SCMP Saturday, December 23, 2000

Merge pensions and health care

For years, the Government has warned of increasing health-care costs. Public spending in this area could spiral upwards as the local population ages and increases in size.
As highlighted in the newly-released consultation paper Lifelong Investment in Health, income from fees covers only about 2.5 per cent of the Hospital Authority's recurrent operating expenses. So the Government spends a lot of money to top up the authority's budget. In the current financial year, the Government's recurrent allocation for health care amounts to $30.8 billion, or 14.7 per cent of its total recurrent spending.
To defuse the ticking time bomb of rising health-care costs, officials are pinning their hopes on the user-pays principle. This notion was pioneered locally by a team of consultants from Harvard University, who issued their conclusions and recommendations about Hong Kong's health-care system in April of last year.
But instead of accepting the Harvard report, officials have issued the latest consultation paper, which includes a trial "balloon" about a compulsory medical-savings scheme. Under this proposal, residents aged between 40 and 64 would be required to deposit between one and two per cent of their salaries into "health protection accounts".
Official projections suggest participants would have an average of $40,000 in their accounts at the age of 65, which could be used to pay for post-retirement medical care. The Government would cover any shortfall if an individual's medical fees exceeded the sum in his account. Unspent medical savings would be passed to surviving family members.
The Government's concern about soaring health-care costs is legitimate. Yet, some fundamental issues must be addressed before imposing measures with such far-reaching implications. The medical-savings scheme would complicate the SAR's simple system of taxation and is being proposed just as people are having to start contributing to the Mandatory Provident Fund (MPF) scheme, which took effect at the beginning of this month.
Low-income people enjoy subsidised housing, medical care and education, among other things, and the poorest of the poor qualify for the Comprehensive Social Security Assistance Scheme. Meanwhile, most middle-income people can only expect to benefit from public provisions for education and medical care.
As dissatisfaction with public schools grows, some of those who can afford to are sending their children to study abroad. Many are also choosing private doctors over public medical facilities, except in emergencies. Frustration among middle-income taxpayers would certainly grow if the Government was seen as taking away the few medical benefits this group does take advantage of.
Under the proposed medical-savings scheme - unlike under the Harvard report's "Medisage" proposal, which would have paid for long-term-care insurance - the people of Hong Kong would not be buying insurance coverage. Instead, the Government has said it would cover any medical costs exceeding the balance in an individual's health protection account. But the administration has yet to clarify how it could keep its word on this in the event of a prolonged period of fiscal deficit.
Indeed, the Government has not convinced the public that the costs involved in managing the medical-savings accounts would prove good value. To save on operating costs, the Government should consider merging the Mandatory Provident Fund (MPF) bureaucracy with the one needed to oversee the medical-savings scheme.
Under the MPF, employees and employers must each contribute an amount equivalent to five per cent of an employee's income, for a total contribution of 10 per cent. I propose that one-tenth of this be reallocated from the MPF to the medical-savings account. I think retirees would feel more comfortable having relatively better medical coverage rather than relatively bigger provident funds. Furthermore, instead of starting contributions to the medical-savings scheme at age 40, start them when a school leaver gets his first job. The medical savings would be significant after three or four decades, and the arrangement would be consistent with existing MPF practice.
Asking members of the public to make a further contribution on top of the MPF is a political non-starter. Using part of existing provident funds to meet expected medical needs might be the only viable solution.
Albert Cheng King-Hon ( ) is a broadcaster and former publisher.