Since the mid-1990s, Taiwan has made great strides in providing comprehensive health benefits to its people. Today 96 percent of them have health insurance, compared with 55 percent in 1995, when the government established a national health insurance program (Exhibit 1). In recent surveys, more than 70 percent of all Taiwanese viewed the health insurance system positively. Another survey ranked Taiwan second best in medical practice among developed and newly industrialized countries and as the world’s second-healthiest country.¹

Nonetheless, the rapid expansion of medical coverage has sent shock waves through Taiwan’s health system. The program faces insolvency, and many health care providers, motivated by poorly conceived incentives, are delivering inappropriate services. Faced with this untenable situation, Taiwan’s president, Shui-bian Chen, created the Task Force on Reforming the National Health Insurance System, in July 2000.

A basic problem is the fact that revenue generated from health insurance premiums has failed to keep up with expenses. The Taiwanese system is compulsory, with insurance premiums set at 4.25 percent of a worker’s salary or income, up to a ceiling. Government and employers each contribute about 30 percent and employees 40 percent. The government, through the Bureau of National Health Insurance, is the sole insurer and the sole payer of benefits. From 1996 to 1999, revenue from insurance premiums rose by only 3 percent a year, while the cost of providing medical coverage grew by 8 to 10 percent a year (Exhibit 2). This gap led to monthly losses of up to US $100 million in 2000. Despite these high losses, the government has resisted raising the premium rate, and the percentage of the total gross domestic product that Taiwan has spent on health care over the past few years has remained lower than the economy’s growth rate.²

The task force recommended several changes to address the growing problems.³ These changes were accepted by the minister of health and will likely be carried out. First, Taiwan’s people will have to pay more for their medical insurance, in part through an overhaul of the existing payroll tax. Currently, the insured are divided into six occupational categories, and the contributions of employees vary by category rather than income: a civil servant, a laborer, and a farmer may have the same income, but the civil servant pays less for health care than does the laborer, and the farmer pays less still (Exhibit 3). Not surprisingly, many people misreport their true occupations to obtain lower premiums, and the result is lower-than-expected revenue. If differences among categories were gradually eliminated, misreporting would become pointless, and a significant increase in total revenue could be generated. Across-the-board increases in premium rates will also be necessary, but insured groups that currently feel unfairly burdened will at least have more reason to accept these increases once the system is reformed.

Taiwan should also implement other reforms to improve the quality and delivery of health care. National health insurance has distorted the health care delivery system because planners lack adequate historical cost-analysis data and other information needed for making budgetary decisions. As a result, reimbursement fee schedules are often disproportionate to the complexity of illnesses and their treatments. Under the current system, for example, providers have a financial incentive to see additional patients and to replace complicated, less profitable procedures with "quick and easy" ones. Reimbursement incentives also strongly influence the way medical students choose their specialties.

These incentives and their consequences directly affect the quality of care. Over the past five years, the number of clinic visits per person per year has increased to 15.4—three to five times US levels—from 12. The average time per visit is less than five minutes, too short for physicians to get to know their patients. Meanwhile, Taiwan has a shortage of surgeons in training and an oversupply of budding dermatologists. The average number of prescriptions per person per visit has increased to 4.1, which is two to three times the level in developed countries, and the use of profitable high-tech diagnostics has skyrocketed.

To improve the quality of care, reimbursement schemes should take account of the level of training needed for each medical specialty, the cost of every treatment, and the complexity of the illness.⁴ Appropriately reimbursed physicians will have less incentive to cut corners, and that should reduce the incidence of misdiagnosis and mistreatment. Moreover, physicians should be reimbursed for taking the time to educate patients and to encourage self-care for minor illnesses. These changes, while not directly targeting costs, should reduce the number of unnecessary out-patient visits, thus bringing under control one of the key reasons for the continual increase in health care spending.

Taiwan’s experience in expanding health care coverage offers valuable lessons for other developing countries. On the road to universal health care, countries must balance quality assurance, on the one hand, with cost controls, increased efficiency, and equity, on the other. Countries must also continually reexamine health care benefits to ensure that they are appropriate and not too comprehensive—if you want to cover everyone, you can’t cover everything.