Page iiiExecutive Summary

Executive Summary

Healthcare Reform

Weputforwardacomprehensivepackageofproposalstoreformthehealthcare

systemintheHealthcare Reform Consultation Document“Your Health, Your Life” in March 2008.Theseincludefourhealthcare service reformproposalstoenhanceprimarycare,promotepublic-privatepartnershipinhealthcare,developelectronichealthrecord

sharing,andstrengthenpublichealthcaresafetynet,andahealthcare financing reform proposal toconsiderintroducingsupplementary healthcare financingviasixpossiblesupplementary financing options.

2. Weconductedthefirst stage public consultation onhealthcarereforminMarchtoJune2008andpublishedtheconsultationreportinDecember2008. Buildingonthe

viewsreceived,weare improving public healthcareand taking forward the service reforms,makinguseof the increasing government budget for health. Wehavealsoformulatedavoluntary Health Protection Scheme (HPS) asthenextstepinhealthcarereform.ThisdocumentmainlysetsoutourproposalsfortheHealthProtectionSchemeto initiatethesecond stage public consultation onhealthcarereform.

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First Stage Public Consultation (Chapters 1 & 2)

3. Thefirststagepublicconsultationreflectedawidelysharedconcernoverthe

long-term sustainability of our healthcare system. Thecommunityrecognized theimminentneedtotakeforwardcomprehensive reform to our healthcare system tomeetthechallengesofarapidly ageing populationandrising medical costs. Therewasabroadcommunityconsensustotake forward the healthcare service reform proposals.

4. Themajorityof thepublicagreed thatreform of both service delivery and financing arrangements would be needed. However, thepublicexpresseddivergent views over the supplementary financing optionsputforth.Theyexpressedreservations against mandatory supplementary financing options ingeneral. Agreaterproportionof thepublicpreferred voluntary choice for individualised healthcareandfavoured voluntary private health insurance.

5.  The Government’s commitment to healthcare is set to continue to increaseaswereformourhealthcaresystembasedonthecommunity’sviews.Wewillcontinue to uphold the public healthcare system as the safety net for the whole population. TheGovernment’sannualrecurrentexpenditureonhealthhasincreasedfrom$30.5billionin

2007-08to$36.9billionin2010-11. Weaimtoincrease the health budget to 17% of the Government’s recurrent expenditure in 2012.

Second Stage Public Consultation (Chapter 3)

6. TheGovernmentiscommittedtocontinuingtoengagethecommunityandtake

forwardhealthcare reform through a step-by-step approach, withaviewtoenhancing the long-term sustainability of our healthcare system.Asannouncedinthe2009-10PolicyAddress, theGovernmentwouldput forwardavoluntary supplementary healthcare financing scheme for the second stage public consultation basedon the followingprinciples–

(a)  Supplementary financing: publicfundingwillremainthemainfundingsourceforhealthcaresupplementedbyprivatefunding;

(b)  Voluntary participation: theSchemewillbebasedonvoluntaryparticipationbythosewhoareableandwillingtoafford;

(c)  Wider choice: theSchemewillprovideconsumerswithmorechoicesofvalue-for-moneyhealthcareserviceswithqualityassurance;

(d)  Continuous protection: theSchemewillbedesignedtoprovidecontinuousprotectionforparticipantsintotheirolderages;and

(e)  Consumer interests: theSchemewillbestandardizedandregulatedby theGovernmenttosafeguardconsumerinterests.

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7. Wepropose to introduceavoluntary Health Protection Scheme thataimstobetterensure the quality and value-for-money of private healthcare services and private health insurance. It takesastepinenhancing the long-term sustainability of the healthcare systembymakingprivatehealthcare,andprivatefundingashealthcarefinancingsupplementarytopublicfunding,moresustainable.

8. TheproposedHealthProtectionSchemealsoaimstoease the pressure on the public healthcare system, therebybenefitting those who depend on the public system for their healthcare. Itdoessobyencouragingindividualswhoareableandwillingtochooseandpayforprivatehealthcaretosubscribe to private health insuranceandenablingthemtouse private healthcare on a sustained basisas an alternative to public healthcare,whichwillstillbeavailabletoalleligibleHongKongresidents.

9. TheGovernmenthaspledged to draw $50 billion from the fiscal reserve to support healthcare reformafterthesupplementaryhealthcarefinancingarrangementsarefinalizedforimplementation. Wewillconsidermakinguseofthe$50billiontoprovide

incentivestoencouragethepublictoparticipate intheHealthProtectionSchemeona

sustainedbasis,thusrelievingthelong-termdemandforpublichealthcareservices.

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Proposed Voluntary Health Protection Scheme (Chapter 4)

Scheme Objectives

10. TheGovernmentwill regulatehealth insuranceplans tobeofferedunder

theHealthProtectionScheme toupholdtheprinciplesabove. Ouraimis toenhanceconsumer protection, price transparency, quality assurance and market competition in the private health insurance and private healthcare service sectors. TheHealthProtectionSchemeisthusdesignedwiththefollowingobjectives–

(a) Provide more choices with better protection to those who are able and willing to pay for private health insurance and private healthcare services.

(b) Relieve public queues by enabling more people to choose private services and focus public healthcare on target service areas and population groups.

(c) Better enable people with health insurance to stay insured and make premium payment at older age and meet their healthcare needs through private services.

(d) Enhance transparency, competition, value- for -money and consumer protection in private health insurance and private healthcare services.

11. Byenablingmorepeople touseprivatehealthcareonasustainedbasis, the

HealthProtectionSchemewillenablethepublichealthcaresystemtobetterfocusonits

targetserviceareas, includingservices forlow-income families and under-privileged groups,acute and emergency care,andcatastrophic and complex illnesses requiring high cost, advanced technology and multi-disciplinary professional teamworkwhichmaynotbereadilyavailableormayentailveryhighcostintheprivatesector.

Scheme Concept

12.  The Health Protection Scheme is proposed as a standardized and regulated framework for health insurance under its aegis. HealthinsuranceplanstobeofferedundertheHPS(HPS Plans)arerequiredtomeetthecore requirements and specificationsforhealthinsurancestandardizedundertheHPS. Specifically, insurersparticipatingin

theHPSarerequiredtoofferstandardizedhealthinsuranceplansinaccordancewiththe

corerequirementsandspecifications(Standard Plans). ParticipatinginsurersarealsorequiredtocomplywithschemerulesandrequirementsspecifiedundertheHPS.

13.  The HPS is designed to be modular:whileparticipatinginsurersareallrequiredtoofferStandardPlanswhichwouldattractgovernmentincentives,theyarefreetodesign

appropriatehealthinsuranceplansoftheirownofferingtop-upbenefitsorintegrating

additionalcomponentsbeyondthecorerequirementsandspecificationstosuitconsumers’

needs,e.g.betterservicesandroomsandboards,orcoverageofservicesnotincludedin

StandardPlanssuchasout-patientservices.However,thetop-upsoradditionswouldnot

beeligibleforgovernmentincentivesundertheHPS.

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14. Individualsmaychoose tosubscribe to HPSPlansofferedbyparticipatinginsurersonavoluntarybasis. Theywill enjoy theprovisions under the HPS for consumer protection and other advantages offered by HPS Plans,whichare notavailabletoprivatehealthinsuranceoutsidetheHPSingeneral. Employersmayalsochooseto

makeuseofHPSPlansthroughtheirinsurerswhenprovidingmedicalbenefitstotheir

employees.

Core Requirements and Specifications

15. ThecorerequirementsandspecificationsforhealthinsuranceundertheHPSwill

besettoensurethatHPSPlanscanproviderisk-poolingprotectionforunanticipatedand

costlyhealthcare.Weproposeto require HPSPlans to covermedicalconditionsrequiringhospital admissions or ambulatory procedures, includingtheassociatedspecialistout-patientconsultations/investigationsandadvanceddiagnostic imagingrequiredforthe

admissionsorprocedures,andchemotherapy or radiotherapy for cancer.

16. The core specificationswill set out the standardizedpolicy terms and

reimbursement levels (benefit limits)requiredundertheHPS. Weproposetoset the

benefitlimitsatalevelthatenablestheinsuredtoaccessaffordableprivatehealthcarefor

medicalconditionsrequiringhospitaladmissionsorambulatoryprocedures.Insurersare

freetooffertop-upbenefitsexceedingthecorespecifications(e.g.betteramenities,higher

benefitlimits,lowerco-payments,etc.).

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17. Weproposenot to include primary careasacorerequirementundertheHPSbecauseprivateprimarycareisrelativelymoreaffordable,andtheutilizationofprimary

careishighlyelectiveandmorepronetomoralhazards.Forsimilarreasons,wepropose

not to include specialist services and diagnostic imaging in generalthatarenotrequiredforhospitaladmissionsorambulatoryprocedures,andnot to include maternity coverage.Insurersareatlibertytoofferadd-oncomponentscoveringtheseservices.

Key Scheme Features

18. HPSPlansare required toprovideacombinationofkey features thatofferadvantagesoverexistingprivatehealthinsuranceproductsavailableinthemarket–

• No turn-away of subscribers and guaranteed renewal for life

• Published age-banded premiums subject to adjustment guidelines

• Cover pre-existing medical conditions subject to waiting period and time-limited reimbursement limits*

• Cap premium plus high-risk loading at 3x published premium*

• Make higher risk groups insurable with High-Risk Pool reinsurance*(*see the next section on “Access for Higher Risk Groups”)

• Offer no-claim discount up to 30% of published premiums

• Insurance plans portable between insurers and on leaving employment

• Transparent insurance costs including claims and expenses

• Standardized health insurance policy terms and definitions

• Government regulated health insurance claims arbitration mechanism

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19. Anotherkeyfeatureof theHPSis topromote transparent medical fees with packaged charging for common procedures. Privatehospitalswouldbeencouragedtoofferquality-assured,all-inclusiveandcondition-specificpackagedservicesandpricing.

HPSPlanswouldberequiredtosetreimbursementlevelsbasedonpackagedcharging

whereavailable, therebyenhancingtransparencyandcertaintyofmedicalcharges to

theinsured. Thisenhancesmarkettransparencyandcompetitioninprivatehealthcare

servicesandhelpssafeguardconsumerinterestsinmakinguseofsuchservices.

Migration of Existing Health Insurance

20. TheHPS isvoluntary for individuals andemployerswithexistinghealth

insurance,whomaychoosewhether tomigrate tohealth insuranceplansunder the

HPS. Basedondiscussionwiththeinsuranceindustry,weproposetorequireinsurers

participating in theHPSto facilitateseamlessmigrationofpolicy-holders fromtheir

existinghealthinsurancepoliciestoHPSPlansasfollows–

(a)  For existing individual policy-holders:participatinginsurerswillberequiredtoofferthemanoptiontorenewtheirexistinghealthinsurancepoliciestoan

appropriateHPSPlanwhichmustmeetorexceedtherequirementsforStandard

Planswithnolesscoverageandbenefitsandwithoutundergoingre-underwriting,

andtoenjoyadvantagesofferedbytheHPSincludingpre-existingconditions

coveragesubjecttowaitingperiod,portability,no-claimdiscount,etc.

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(b)  For existing group policy-holders (mainly employers):participatinginsurerswillberequiredtoofferthemuponrenewalanoptiontoswitchtoanappropriate

tailor-madeHPSPlanwhichmustmeet or exceed the requirements for

StandardPlansthatprovidesnolesscoverageandbenefitsandmeetsthecore

requirementsandspecificationsundertheHPS.Theinsurersmayoffertop-up

componentstosuitindividualemployers’needs.

Access for Higher Risk Groups

21. InformulatingtheproposalsfortheHPS,wehaveidentifiedanumberofkey

issuesontheHPSdesignconcerninghowindividualswithhigherriskshouldbeableto

subscribetohealthinsurance.Ourproposalsaresetoutbelow–

(a)  How pre-existing conditions should be covered in health insurance? TheHPSrequireshealth insurance tocoverpre-existingmedicalconditions that

areusually excludedbyexistinghealth insurance. Awaitingperiodand

reimbursementratiosareneededtominimizeanti-selection.Weproposetostart

coverageofpre-existingconditionsafteraone-yearwaitingperiod,andprovide

reimbursementof25%inthesecondyear,50%inthethirdyear,and100%after

threeyears.

(b)  How high-risk individuals may subscribe to health insurance? High-riskindividualsoftencannotgethealth insurancenowor thepremiumcanbe

prohibitivelyhigh.TheHPSrequiresinsurerstoinsurethemwithpremiumplus

high-riskloadingnotexceedingacertainlevel.Weproposetocapthepremium

plus loadingtobepaidbyhigh-risk individualsat threetimesthepublished

premiumsforStandardPlans.

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(c)  How individuals already at older age may also get health insurance?Existinghealthinsuranceusuallysetanagelimitbeyondwhichentrywouldbedenied.

TheHPSaimstofacilitateaccessbythehigherriskgroupsbutallowingentryat

allagesmayintroduceexcessiveriskstoHPSPlans.Onbalance,weproposeto

requireinsurerstoallowpeopleaged65+tosubscribetoHPSPlanswithinthe

firstyearofintroduction,butwithnocapontheirpremiumplusloading.

High-Risk Pool Reinsurance Mechanism

22. Toenable thehigher-riskgroups tohaveaccess tohealth insurancewhile

ensuringthefinancialviabilityofthehealthinsuranceplansundertheHPS,itisnecessary

tointroduceaHigh Risk Pool (HRP),whichisanindustryreinsurancemechanismforinsurersparticipatingintheHPStoshareoutthehighrisksinsuredbytheirHPSPlans.

Allhigh-riskpolicies,definedasthosepolicieswithriskpremiumassessedtoexceed

thecapforpremiumwithhigh-riskloading(i.e. threetimesthepublishedpremiumof

StandardPlans)willbeputintothe

23. TheHRPisproposedtobeareinsurancemechanismoperatedbytheindustry

and regulatedby theGovernment, fundedby thepremiumofhigh-riskpolicies

(correspondingtoStandardPlans)andreinsurancepremiumfromparticipatinginsurers.

Wherenecessary,injectionbytheGovernmentwouldbeconsideredincasetheviability

oftheHRPisin jeopardyduetoalargeproportionofhigherriskpeople joininghealth

insuranceplansundertheHPS,whentheHRPpremiumcannotmeettheclaimspay-out

(see“Government Incentives”inparagraph25(a)below).

HRP.

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Saving for Future Premium

24. AkeyobjectiveoftheHPSistoencouragepeoplewithhealthinsurancetostay

insuredatolderage. However,age-bandedpremiumforvoluntaryhealth insurance

areboundtoincreasesharplywithageoftheinsuredastheirhealthriskandhealthcare

utilizationincrease. Onepossiblewaythatmayhelpensurethat individualscanstill

affordcontinuoushealthprotectionundertheHPSatolderagewhentheyneeditmostis

toencouragesavingsforpayingfuturepremium.Wethusproposethefollowingoptions

toencouragesavings(see“GovernmentIncentives”inparagraph25(c)below)–

(a)  Required in-policy savings:HPSPlanswillberequiredtoincorporateasavingscomponent,where the insuredwouldpayahigherpremiumatayounger

age tooffset thepremiumincreaseatolderage. Incentivesviagovernment

contributionstothesavingscomponentofHPSPlanswouldbeconsidered.

(b)  Optional savings accounts: individualssubscribingtoHPSPlanswillhaveanoptiontosavetoasavingsaccount,andtheaccruedsavingscanbefreelyusedon

orafterage65.Incentivesviagovernmentcontributionstothesavingsaccount

wouldbeconsidered,butwouldbesubjecttothesavingsbeingusedtopayHPS

premiumfromage65.

(c)  Premium rebate for long-stay: individualssubscribingtoHPSPlansarenotrequiredtosave,butmaychoosetosaveontheirownmeans. Incentivesvia

apremiumrebateproportiontotheirlengthofstayinginsuredundertheHPS

wouldbeconsidered,providedthattheycontinuetopaypremiumfromage65

usingtheirownsavings.

Government Incentives

25. ToachievetheobjectivesoftheHPS,weproposethatfinancialincentivesmaking

useofthe$50billionfiscalreserveearmarkedtosupporthealthcarereformshouldbe

consideredinthefollowingdirections–

(a)  Protection for high-risk individuals: toallowhigh-risk individuals to joinHPSPlanswithoutrequiringotherhealthyinsuredtopayexcessivepremium,

wepropose toconsidergovernment injection intoHRPwherenecessary,an

industry-operatedreinsurancemechanismfortakingonhigh-riskindividuals

andsharingouttheirrisks,tobuffertheexcessriskarisingfromtheparticipation

ofhigh-riskindividuals.

(b)  Premium discount for new subscribers: toattract individualsespecially theyoungtojoinHPSPlans,weproposetoconsidergovernmentincentivesforall

newjoinersofHPSPlanstoenjoymaximumno-claimdiscounti.e.upto30%

discountontheStandardPlanpremiumimmediatelyonjoining.Weproposeto

makethisavailableforalimitedperiodaftertheintroductionofHPS.

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(c)  Savings for future premium (see“SavingforFuturePremium”inparagraph24above): toenabletheinsuredtocontinuetoaffordhealthprotectionunder

theHPSatolderage,weproposetoconsidergovernmentincentivesforsavings

byindividualsforpayingfuturepremiumatolderage(say65orabove). We

proposethatthegovernmentincentivesshouldbeproportionaltotheirlength

ofcontinuouslystaying insuredunder theHPSandmaybeup toacertain

percentageoftheirStandardPlanpremium.

26. Uponreceivingviewsinthepublicconsultationovertheproposeddirections

forconsideringfinancial incentives,wewill formulatethedetailsof theproposals for

government incentivesunder theHPS,andworkout theuseof the$50billion fiscal

reserveearmarkedtosupporthealthcarereform.

Supporting Infrastructure for Health Protection Scheme (Chapter 5)

Private Healthcare Capacity and Manpower

27. ImplementationoftheHPSwillrequirecorrespondingexpansioninthecapacity

oftheprivatehealthcaresectortocopewiththepotentialincreaseindemand.Weestimate

thattheknownredevelopmentprojectsofexistingprivatehospitalsandthedevelopment

ofnewprivatehospitalsunderplanningshouldbeabletomeettheprojecteddemand

forprivatehealthcareservicesarisingfromtheHPS. Weshallcontinuetomonitorthe

demandforprivatehealthcareservicesandfurtherconsiderwaystoincreasethecapacity

asnecessaryaftertheHPSisimplemented.

28. Weconductmanpowerplanningexercisesonaregularbasis for thevarious

healthcareprofessionsforthepurposeofassessingtheeducationandtrainingneedsfor

healthcareprofessionals. Theexercisewilltakeintoaccountthepotentialdemandsfor

manpowerincrease,includingexpansionofthehealthcaresystemtocaterfordemographic

changesandimplementationofthehealthcarereforminitiatives.Thepotentialincreasein

demandforprivatehealthcareservicesarisingfromtheimplementationoftheHPSwillbe

takenintoconsideration.

Requirements for Insurers and Providers

29. ImplementationoftheHPSrequiresparticipationofprivatehealthinsurersand

privatehealthcareproviders.Tothisend,theproposalsfortheHPSaredesignedwitha

viewtosafeguardingconsumerinterestsinprivatehealthinsuranceandprivatehealthcare

services,whileensuringthatitshouldbepracticallyfeasibleandfinanciallyviabletooffer

healthinsuranceplansandprovideprivatehealthcareservicesundertheHPS.

30. Toensurecompetitionandchoiceunder theHPS, there isaneed formore

interestedprivatehealthinsurerstoparticipateandoffersufficientandattractivechoices

ofhealthinsuranceplansundertheHPS.TheHPSisformulatedtakingintoaccountthe

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viewsof the insurance industry,andweexpect thatprivate insurers in the insurance

industrywouldbeinterestedinparticipatingintheHPS. However,shouldtherebea

generallackofinterestsfromtheindustryinofferinghealthinsuranceplansunderthe

HPS,theGovernmentwillconsidersettingupitsownmechanismtoprovidethepublic

withmorechoicesofhealthinsuranceplans.

31. For the implementationof theHPS, there is aneed forprivatehealthcare

providers toprovideservices thatmeet therequirementsunder theHPS,especially

healthcare services atpackaged charging. To this end, fornewprivatehospital

developments at the fourpiecesof landearmarked for such,we shalldesign the

developmentrequirementstakingintoaccounttheneedtosupporttheHPS, including

servicescope,pricetransparency,andtherequirementtoprovideservicesatpackaged

charges. Wewill alsoexploreways to facilitate localprivatehospitals toprovide

healthcareservicesatpackagedcharginginaccordancewiththeHPSthroughproviding

ofnecessaryinfrastructuralsupport.

32. Tosafeguardconsumer interests,aproposedrequirementunder theHPS is

forprivatehealth insurersparticipating in theHPSandprivatehealthcareproviders

providingservicestotheinsuredundertheHPS(includingprivatehospitalsandtheir

engagedorassociateddoctors) toparticipate inahealth insurance claims arbitration mechanism tohandledisagreementsbetweenpatients,private insurersand/orprivatehealthcareprovidersoverhealthinsuranceclaims. Thearbitrationmechanismwillbe

regulatedby theGovernmentwithaviewtomaintaining impartialityandensuring

consumerprotectionintheprivatehealthinsuranceandhealthcareservicemarkets.

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Supervisory Structure

33. Tosuperviseeffectivelythe implementationandoperationof theHPSandto

monitor theachievementof theobjectivesof theHPS in theprivatehealth insurance

andprivatehealthcaremarketsinHongKong,weproposeasupervisorystructurewith

separateagenciestoperformthefollowingessentialfunctions–

(a)  Prudential regulation:theOfficeoftheCommissionerofInsurancewillcontinuetoservethefunctionsof theprudentialregulator tosupervise, interalia, the

financialsoundnessof insurersparticipating in theHPSandtoensure their

financialcapabilitytodischargeobligationstotheinsured,andtooverseeany

complainthandlingmechanismsapplicabletoinsuranceingeneral.

(b)  Quality assurance: theDepartmentofHealthwillbestrengthenedin itsroleas the regulatoryand licensingauthority forprivatehospitals to serve the

functionsofqualityassurance,includingtoenforcetheregulatoryrequirements

andlicensingconditions, tosupervisethequalityandstandardofhealthcare

servicesprovided,tooverseehospitalaccreditationandclinicalaudits,tocollect

servicestatisticsandbenchmarkinginformation,andtoadministerotherquality

assurancemeasures.Theprofessionalregulationofhealthcareprofessionalswill

continuetorestwiththerelevantstatutoryboardsandcouncils.

(c)  Scheme supervision:anewdedicatedagencyisproposedtobeestablishedtosupervisetheimplementationandoperationoftheHPS, includingregistering

health insuranceplans,administering theHPScorerequirements,collecting

informationandstatisticsaboutprivatehealth insuranceplans, compiling

benchmarkinginformationandservicestatisticsofprivatehealthcareservices,

compilingnecessarypricingandcostinginformationofprivatehealthcareunder

theHPS,andadministeringmechanismsforconsumerprotectionspecifictothe

HPSincludingclaimsarbitration,complainthandlingandcasereview.

34. Legislative changewillbe required to support the implementationof the

abovesupervisorystructureandfunctions. Wewillexamine thedetailed legislative

requirementswhenfinalizingtheHPSproposalforimplementationafterconsultation.

We Need Your Views

35. Weareconsultingthepubliconourproposals to introduce theHPSandwe

wouldappreciateyourviews. Yoursupportandviewsareimportantforustofindout

thebestwayforward.Pleasesendyourviewsonthisconsultationdocumenttousonor

before7January2011throughthecontactbelow.

Address: Food and Health Bureau 19/F Murray Building Garden Road Central, Hong Kong

Page xvi Executive Summary

Fax: (852) 2102 2525

e-mail: mychoice@fhb.gov.hk

Website: www.MyHealthMyChoice.gov.hk

36. Pleaseindicateifyoudonotwantyourviewstobepublishedorifyouwishto

remainanonymous. Unlessotherwisespecified,allresponseswillbetreatedaspublic

informationandmaybepublicizedinthefuture.