How Taiwan Created its Universal Healthcare System

Author’s Note: I remember writing this a long time ago, throwing it up on the Medium blog and that was that. The YouTube video that I created for this didn’t do too well. But over a thousand people ended up liking it, apparently due to a situation where it got featured in Medium’s health section. I can tell that the idea resonated deeply with that audience.

(And I only got a handful of hate comments on it! My favorite one called the DPP “Deeply Pathetic Peoples” and attributed to them no credit for the healthcare system. Mr. Whoever-You-Are, I hope you can live life without rancor towards people you don’t personally know.)

Looking at it now again, I feel like I said a lot of what I wanted to say. Healthcare is a very US-centered talking point and is pretty controversial over there. Taiwan and South Korea appear to have been the last developed societies to implement a single-payer universal health care system. It was an amazing achievement and I believe how it was accomplished is worth studying.

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I live in Taiwan but grew up in America. A few months ago I severely sprained my ankle playing basketball. While rolling about on the ground in pain, some of my friends suggested that I should go to the hospital. Like any sensible US citizen without employer health insurance and with nightmares of $25,000 emergency room hospital bills in my mind, I freaked out and told them never to take me there. Later it was told to me that such a thing would only cost about $35. I still cannot believe it.

Last year, a New York Times article came out about the leap to Single Payer, which focuses on Taiwan’s medical system — comparing it favorably with that being implemented in the US. I especially enjoyed reading the comments on the HackerNews thread. Many comments praised the quality and affordability of the care they received in Taiwan — even if you are not a citizen. Some other comments noted a few caveats. But in general it was quite positive.

Here, I am going to look at the evolution of Taiwan’s health care system and point out a few things I noticed about how they created it that I think might be relevant. I do want to say that I thought it was a good article.

First a few things about Taiwan — as the NYT article notes, there are 23 million people living on the small island, and over 99.9% of them are insured.

The NHI or National Health Insurance is Taiwan’s single payer health care system — first implemented in 1995 after nearly a decade of planning. It is funded by the government, employees, and employers. The insured contribute 40%, employers 29% and the government the rest of the NHI’s costs. It provides preventive and medical services, prescription drugs, dental services, Chinese medicine and home nurse visits. It is a market driven system, where both patients and providers have free choice. Hospitals and physicians are paid on a fee-for-service basis.

It is one of the most popular social services programs in Taiwan — but at the same time its creation was much in doubt at the bill’s passing.

History

There are a few stages in Taiwan’s history and the health care system reflects those stages. Before the Japanese colonized Taiwan at the start of the 1900s, most of the health care was mostly centered on Chinese traditional medicine. The first Western doctor did not begin practice until 1865.

Once the Japanese took over, they scaled down the Chinese traditional medicine and scaled up training of western medicine. They implemented the first Western medical school and created a licensing system to guarantee health care quality control.

In 1950, the island again switched hands — Chiang Kai-Shek and his Nationalist forces had lost the Chinese Civil War and fled there, establishing a single party-state sort of like what was happening on the Chinese mainland. Taiwan was now ruled by a single party, the Kuomintang. From 1950 to 1971 the KMT did not do much notable reform or expansion of the health care system other than setting up various veterans and public hospitals across the country and some mass vaccination drives.

In 1971 however, reforms vastly accelerated. The Department of Health was placed under the overview of the Executive Yuan — which is sort of like the executive branch of the US. During the 1970s afterwards the DOH took steps towards growing the number of physicians practicing in and across the country — making sure their geographical distribution was even.

This was done through a mix of market intervention and smart incentives. To fill immediate needs, the DOH re-certified many retired medical doctors from the military and expanded the supply of medical schools. They also encouraged private industry to start more hospitals of their own including the Chang Gung Memorial Hospital group in 1976, which now operates more than 9000 beds in five different geographical locations and has become the largest hospital chain in Taiwan. This gradually reduced the share of public hospitals in the country.

Throughout 1985, the government continued to focus on expanding physician supply and cutting the costs of treatment — creating a fund to encourage more private hospitals to open, passing legislation to prevent an over-concentration of private hospitals in urban areas, and so on. The centerpiece was a declaration by Premier Yu Kuo-hwa in 1986 after 2 years of study that they would move to a single payer scheme by 2000 — the NHI.

It is at this time we should mention that at the time Taiwan was undergoing a transition to democracy with the ruling KMT party coming under increasing pressure from its opposition party, now the DPP. Under this pressure, the 2000 launch date was moved up 5 years. I will talk more about this later.

Before the introduction of NHI in 1995, Taiwan’s government had four major social insurance programs, closely modeled on Germany and Japan. The systems were for Labor, Government Employees, Farmers, and low income households. The NHI subsumes the Labor, Government, and Farmers insurance systems into one and expands it to everyone else. It is a dramatic change.

The accelerated implementation was for political cover so there was the potential for chaos in 1995 — but some steps were taken to address these issues. First it was set up so that the 57% of the population who were previously insured were already familiar with NHI. A preparatory office was created 2 years beforehand in 1993 with subsidized premium contribution rates and hotlines were set up for extensive face to face consumer feedback. As a result the public’s satisfaction improved and over time it became the pride it is today.

Budgetary Issues

NHI was implemented during a time of greatly expanding wealth — the GDP was growing 6–8% a year at the time. This allowed the government to handle NHI without having to impose great amounts of taxes or by cutting back on current social services.

The article notes that Taiwan has an aging population with a smaller tax base to contribute premiums. Older people generally require more health care — and combined with a slower economy, created budgetary issues with the NHI.

A few years after the NHI was established, the program began to run into budget constraints and several proposals were announced to try to fix them. In 1997, the KMT tried to split up the “single-payer” system to set up multiple carriers — but this was cast in the media as “privatization” and they had to backtrack on that. At this point the KMT no longer had the power to single handedly drive reform like as before.

The NHI budget crisis thus continued on. When the DPP took power in 2000, they started a research panel to look at what was needed to be done. But before the panel could present their findings, then started the NHI Double Jeopardy incident where the NHI had to raise the percentage of contributions and copayments due to the fact the fund had shrunk to the point where it had less than one month of savings left. As the article notes, an overdue premium rate increase in 2010 created surpluses that are expected to last into 2017 at the least.

Today the NHI controls its budget chiefly with a global cap system with fees negotiated between representatives from physicians, hospitals, providers, government, and academia. I have another article that goes into further depth about how this is done.

Political issues

Let’s go back to politics. The path to the NHI began as Taiwan democratized from Chiang Kai-Shek’s dictatorship to a more soft sort of authoritarianism under his son — Chiang Ching-Kuo.

I think something the article does not mention — for good reason — is that it took 8 years of planning and intense political debate between Taiwan’s version of Congress and the Presidency to end up passing the NHI bill. Then crucially after that it took years more of tuning to get it to what it is today. The original bill caused the NHI to drop into deficits when it first came out of the gate. All in all, there had to have been an immense amount of political will to get this thing done.

The KMT proposed and worked on the NHI because of the political pressure it was feeling from opposition forces and the general populace. From the 1950s to the 1970s, the party-state had been focused on retaking the homeland. But after setbacks in the UN and international relations, it became clear that the KMT needed to focus on its people. Chiang Ching-Kuo began reforms to include more Taiwan-born politicians into the KMT, and their influence began the political will to create the NHI.

The final NHI bill was pushed through despite vociferous pushback from the bureaucratic system — as it would consolidate the three insurance systems and many of those workers would lose their jobs. But the KMT pushed it through anyway because the party was feeling intense pressure from the DPP — whose focus was on the social welfare of the native Taiwanese people — and an impending Presidential election, the first in history, in Jan 1996. That year the KMT held its legislative majority by the slimmest of threads and the bill sat in gridlock for 3 months as the two wings debated as to who would pay for the NHI.

The political environment that created the NHI depended on a party that still held power but felt a healthy opposition nipping at its heels. It depended on a variety of stakeholders working together towards a single system. It depended on a people who was willing to vote for and flip for a party that would help govern by implementing policies that improved their lives.