Written by Tsung-Mei Cheng.
Image credit: Public Domain.
The January 13 presidential election in Taiwan marked a historic moment in the nation’s burgeoning democracy. For the third consecutive term, voters reaffirmed their confidence in the ruling Democratic Progressive Party (DPP), which has been at the helm for the past eight years, entrusting it with the nation’s leadership for another four-year term. High on the agenda of the returning third DPP administration are pressing issues both international, cross-Strait, and domestic. This essay will focus on the future of health care in Taiwan, an important domestic issue that directly impacts the lives of Taiwanese and calls for urgent attention and actions of the new-returning administration and policymakers.
In 1995, Taiwan implemented its single-payer healthcare system, the National Health Insurance (NHI). In the almost thirty years since, the NHI has looked after the health care needs of Taiwan’s population of 23.4 million with generous benefits at a cost of 6.6% of GDP, making it the pride of Taiwan and the envy of much of the world, including China. The NHI enjoys high public satisfaction of over 90%, and is thought by many as one of Taiwan’s most successful public policies in the past seventy years.
Today, however, Taiwan’s NHI is at a crossroads. Rapid advances in population and technology, rapid ageing of the population, and rising patient-consumer expectations have left the NHI struggling to provide and pay for all the services and products that are expected of it.
When in 1990, Taiwan’s government decided to introduce universal health insurance to cover every Taiwanese; it had three policy objectives in mind: equity, cost control, and good quality. On the recommendation of Princeton economist Uwe Reinhardt, a globally listened-to voice in health care and health policy, Taiwan’s government went with a single–payer health system which Reinhardt said would fulfil all three government policy objectives. Reinhardt also said that a single-payer system is administratively cheap to run and is easily understood by the people, unlike the monstrously complicated and hugely expensive U.S. healthcare system that few Americans understand.
The NHI has delivered on all three government’s policy objectives. In addition, the government agency that administers the NHI, the NHI Administration (NHIA), has run the NHI at an admirably low administrative cost, which today stands at under one per cent of NHI’s annual budget.
How effectively Taiwan controls its healthcare costs is seen in Figures 1 and 2. Figure 1 shows national health spending as a percentage of GDP in Taiwan and comparable OECD countries. It is seen that Taiwan’s total national healthcare spending is two-thirds of the average of OECD countries and just a little over one-third of the United States, the world’s most expensive healthcare system.
Figure 2 shows healthcare spending growth in Taiwan and select wealthy OECD countries. It is seen that spending growth in Taiwan has been maintained at a more or less constant level while all other OECD countries show an upward trend over time. In fact, Taiwan has perhaps overly effectively controlled its health care spending growth. Throughout most of NHI’s history, growth in annual NHI expenditure has outpaced NHI revenue. The gap will only grow, given the new set of realities described earlier, if no new funding is made available to the NHI. Princeton’s Reinhardt had warned Taiwan’s policymakers at the time he recommended the single-payer system to the government in Taipei in 1989, which occasion I had the good fortune to have eye-witnessed, to be aware of the number-one weakness of single-payer systems: underfunding as it can cause major issues. Reinhardt’s warning, sadly, has been a chronic condition whose impact is being felt ever more keenly by many patients in Taiwan today.
Sustained chronic underfunding threatens the chief NHI founding principle of solidarity and equity, and its consequences are being felt more acutely today: longer waiting times for services that are high in demand but short in supply; limitations on, and outright denial of, coverage of many expensive treatments such as those for cancer and rare diseases; ever-rising out-of-pocket spending by patients and their families; and most concerning, the emergence of what looks like two-tier health care whereby NHIA, cash-strapped and unable to meet all the growing needs and expectations of patients, permits patients to pay out of pocket for services NHI cannot afford to cover. What this means is that the wealthy in Taiwan who can afford to pay out of pocket for uncovered services get the needed care, while those who cannot afford to pay out of pocket for uncovered services must go without needed care. These are some of the brutal new realities in health care in Taiwan today.
But do things have to stay this way and even deteriorate further for lack of adequate funding? The answer is a clear “No.” What Taiwan’s policymakers and the public should realise is that Taiwan has the financial means to change their health care and more. Taiwan has a rich economy. Data from the International Monetary Fund show that in 2023 Taiwan’s estimated per capita GDP in purchasing power parity (PPP) is 72,486 (in current international dollar), above countries conventionally thought of as ‘rich countries’, for example, Sweden (66,209), Germany (66,038), Australia (64,675), Canada (59,813), France (58,765), United Kingdom (56,836), South Korea (56,709), Japan (52,120), and so on.
Taiwan’s economy continues to perform well compared to most other advanced economies. Based on data from Taiwan’s Directorate General of Budget, Accounting and Statistics of the Executive Yuan (office of the premier), during the COVID-19 pandemic 2020-2022, Taiwan’s average GDP growth for the period was 4.2%; it slowed to 1.42% in 2023, and for 2024, growth is projected to be 3.5% of GDP. By contrast, Europe’s engine of growth and the world’s fourth largest economy, Germany, ‘is stuck in a rut… shrank last year, extending a six-year slump that is raising fears of deindustrialization and sapping support for governments across the region.’
The argument can thus be made that Taiwan can easily afford a higher level of healthcare spending than the current 6.6% of GDP. After all, all the ‘rich countries’ named in Figure 1 spend significantly more than Taiwan.
But where would additional new funding for health care come from? Sources of new financing come in many guises. Taiwan has relied principally on increases in NHI premium rates, copayments, and coinsurance to funnel additional revenues into the NHI. However, these measures have proven to be problematic politically as they are viewed as hot potatoes, and politicians typically try to avoid or postpone engaging them for as long as possible. Besides, the additional revenues thus raised have been marginal and amounted to tinkering rather than true financial reforms. Lottery sales and increases on ‘sin’ taxes, for example, taxes on alcohol and tobacco, have also been used to bring in revenues for NHI.
Oddly, to date, I have not seen written about or heard in open discussions among Taiwan’s policymakers and health policy circles an obvious alternative way to bring in new money for financing a higher level of health spending in Taiwan, namely, do so by increasing Taiwan’s government tax revenue as a % of GDP. Taiwan’s tax-to-GDP ratio, as depicted in Figure 3, has consistently stayed remarkably low, especially in comparison to advanced OECD countries. Averaging at 13.8%, it stands at merely 40% of the OECD average and just one-third of the ratio observed in wealthier OECD nations. To address this, a near-term objective could involve elevating this ratio to between 7.5% and 8% of GDP, with further increases envisioned in the long run.
That Taiwan’s tax-to-GDP ratio is so ultra-low begs the question: does this fact not suggest that there is potentially significant room to increase that ratio to finance important public policy projects such as higher funding for health care, R&D, public housing, infrastructure improvements, long term care, etc., in Taiwan? A recent IMF article by V. Gaspar et al., titled “Countries Can Tap Tax Potential to Finance Development Goals”, points out that government tax revenue is one vehicle for financing developing goals and that increasing the tax-to-GDP ratios enables governments “to provide critical government services … including to strengthen social safety nets.” The answer to the question seems clear in Taiwan’s case.
I propose that Taiwan’s incoming administration and parliament, jointly with Taiwan’s public, begin, without undue delay, a serious discussion on the merits of the raising tax-to-GDP ratio alternative and identify ways to achieve that to finance urgently needed public policy projects, including health care. The importance of this cannot be overstated.
In the January 13 presidential election, the DPP, with 40.05% of votes, won over the main opposition party, KMT, which won 33.49% of votes. However, the DPP lost the parliamentary majority by one seat to the KMT, which established the NHI in 1995. The rapidly rising third party, Taiwan People’s Party (TPP), which vowed for change including strengthening the NHI, won significant votes in both the presidential (26.46%) and parliamentary elections. This new tripartite power configuration has created a unique window of opportunity for checks and balances and for the three parties to come together in a true tri-partisan alliance to work for the future of Taiwan and the welfare and well-being of the hard-working people of Taiwan. One has good reasons to hope.
Tsung-Mei Cheng is Health Policy Research Analyst at Princeton University. She is also co-founder, with Uwe Reinhardt, of the Princeton Conference.
Taiwan Insight 