention the real problem: that health care is largely
government provided, and those parts that are not are highly uncompetitive.
That the government even commissioned the report is a sign that it
recognized its "universal" health care system is finally coming apart at
the seams. This fact has not been one of the territory's best-kept secrets:
the past two years have seen the quality of service sink to dangerous lows,
as a growing number of serious medical blunders has plagued Hong Kong.
These have included the fatal pumping of oxygen into a patient's bloodstream;
the removal of part of a woman's reproductive organs instead of her appendix;
and three deaths resulting from contaminated water being pumped into a dialysis
Such horrors, as well as the excruciatingly long waits for care, are
symptomatic of an industry removed from market pressures. Public hospitals
have little incentive to provide high quality service, since they do not derive
their income from consumers. And since patients do not pay the full cost of
the services, they consume more than they otherwise would by magnifying minor
health problems. Hospitals have begun to feel the effects of this in recent
years, as their resources have become increasingly strained.
Even Hong Kong's private providers are largely removed from market forces.
Restrictive entry barriers have given local private doctors near-monopoly powers,
allowing them to charge exorbitant fees - often based on the patient's level of
income - and to provide unnecessary services.
Yet there is nothing in the Harvard report that addresses this lack of
competition in either the public or the private sector. Even the long-term
recommendation for "Competitive Integrated Health Care", which is based
somewhat on managed care in the U.S., would not remove the protections from
competitive forces both sectors now enjoy.
Instead, the report calls for the implementation of mandatory insurance
coverage for all Hong Kong residents, who would put between 1.5 and 2% of their
salaries into a health plan. Such a system is already in place in Singapore,
where workers and their employers are forced to pay between 12% and 16% of wages
into a Medisave account.
What makes the recommendation superfluous, however, is the fact that
affordable health insurance already exists in Hong Kong. A plan from National
Mutual, for instance, offers basic coverage for as low as HK$1,042 for a
35-year old male worker. This would only amount to 1.24% of a HK$7,000 a
month salary. Other providers offer comparable rates.
So why should Hong Kong residents be forced to pay for something they could
already purchase on their own? The answer has more to do with bailing out an
inefficient sector of the economy than it does with providing for the needs of
the underprivileged. According to the Harvard team, public health expenditure
will rise to as much as 4% of GDP by the year 2016, from the current 2.5%, and
could consume as much as 23% of the government's budget - up from the current 14%.
Rather than suggest new ways to make the system more cost-effective, however,
the report seems to presume that the existing inefficiencies will remain in
place - all it seeks to do is find a way to pay for them. The debate now is
whether government should implement the mandatory insurance scheme, or simply
raise taxes to pay for the increasingly burdensome healthcare system. Neither
option addresses the underlying malaise of the system itself.
The Harvard report's recommendations amount to little more than new ways to
pay for an increasingly costly and inefficient system - with the Hong Kong people
footing the bill. What Hong Kong really needs is to open up its health care
industry to the therapeutic forces of competition.
Copyright Dow Jones & Co. 1999