The policy stream

In October 1997, Chief Executive Tung Chee-hwa announced in his inaugural policy address that the government would carry out a comprehensive review of the existing healthcare system in 1998 to draw up suitable long-term policies (Hong Kong Special Administrative Region Government 1997). In November 1997, the Health and Welfare Bureau commissioned a 15-member team of economists, public health specialists, physicians, and epidemiologists from Harvard University to provide a comprehensive assessment of the existing healthcare financing and delivery system and propose strategic options to improve the system (The Harvard Team 1999). Led by Professors William Hsiao and Winnie Yip, the Harvard Team received advice and guidance from the government-appointed Steering Committee consisting of government officials, professors, medical and business leaders (The Harvard Team 1999: 2). The Harvard Team and the Steering Committee met every six to eight weeks to discuss ‘issues confronting the current system, the objectives of the health care system, and viable reform options’ (The Harvard Team 1999: 2). The Harvard Team also received guidance and assistance from the Working Group whose members came from the Treasury, the Financial Services Bureau, the Health and Welfare Bureau, the Department of Health (DoH), and the HA (The Harvard Team 1999: ii). During its study, the Harvard Team obtained data by making use of local and overseas information already available, conducting surveys of residents, doctors, and patients, and consulting more than 200 people, including scholars, members from different political parties, representatives from healthcare professional groups and associations, insurance companies, major employers, and patients’ rights group (The Harvard Team 1999). In February 1999, the Harvard Team submitted the final report to the Health and Welfare Bureau. In April 1999, the 472-page Harvard consultancy report entitled Improving Hong Kong’s Health Care System: Why and For Whom? (hereafter the Harvard Report) was released for public consultation for three months.

The Harvard Report identified four major weaknesses in the existing healthcare system, including highly variable quality of care, the highly compartmentalized health care system, dominance by hospital-based services, and the questionable long-term financial sustainability (The Harvard Team 1999: 4-9). The Harvard Team pointed out that these weaknesses were the result of the policy of benign neglect adopted by the government, which only stepped in when a problem became serious and whose solutions failed to deal with interrelated concerns (The Harvard Team 1999: 8). This left Hong Kong without a coherent overall policy for organizing or financing healthcare (The Harvard Team 1999: 8). Regarding financial sustainability of the existing system, the Harvard Team forecasted that public health expenditures as a share of total public expenditures would increase from 14 percent in 1996/97 to about 22 percent by the year 2016 under status quo (The Harvard Team 1999: 74). However, the low tax and balanced budget requirements imposed by Hong Kong’s Basic Law meant that it was impossible to get extra financial resources through additional taxation (Cheung and Gu 2002: 43). In order to improve financial sustainability of the existing system, the Harvard Team identified five reform options based on the following guiding principle:

Every resident should have access to reasonable quality and affordable health care. The government assures this access through a system of shared responsibility between the government and residents where those who can afford to pay for health care should pay.

(The Harvard Team 1999: 9)

The guiding principle endorsed by the Harvard Team was different from the existing principle in several ways. First, unlike the existing principle that ensured the provision of adequate healthcare, the guiding principle focused on the provision of affordable healthcare with reasonable quality. Second, the guiding principle introduced the idea of shared responsibility. It meant that ‘the government did not expect to shoulder the complete costs itself’ (Gauld and Gould 2002: 128). Third, the guiding principle pointed out that residents who were more financially capable should pay for healthcare, which was different from the existing principle that healthcare would be provided for people regardless of their economic status. Based on the guiding principle, the Harvard Team identified the five reform options:

Option A: maintaining the status quo;

Option B: capping the government budget for healthcare;

Option C: raising user fees at public hospitals and clinics;

Option D: implementing a Health Security Plan (HSP) and Saving Accounts for Long-Term Care (MEDISAGE), a two-tier mandatory health insurance scheme which required both employers and employees to jointly contribute about 1.5 to 2 percent of employees’ wages to the HSP to pay inpatient and outpatient medical expenses, and 1 percent of employees’ wages to MEDISAGE to purchase long-term care insurance at the age of 65. The concept of‘money follows the patient’ was introduced by establishing the Health Security Fund, Inc. to pay a standard payment rate to the public or private healthcare provider chosen by a patient (The Harvard Team 1999: 13); and

Option E: competitive integrated system which adopted the HSP and MEDISAGE option and reorganized the HA into 12 to 18 regional Health Integrated Systems to provide preventive, primary, outpatient, and hospital care (The Harvard Team 1999: 92-112).

In the Harvard Report, the Harvard Team evaluated the five reform options against five specific objectives of reform: (1) maintaining and improving equity; (2) improving quality and efficiency; (3) improving financial sustainability; (4) meeting the future needs of the population; and (5) managing overall health expenditure inflation (The Harvard Team 1999: 91-2). To the Harvard Team, Option A should not be accepted because maintaining the status quo was neither organizationally nor financially sustainable in light of projected demographic or epidemiological changes (The Harvard Team 1999: 92). Option B should not be accepted because capping the government budget would inevitably lead to lower quality care and less access to public health services (The Harvard Team 1999: 11). Option C should not be accepted because raising user fees failed to improve efficiency and quality of care and led to the poor and sick facing a financial barrier to access healthcare (The Harvard Team 1999: 96-7). Based on the evaluation result, the Harvard Team concluded that only Option D and Option E should be accepted because they could meet all of the reform objectives. It recommended that Hong Kong adopt Option D in the interim, which would build the foundation for the adoption of Option E in the long run (The Harvard Team 1999: 17). The Harvard Team said that it heavily relied on international experience when developing reform options (The Harvard Team 1999: 10). It drew upon the experience of Singapore and Japan to develop Option D and the experience of the United Kingdom, the United States, Germany, and Australia to develop Option E (The Harvard Team 1999: 88-9). It was obvious that the Harvard Report, through recommending Option D and Option E, aimed to ‘alter the current funding concept to bring about a structural and a system change’ (The Legislative Council 1999).