The 2008 "Your Health, Your Life: Healthcare Reform Consultation Document" asked Hong Kong people to ponder which of six "supplementary financing options" would be best for Hong Kong. The six are: Social Health Insurance, Out-of-Pocket Payments, Medical Savings Accounts, Voluntary Private Health Insurance, Mandatory Private Health Insurance, and Personal Healthcare Reserve. Actually, a good case can be made for a multi-pronged approach, featuring some aspects of all of these options.

There is little doubt that Hong Kong needs some form of "social health insurance". In a sense, what we have right now is already a form of social health insurance. Society underwrites some of the health risks that each Hong Kong citizen faces. In the event he or she needs healthcare, in-patient or out-patient, government clinics and the Hospital Authority hospitals offer services at only a fraction of the true costs.

At present the costs are funded by general revenue. To the extent that the poor would need to be exempted from any social health insurance premium that may be imposed, I see little reason to change this. Funding social health insurance from general revenue is simple and equitable.

There is also little doubt that we need to shift more of the costs to patients up to a certain limit. Most patients have little difficulty paying more. For example, in-patient charges inclusive of meals and healthcare costs are a low-paltry HK$100 a day. Out-patient charges range from HK$45 to HK$100 for general and specialist clinics respectively. For the latter, charges are reduced to HK$60 on the second and subsequent visits. HK$10 is charged per drug item, while diagnostic tests are provided free, both in disregard of the true cost.

Such low fees are problematic because they promote waste and discourage prevention. This is the well known "moral hazard" problem. The low fees also reduce the resources that are available to treat patients in genuine need.

I therefore have been advocating raising the charges to a more reasonable level, such as 50 percent of the direct costs ("fixed costs" should be tax-funded) while capping the eligible expenses to some affordable limits per year.

I propose that the annual cap should be increased from age 50 on, so that people are aware of the possible higher costs of healthcare when they get old and establish a healthier lifestyle from an early age. The annual cap could range from HK$5,000 to HK$15,000 per year, depending on age. The cap could be halved for the eligible poor.

I am also supportive of setting up Medical Savings Accounts, though I have some reservations about mandatory contributions. Contributions to the MSA should be tax-deductible. Moreover, I propose that each person be given a personal Life-time Healthcare Supplement (LHS), say, valued at HK$500,000, to be provided through general revenue. This will be a Personal Healthcare Reserve, to be drawn on as necessary but on a matching basis: the person needs to match the withdrawal with his own funds, either from his MSA or from his other savings or income. These withdrawals with matching spending can be expended on any costly item that is not subsidized or provided through the public healthcare system, or on private healthcare. Both the matching requirement and the fixed amount for the lifetime (i.e., available amount will become smaller with every dollar drawn from the account). That will ensure that people will spend the money carefully. Because people need not withdraw the LHS from the Personal Healthcare Reserve at all, it is only a "contingent spending": the cost to the taxpayer is affordable, while it provides extra protection to Hong Kong people. I also propose that the matching ratio be reduced for the eligible poor, such as HK$1 of their own funds to match HK$3 drawn from LHS.

Finally, it is unavoidable that the public sector needs to define the limits to the Standard Care it provides. Individuals who are desirous of care beyond Standard Care (either in terms of quality or in terms of the range of care) will need to buy private insurance voluntarily.

I am not very much in favor of mandatory contributions, whether toward the MSA or as insurance premiums, which tend to raise labor costs and reduce Hong Kong's competitiveness, while adding to the burden of the underprivileged. In any case contributions towards the MSA will not increase the availability of public resources for healthcare, since MSA money cannot be appropriated and must be spent before it is recycled to the public sector. Without raising fees, MSA cannot serve as part of public healthcare financing.

I am hopeful that the proposed package will reduce waste and improve the quality and access in needed healthcare services to Hong Kong. The Chief Executive has pledged to increase government expenditure on healthcare from 15 percent to 17 percent of recurrent government expenditure by 2011-12. I am encouraged by the high priority that he pays to healthcare, and sincerely recommend the above to the SAR Government.

The author is professor of economics and director of Centre for Public Policy Studies of Lingnan University

(HK Edition 09/10/2009 page1)