What is the Real Story with the Hong Kong Voluntary Health Insurance Scheme?

On Monday December 15th 2014 the Hong Kong Government announced the launch of a public consultation on a long-debated scheme which would push the city’s medical patients into the private healthcare system through the purchase of voluntary health insurance coverage.

Under the voluntary health insurance scheme, as revealed by the SCMP, the Hong Kong government would provide an estimated HK$ 4.5 billion per year in subsidies and tax breaks towards the creation of domestic health insurance protection which would offer standardized medical coverage; meeting 12 pre-determined coverage criteria as well as including pre-existing medical condition protection.

Having been debated since 2008, the Voluntary Health Insurance Scheme is intended to allow patients to receive medical treatment at private hospitals. This would help alleviate the tremendous burden currently being placed on the city’s public healthcare system which treats approximately 90 percent of all medical patients locally – despite possessing only 40 percent of Hong Kong’s doctors. While the 2008 consultation was suspended indefinitely Hong Kong’s ageing population, as well as increased demand from foreign healthcare consumers (including mainland patients) has seen increased pressure placed on public hospitals which have forced the government to reconsider options to increase the supply of healthcare services to residents.

What Coverage Will You Actually Receive?

Under the current proposals being put forth by the Food and Health Bureau the plans insurers are able to offer under the scheme would have guaranteed renewal with no annual re-underwriting, would have no lifetime benefit limits, and would have guaranteed acceptance for applicants of all ages within the first year of the scheme’s operation.

However, despite the fairly attractive administration items being proposed under admitted policies within the scheme, the coverage on offer with these plans may not be enough to provide sufficient access to Hong Kong’s high-cost private hospitals.

For example, plans under the proposed Voluntary Health Insurance Scheme would have a Surgical benefit limit of HK$ 58,000 per operation, while Non-surgical cancer treatment would be limited to HK$ 150,000 per case. Looking at the surgical benefit, this per-operation coverage limit seems woefully inadequate to cover a range of surgeries at hospitals like the Adventist or the Union Hospital.

At the Adventist, fees for heart surgery procedures start at HK$ 100,000 for standard rooms with complications of treatment likely to increase that to a much higher figure. Likewise, at the Union Hospital, the average cost of all of the Hospital’s Urological operations is HK$ 58,725 with a Laparoscopic Nephrectomy costing HK$ 104,150.

A per-operation surgical benefit cap of HK$ 58,000 under Voluntary Scheme policies ensures that policyholders will likely have to cover the costs of some of their treatment out of their own pockets, at a higher loss than the individual would have had in the public system. Furthermore, the HK$ 150,000 coverage for cancer treatment only covers non-surgical care – with Mastectomy’s costing upwards of HK$ 70,000 the voluntary scheme plans are going to leave patients experiencing a significant shortfall in the event that they require treatment.

Where the coverage under the voluntary scheme does stand out is in regards to these plan’s cash benefits and diagnostic consultations. Policyholders will receive HK$ 650 per day upon hospital admission to a maximum of 180 days, and will receive attending physician consultation coverage of HK$ 750 per day to a maximum 180 days. Additionally, there are plans to enable extensive diagnostic procedures (including X-Rays, MRI, CT, and PET Scans) under the policies as part of a package benefit, but limits on these procedures have not yet been disclosed.

What About Additional Incentives?

Under the current consultation proposal, the average policy cost for health insurance plans offered under the voluntary scheme would be HK$ 3,600 per year. This amount is about 9 percent more than most locally offered health insurance plans, but includes coverage for Chronic and Pre-existing conditions which generally forced policyholders off their local health insurance in the past.

The government is offering around HK$ 4.3 billion to fund the treatment of 70,000 high-risk individuals who have previously struggled to obtain any form of health insurance – relying wholly on the public sector for treatment. Additionally, an estimated HK$ 256 million in tax breaks are expected to be offered to individuals and families purchasing coverage through the voluntary scheme; providing a financial incentive for Hongkongers to buy private health insurance.

However, many critics have been concerned that the tax breaks received for purchasing health insurance coverage through the scheme are not nearly high enough, with tax breaks falling between HK$ 40 to HK$ 200 per person according to the SCMP; additional tax rebates would be available for dependents holding a voluntary scheme plan but no details have yet been revealed about these.

In contrast to the first proposals for the voluntary health insurance scheme in 2008, the savings being considered over the next 3 months are not as large as the originally debated 30 percent discount on premiums for the first year’s premium. Under the current premium pricing, a 30 percent reduction in the average HK$ 3,600 premium would yield a savings of HK$ 1,080 – more than 5 year’s worth of tax credits at the highest figure of HK$ 200 per year.

What Will the Scheme Achieve?

The government hopes that the Voluntary Health Insurance scheme will move roughly 5 percent of patients out of the public system and into the private where treatment is available with limited waiting periods and, often, to a higher standard than that available in public facilities.

However, as illustrated above, the coverage being offered under health insurance plans admitted into the scheme may not be sufficient to enable patient to access the treatments they need at private hospitals without having to cover a large portion of the overall costs out of their own pocket. Hong Kong has some of the highest costing private medical care in the world, second only to the USA, and the coverage being proposed will allow patients to “get a foot in the private door” but will not enable the individual to stay there for long.

CCW Global’s analysts believe that this will create a situation where patients use the private system for primary care and pre-surgical consultations, with the high cost high wait procedures continuing to be performed at Hong Kong’s leading public hospitals. This, consequently, will not alleviate the burden currently being placed on public facilities, and may mean an increased demand for intensive procedures which are simply too expensive at private facilities.

If, as an example, the cost of a treatment for a Mastoidectomy is HK$ 67,850 at the Union Hospital, and the same treatment will cost the patient HK$ 100 a day at a local public hospital, it is the difference of being HK$ 10,000 out of pocket or HK$ 300 for a 3 day treatment!

It can be seen from the above example that, even if an individual does hold coverage under the Voluntary Health Insurance Scheme, under the proposals announced by the Food and Health Bureau, it still makes sense (for certain procedures) to hold a policy and yet receive the major treatments needed in the public sector; and this does not even factor in any claims related premium increases or no-claims-bonuses which the policyholder may wish to maintain.

The Voluntary Health Scheme may merely be the option of last resort for individuals who would like to hold some form of private medical insurance but who have, either due to their medical history or age, been denied coverage by health insurance providers. The financial savings offered by the currently proposed scheme would not be as high as via medical savings fund, and the tax breaks are not large enough to incentivize the purchase of the plans by individuals who have alternate coverage options.

While the pre-existing coverage solution is certainly interesting it is doubtful whether the Voluntary Health Insurance Scheme, as it currently exists, will be a success.