Ageing population and rising medical costs are challenges faced by all economically advanced countries and regions. Hong Kong is no exception. To maintain our existing healthcare service level, we must address the structural weaknesses in our current healthcare system promptly, in order to enhance the quality and efficiency of healthcare, reduce our reliance on hospital services, and ultimately improve the health of our citizens. Otherwise, quality healthcare services that we have long cherished will not be sustainable. In addition, increasing healthcare needs will most certainly affect our economy, weaken Hong Kong's competitiveness and reduce our investment in other areas of the society. In other words, the resources for other areas such as education or infrastructure may be reduced accordingly.

Reasons for the urgency:

Healthcare reform is a highly complex issue which involves many different aspirations, values and decisions of the society. One of the important considerations would be whether supplementary financing should be used for subsidizing healthcare for the whole population accessed through queuing and triage, or it should provide contributors with more and better choice to access healthcare more directly and readily. Given the far-reaching implications and the fact that it concerns every member of our society, we need to proceed cautiously and prudently at every step on the road of reform and act on the preference of the public. There is no absolute right or wrong on the direction of healthcare reform and supplementary financing arrangements. It hinges on the choice of the community. We intend to launch the consultation in two stages. In the first stage, we will consult the public on the concepts of the healthcare service reforms and the pros and cons of the various financing options. After considering the views obtained, we will formulate detailed reform proposals including supplementary financing arrangements and launch the second-stage consultation to further seek the views of the public.

The Hospital Authority (HA) has been adopting a number of measures over the years to balance its budget and enhance efficiency. There has been an average efficiency gain of about 1% within the public sector in the past. For the period between 2000-01 and 2005-06, public healthcare services have accumulated efficiency savings amounting to approximately 12% of their expenditure. HA will continue to review and improve the use of resources for greater efficiency and value-for-money. At the current level of health expenditure and services, the efficiency our public healthcare system compares favourably to those of many other advanced economies. However, our health expenditure will grow at a much faster rate than our economic growth. Thus the pressure on the public healthcare system caused by a rapidly ageing population and advances in medical technology cannot be eased by further efficiency enhancement alone. While we will continue to enhance both the efficiency and cost-effectiveness of our public healthcare services, we must face the reality that there is a need to seek supplementary financing to sustain our healthcare system.

The Government has pledged to increase the share of healthcare expenditure to 17% and draw $50 billion from the fiscal reserves to assist the implementation of healthcare reform. In addition, it is expected that in the coming 5 to 10 years, the overall healthcare service capacity in Hong Kong will increase by 10% to 20%. The challenge faced by our healthcare system is not one that can simply be met by building more hospitals. We need to enhance our primary care services and have healthcare professionals to help the public with disease prevention. We also need to promote public-private partnership in healthcare to enable patients to have greater autonomy and more choices in seeking healthcare services. All these are among our reform proposals in the current consultation exercise. At present, private hospital services are relatively expensive and not affordable to those uninsured. Also, under current practice, insurance premium will increase over time due to individuals' age and health conditions. If we can, through supplementary financing, find a way which can help the middle-income group use private hospital services at an affordable price, optimal utilisation of community resources can be achieved and the heavy burden on public healthcare services can be relieved. Those who need to rely on public healthcare services will also be benefited. The public healthcare system can continue to serve as an effective safety net for the community as a whole.

It is believed that many members of the public would appreciate the impressive standard of our healthcare services. The Hospital Authority has from time to time received letters of appreciation from dischargees commending the healthcare personnel for their professionalism. The healthcare reform is meant to identify a way to maintain the standard of our quality service in the face of rising medical costs and increasing healthcare needs due to rapidly ageing population. Indeed, we would also like to make our community healthier with lesser risk of falling ill through the enhancement of primary care and preventive care. The current consultation exercise also covers such issues as the expansion of primary healthcare services, and improvement on the collaboration between the public and private healthcare systems. The aim is to ensure that the community can continue to have a sustainable and reliable healthcare system and benefit from more comprehensive healthcare, more choice of services and better protection.

According to many overseas studies and experiences, the better developed the primary care system and preventive care, the healthier the public. The Government is thus determined to enhance primary healthcare services. This is one of the main directions of the healthcare reform. Supplementary healthcare financing is important because it can make available supplementary resources for our healthcare system and provide favourable conditions for the continuous improvements to our primary care services.

Primary healthcare is usually taken to mean the first point of contact individuals and the family have with a continuing healthcare process and constitutes the first level of care in the context of the healthcare system. It is the base upon which the rest of the healthcare system is organised. This point can be illustrated by reference to a match in which a team with a strong defence enabling any minor problems to be dealt with and remedied promptly has a bigger chance to win. Likewise, stronger primary healthcare results in better health of the population at lower cost and greater user satisfaction. For this reason, the Government is determined to enhance primary healthcare services. This is one of the main directions of the healthcare reform. Supplementary healthcare financing is important because it can make available sufficient supplementary resources for our healthcare system and provide favourable conditions for continuous improvements to our primary care services.

To enhance primary healthcare in Hong Kong, we propose to develop basic models for primary care services; establish a family doctor register; subsidise individuals for preventive care; strengthen public health functions; and improve public primary healthcare.

General practitioners, family medicine specialists and any other specialists can be family doctors if they provide comprehensive primary care services in accordance with the basic models. Specialists can provide both primary care and specialist care at the same time.

For continuous enhancement of the quality of primary care, we believe that doctors on the family doctor register must undergo continued professional training and medical education. Therefore, we recommend that training requirements and timeframes for compliance with such requirements be set for doctors to be included in the family doctor register.

The Government and healthcare professionals will be involved in the development of the basic models we have proposed for primary care services with an aim to provide a compendium of open information for reference by individuals and healthcare professionals so that they have a clear understanding of the most basic services, including preventive care services, which should be provided as primary care. These models are available for reference by all primary care providers.

Another proposal is to subsidise individuals to undertake basic preventive care services set out in the basic models. Since the provision of comprehensive primary care services relies on a long-term relationship between a patient and his/her family doctor, subsidies can only be given for preventive care provided by family doctors on the family doctor register.

No. There will be more room for collaboration between the public and private sectors in the future. This will allow healthcare professionals to have a choice or even allow a two-way flow of healthcare professionals between the two sectors, so that they can serve in both sectors at the same time. Our public healthcare system needs greater flexibility in allowing healthcare professionals with experience and expertise who provide services in the private market to serve the general public in the public sector.

Currently, there is significant public-private imbalance in our healthcare system with heavy reliance on public services and a lack of healthy competition between service providers of the two sectors. PPP offers greater choice of services for the community and helps promote healthy competition and collaboration between the public and private sectors. The purchase of healthcare services from the private sector by the Government is a cost-effective means to provide public healthcare services, while subsidizing individuals to use healthcare services in the private sector allows more members of the public to choose private healthcare services. Through these means of making better use of resources in our healthcare system, we can relieve the pressure on our public healthcare system and those who need to rely on public healthcare services can also benefit.

At present, the provision of healthcare services in Hong Kong is heavily relied on the public sector, with over 90% of in-patient services being provided by public hospitals under the Hospital Authority (HA). The public-private imbalance in the demand and supply of the service has impeded the collaboration and healthy competition between the public and private sectors, which would also limit the service choices for many members of the public.

To enhance the overall efficacy of our healthcare services, we plan to have greater collaboration between the public and private sectors through public-private partnership (PPP). One of the PPP models takes the form of procurement of services from private healthcare providers such as the Cataract Surgeries Programme currently implemented by the HA. Eligible patients participating in the Programme will be given a fixed subsidy of $5,000 for receiving cataract surgeries at private eye clinics. Patients may be required to co-pay no more than $8,000. Also, the HA is going to conduct a pilot project to procure general out-patient services from private doctors in Tin Shui Wai. If these projects are proven to be successful, procurement of more healthcare services from private doctors and hospitals may be considered.

We will also explore the feasibility of other PPP models such as the introduction of PPP in hospital development. Pursuing PPP in hospital development will not only enable optimal utilisation of land but also make room for shard use of facilities and equipment, thereby maximising the use of resources and bringing about a reduction in costs.

We are also actively studying the establishment of multi-partite medical centres of excellence in paediatrics and neuroscience. The idea behind this initiative is to establish a medical centre to draw together top expertise of the relevant specialties from the public and private sectors and the academia to provide medical treatments for patients with complex illnesses. Such a medical centre would also provide a platform for cross-fertilisation of expertise between medical professionals and promote further advancement in the expertise of these specialties in Hong Kong.

Our long-term vision is to develop a territory?wide information system for healthcare professionals in both public and private sectors to enter, store and retrieve patients' medical records subject to authorisation by the patients. An electronic health record system will enhance continuity of care by allowing healthcare providers to have reference to a patient's whole medical history maintained in the system to achieve a more accurate diagnosis. Besides, access to comprehensive medical information of patients by healthcare providers can minimise duplication of investigations, which will be particularly of benefit to patients on referral. The privacy of patients will be duly protected. Without a patient's authorisation, no healthcare provider is allowed to access the patient's medical record in the system. Besides, any input, storage and retrieval of data will be recorded in the system for cross-checking purpose.

The Secretary for Food and Health has appointed a Steering Committee on Electronic Health Record Sharing to provide the steer, build consensus and gather expertise for the initiative. The Steering Committee has set up three working groups to specifically address the fundamental issues relating to the development of the electronic infrastructure including the protection of privacy.

We will uphold our long-established public healthcare principle, i.e. no one should be denied adequate healthcare through lack of means. The Government will remain the primary financing source for our healthcare system and continue to provide accessible and affordable public healthcare services for all. However, our ability to sustain the public healthcare safety net will inevitably be strained as a result of an ageing population and rising medical costs.

If we are able to introduce supplementary financing to provide additional resources for the healthcare system, and relieve the pressure on our public healthcare services, more resources can be devoted to strengthen our public healthcare safety net. For example, we may consider the introduction of a personal limit on healthcare expenses for chronic patients or patients struck by catastrophic illnesses requiring costly treatments, such that those whose healthcare expenses have exceeded the limit may receive additional financial assistance. We may also have the resources to strengthen the existing standard public medical services, for instance by incorporating drugs or treatments which have been proven effective into the scope of standard services or as subsidized items.

This reader is a CSSA recipient. Under the existing mechanism, CSSA recipients can be exempted from payment of fees for public healthcare services. Low-income people can also apply for a medical fee waiver and their applications will be approved as long as their household income and assets are lower than the prescribed level (i.e. passing a means test). Nevertheless, this medical fee waiver mechanism still lacks flexibility as patients with household income and assets over the prescribed level (i.e. failing to pass the means test) are not eligible for a waiver even if they require a long period of hospitalisation or need expensive treatment or medicine not covered in the standard services.

In the healthcare reform consultation currently underway, one of the issues to be explored concerns the enhancement of public healthcare safety net and this includes exploring the idea of "a personal limit on medical expenses", which involves the imposition of a limit on the level/amount of total annual medical expenditure incurred by a patient who use public services. If the medical expenditure of a patient exceeds the prescribed amount in one particular year, the patient is allowed to use medical services at a discounted rate or free of charge in the remaining period of that year. This measure can afford protection to those families which are able to meet general medical expenses and save them from financial ruin in the event that any of their family members unfortunately suffers from illnesses requiring costly treatment. Whether this measure will be put in place hinges on your views and please let us have yours on the proposal before the consultation ends.

If the current healthcare system remains unchanged, and the Government will have to face ever increasing public health expenditure, the following situations may arise:

A large budget surplus does not happen every year, and there is no guarantee that the surplus situation will continue. Past experience has already shown us that the financial situation of the Government changes according to the economy. A one-off budget surplus is not something that can be relied on to meet recurrent healthcare expenses.

The challenges faced by our healthcare system now cannot be simply resolved by a short-term increase in funding for public healthcare services. In addition to increasing the resources for the healthcare system, we also need to undertake reforms on healthcare services. For example, we should allocate more resources to enhance primary care for improving the health of our community; we should promote public-private partnership and develop electronic health record sharing so as to provide the community with more choices and greater autonomy, thus realizing the concept of "money following patients". We should also strengthen the existing public healthcare safety net. These are necessary to fulfil our vision for healthcare reform. We need a stable and sustainable financing source in order to carry on healthcare reform, to improve healthcare services and to enhance the health of the community for the long term. It is therefore necessary for us to introduce supplementary healthcare financing (a source of healthcare funding other than taxation).

Hong Kong currently has a robust economy and a strong fiscal position. It is the best time for the Government to work together with the community to prepare for our future, introduce healthcare reform, and lay a solid foundation for quality healthcare services for every one of us and our future generations.

The Chief Executive has pledged to increase recurrent government expenditure for health and medical services from 15% at present to 17% in 2011-12. Based on Hong Kong's current economic situation and the Government's financial position, we estimate that this will represent an increase in annual recurrent expenditure of about $10 billion. The Financial Secretary has also committed to draw $50 billion from the fiscal reserve to assist the implementation of healthcare reform when the supplementary financing arrangement has been finalised after consultation. These clearly demonstrate the Government's commitment to shoulder the responsibility for healthcare financing together with the community.

In any event, the Government will continue to be the major pillar for financing our healthcare system. The Government will continue to uphold its long-established public healthcare policy that no one should be denied adequate healthcare through lack of means. The public healthcare system will also remain, as at present, a safety net for the whole population, in particular the low-income and under-privileged groups.

However, even with increased government commitment on healthcare, we still cannot surmount the challenges posed by an ageing population and rising medical costs. The ratio of the working-age population to the elderly population is 6:1 at present, but will drastically decrease to 5:1 in 10 years' time and 3:1 in 20 years' time. Meanwhile, due to our ageing population and the use of more advanced medical technology, our total public health expenditure is projected to increase from about $38 billion to some $127 billion. Therefore, we need the whole community to work together, to build a consensus, to undertake healthcare reform and to introduce supplementary healthcare financing. If we can come to a supplementary financing model, the Government will examine how to provide financial incentives to contributors of the supplementary financing scheme, e.g. tax deduction, start-up capital or other forms of direct subsidy.

At the first stage consultation, we would like to listen to the views of the public on the concepts of the healthcare reform, as well as the pros and cons of the supplementary healthcare financing options. At this stage, we are open-minded on who should contribute to supplementary financing. After collecting and consolidating public views, we will formulate more concrete proposals on supplementary healthcare financing arrangements for launching the next stage of consultation. In any event, the Government is committed to shouldering the responsibility for healthcare financing together with the community.

We do not have any concrete proposals on the details of any of the financing option in this first-stage public consultation exercise. The level of contribution would very much depend on the design of the supplementary healthcare financing option, the number of participants and their affordability. However, in studying various supplementary healthcare financing options, we have for illustrative purpose made an assumption that the contribution rate would be around 3-5% of the participant's income subject to an upper limit on the level of contribution. This is out of the consideration that too low a contribution rate would not be administratively cost-effective, and would not bring about substantial supplementary financing. A 3-5% contribution rate by the working population would provide a substantial amount of supplementary financing that can help meet increasing healthcare needs. This, coupled with the reform of the healthcare market and service structure, should make the increase in future healthcare needs and expenditure a less unbearable burden, thus enhancing the sustainability of our healthcare system substantially.

We certainly hope that everyone is in good health and free from illnesses. However, nobody can foresee whether and when they will need healthcare. Furthermore, healthcare reform covers not only public healthcare services, but also the whole healthcare system. Different supplementary healthcare financing options will have different impacts on those who use the services provided in the private market.

In the discussion of supplementary financing, the community should consider not only what kind of healthcare protection would suit them best, but also whether it can promote the sustainability of the overall healthcare system and maintain high quality services. Setting up a contributory social health insurance, establishing individual medical savings accounts, or taking out suitable health insurance are all different means of preparing for the future.

Above all, healthcare reform concerns every one of us. We need to work with the community to take it forward.

The Government welcomes members of the public to express views on the healthcare reform consultation document and discussions are not confined to the six proposed supplementary financing options. The Government is open-minded on the concerned options and any different views and any proposals apart from the six proposed options or any combination are welcome.

The ongoing consultation is the first part of the two-stage consultation exercise. We hope to first seek the views of the public and know more about their preferences in order to build a consensus on an option acceptable to the public and best-suited to the circumstances of Hong Kong. Pending views collected and narrowing down the areas of discussions, we would work out the concrete proposals on the most favoured supplementary financing option for the second stage consultation. The next stage of consultation is expected to be launched next year and the public will be consulted on issues related to operation mode of the option, administrative structure and how to regulate before coming to a decision.

According to the statistics of the World Health Organization (WHO), our life expectancy ranks among the highest in the world. The average life expectancy is 79 years for males and 85 years for females. Longevity and health are what we long for and they are also the prerequisites for a fruitful life. As revealed by statistical data, there will be a significant increase in the proportion of elders in our population in the coming two decades, and the elderly population has greater healthcare needs than the youth population. Past experience of Hong Kong and from around the globe all point to the fact that advances in medical technology will result in rising medical costs and that an ageing population will bring pressure on our healthcare system. We need to seek stable and sustainable funding resources to maintain our healthcare service quality. A tax hike will not only add to the burden of our future taxpayers without offering more choices to the public, but also erode Hong Kong's economic competitiveness. Besides, this departs from the principle of small government and low tax regime which has along been the key of Hong Kong's success. In fact, whatever the source of funding is, be it taxation or other contributory scheme, it is in the end resources from the public. Therefore, the objective of discussion on supplementary healthcare financing is to identify ways to improve the use of public resources for greater efficiency and better value for money as well as providing the public with more comprehensive healthcare with more choices of services and better protection to improve the health outcomes of the whole community.

Each country or region has its own specific social and healthcare system. Hong Kong has been adhering to the principle of small government and simple tax regime. Our tax rate is relatively low in comparison with many other advanced economies where the tax rates are usually set at 20-30% or even 30-40% in addition to the sales tax. Our public health expenditure has all along been financed by government funding, which serves as a major funding source for our public hospitals. Currently, the cost of in-patient care per day per patient in our public hospitals is over $3,000 but patients only have to pay $100 with most of the cost being subsidised by the Government. However, our health expenditure will substantially increase as the result of rising medical costs and ageing population. If our health expenditure continues to be borne by the Government at such a high rate of subsidisation, either our tax rate has to be raised to a level much higher than that at present or the expenditures for other public services have to be cut. It is believed that none of these are what members of the public want to see. Besides, a tax hike alone may not be able to redress the current lack of emphasis on primary care in our primary healthcare and the imbalance between public and private healthcare services. It is not a sustainable option in the long term.

As an issue with widespread and far-reaching implications for the society, our healthcare reform proposes a range of improvements to our healthcare system in response to the aspirations of the general public. While the Government has pledged to increase the expenditure for medical and health services and piloted some reforms, we also need to address the problem of resources to enable the reform to be implemented on a long-term and sustainable basis. While we must listen to the views and preference of the general public on the issue of healthcare financing, there must also be thorough discussions before a consensus can be forged. Even if we have come to a decision, a rather long lead-in time may be required for implementation. According to our estimation based on the current trend of rapidly increasing health expenditure, though there will be no severe lack of healthcare resources during the current term Government, yet we should prepare for our future and avoid tackling problems only when they arise. In view of the fact that the fiscal position of the Government is relatively stable, coupled with the fact that the Financial Secretary has pledged to draw $50 billion from our fiscal reserves to assist the implementation of healthcare reform, we are now in a better position to launch the healthcare reform. We should grasp this opportunity and identify as early as possible ways of introducing continuous improvements to our healthcare services and providing better services for the public.

The introduction of social health insurance is tantamount to introduction of a new broad-based tax with the tax revenue to be solely used on healthcare services for the whole population. As a relatively stable funding source, it can provide substantial financing for the healthcare system. It also further strengthens the mechanism of seeking healthcare funding according to income level, under the current tax-funded healthcare system. Nevertheless, social health insurance incurs additional administration costs as the Government needs to put in place a new mechanism for the collection of social security levy and administer the operation of the scheme. The implementation of social health insurance will also likely cause an increase in utilisation, or even encourage the tendency to overuse, because healthcare services will remain highly subsidized and will be coupled with less restrictions on utilization including the option to use private healthcare services. In the long run, an ageing population, shrinking workforce and increased utilisation will cause the contribution rate to rise.

The consultation paper has listed increasing user fees for public healthcare services as one of the supplementary financing options. However, relying solely on a significant increase in fees for public healthcare services cannot resolve the financing problem, and will not be conducive to the implementation of healthcare service reform.

The objective of MSA is different from that of the Mandatory Provident Fund (MPF). The MPF is for accumulation of savings and investment returns at a young age to provide one with better livelihood protection after retirement. Therefore, MPF participants can retrieve their MPF contributions at the age of 65. Medical savings, on the other hand, are for healthcare and should be used only in times of illnesses. They will go to the holders' estate upon their death.

In general, people are relatively healthier with less risk of falling ill when they are young, and most people need more healthcare in their elderly years. We may consider imposing certain restrictions on the use of medical savings, i.e. the savings will normally be available for healthcare use only after retirement, except for some specific catastrophic illnesses, so as to allow the accumulation of savings to accrue investment returns to meet healthcare needs at an old age.

All the healthcare financing options are supplementary financing options. Rest assured that government funding will continue to be the primary funding source for the healthcare system, and the public healthcare system will continue to be the healthcare safety net and take care of those who cannot afford healthcare expenses. This will ensure their access to appropriate healthcare.

If MSA is introduced, a feasible way of managing the savings is to take reference from the existing MPF arrangements. Contributors can have investment options.

Under voluntary private health insurance schemes, the high-risk groups such as the elderly and chronic patients have to pay very costly premiums. Insurers have no guarantee on the number of people who will get insured. There is also a tendency for those who are more likely to make insurance claims to buy insurance. Underwriting is relatively costly. All these factors will lead to costly premiums and make voluntary health insurances less appealing. At present, most voluntary insurance plans do not cover pre-existing medical conditions, and there is no guarantee of continuity. It is also very likely for the premium rate to escalate after claims have been made at times of illnesses. In general, it is very difficult for the high-risk groups to get insured or stay insured.

While voluntary health insurance currently available in the market allows individuals greater flexibility in taking out insurance of their own choices, it still has a number of limitations. In most cases, for instance, no coverage will be provided for pre-existing medical conditions. It is also likely that individuals have to pay a premium surcharge when they fall ill and the insurance premium will usually increase with age. As for mandatory health insurance, the scope of its coverage and the insurance terms can be brought under regulation by the Government by way of legislation. With guaranteed large insured base and risk-pooling, a requirement can be made that pre-existing medical conditions should be covered by the insurance and participants are to be charged at the same premium rate regardless of age or health condition so that chronic patients and the elderly could get insured as well. Individuals can stay insured without having to pay extra premium even after they get older or are struck by illnesses. Mandatory health insurance would not incur costs for underwriting while its administration costs could be subject to regulation by way of legislation. Overseas experience (e.g. Switzerland) indicates that administration costs could be kept under 10% of the premium. In any event, no administration costs are avoidable in any financing options including insurance.

If mandatory health insurance is implemented in future, transitional or exemption arrangements will be made for those who have already been insured. For instance, for those who have purchased health insurance, they don't need to buy another one if their insurance plans meet the basic benefit coverage required under the mandatory health insurance. Individuals may purchase top-up insurance on their own on top of the basic coverage provided by the mandatory insurance to meet their own needs.

Unlike voluntary health insurance, mandatory health insurance will be regulated by the Government, and participants will enjoy the benefits of a flat-rate premium, guaranteed renewal, portability between employment and continuity beyond retirement age. In other words, the insurers cannot charge any additional premium or terminate any insurance policies as the participants get older or if illnesses occur to them. As mandatory health insurance is able to ensure effective risk sharing and reduce insurance cost (e.g. the cost of underwriting), the premium is generally lower than that of voluntary health insurance, and participants can contribute the same amount of premium in return for a wider coverage.

In future, if mandatory health insurance is to be introduced, we will put in place a mechanism to allow for transition of the health insurance schemes provided by employers for their employees to the mandatory one. If the terms of the medical benefit schemes currently provided by employers for their employees are better than the mandatory one, exemption or other transitional arrangements can be considered so that employees can continue to enjoy the protection without having to take out another insurance. At present, health insurance has become a kind of benefit provided by many employers to attract and retain employees. We believe that employers will continue to provide such benefit if they want to maintain the competitiveness of their employment terms.

Unlike the voluntary one, mandatory health insurance will be regulated by the Government and the premium will not be drastically increased as a result of an individual employee having contracted a serious or catastrophic illness. Employees can stay insured with the payment of a flat-rate premium even after resignation, changing jobs, or retirement.

If mandatory private medical insurance is to be introduced, we can explore the feasibility of putting in place a transitional mechanism for those who have already taken out voluntary health insurance themselves, or for employers who have provided medical insurance for their employees, so that they may migrate their existing insurance schemes to the mandatory private health insurance scheme regulated by the Government. Generally speaking, the terms under mandatory private health insurance should be more favourable to the insured and the premium should be lower. However, if there are existing insurance schemes, including those taken out by employers to provide medical benefits to their employees that provide better terms than the mandatory one, exemption or other transitional arrangements can be considered.

Mandatory private health insurance can guarantee a sufficiently large insured base, which allows the risks to be effectively shared out among the insured population, thereby lowering the average premium. In addition, the Government can regulate the terms of such insurance to ensure that insurance companies must accept any application for insurance and charge the same premium for all participants regardless of their age and medical history. This will enable even the elderly or high-risk groups to get insured and will also provide guaranteed renewal and portability between employments. All these are currently lacking under voluntary private health insurance. Thus mandatory private health insurance offers better overall protection to the insured population.

While the premium rate of voluntary health insurance will go up as the age, risks and utilisation of an insured increases, that of mandatory health insurance will increase with an older age profile and increased utilisation of the whole insured pool (instead of individual participants). However, mandatory health insurance will be subject to the Government's regulation and can ensure effective risk-pooling. An appropriate mechanism can be put in place to control the over-use or over-supply of services and minimise the risk of rising premium caused by increased utilisation, thereby relieving the pressure of premium increases. Moreover, given that risk-sharing is achieved by way of charging a flat premium rate, individual participants of mandatory health insurance will be subject to a smaller increase of premium rate than that of voluntary health insurance as they get older.

Health insurance serves to provide the insured with healthcare protection and enables them to have insurance coverage for costly healthcare services as and when such protection is required. Apart from taking out health insurance, one of the ways to provide continued healthcare protection to individuals is to require them to save part of their income to meet future healthcare expenses, especially their personal healthcare expenses after retirement (including insurance premiums). This can not only afford protection to the working population, but also provide a reserve funding for individuals to enjoy continued healthcare protection after retirement.

The coverage of mandatory health insurance will be set to meet the needs of the general public as a whole. In the consultation document, we propose several options of insurance coverage for consideration, including (1) in-patient and specialist out-patient services and long-term medications; (2) in-patient services and long-term medications; (3) in-patient services; and (4) catastrophic illnesses. We do not suggest the inclusion of general out-patient services in the coverage of mandatory health insurance as such services are affordable to the general public. The public can also purchase top-up insurance (say, for better amenities, higher benefit limits, and other services such as out-patient services and dental service) according to their needs and affordability.

The public healthcare system will, as always, remain to be the safety net for all. In implementing a mandatory health insurance scheme or any option with mandatory insurance, consideration may be given to introducing a second safety net for those who have taken a greater share of responsibility for their own healthcare needs by making healthcare contributions but unfortunately exhausted their insurance due to complex illnesses. Under the second safety net, these patients can access private services provided by the public sector by just paying a certain percentage of co-payment without the need to pay the full cost. All these are additional protection for the insured. Even if the insurance coverage is not sufficient enough, the public healthcare system can always be the back-up.

The number of Hong Kong people who have voluntarily taken out health insurance is not small but still not all Hong Kong people have taken one. As information reveals, only one in eight persons receiving public or private healthcare services had his/her healthcare expenses paid by health insurance. For those who had their healthcare expenses paid by health insurance, 60% of them had their healthcare expenses paid by employer-provided health insurance while the other 40% had their healthcare expenses paid by individually-purchased health insurance. We put forth the option of statutory health insurance for consideration in the hope that all employees are able to get insured. The premium of statutory health insurance will be charged at a flat rate which is lower than that of private health insurance, and all the insured will pay the same basic premium irrespective of their age, gender and health conditions.

For those who are currently protected by individually-purchased or employer-provided health insurance, they are certainly allowed to keep their original insurance plan or switch to the statutory insurance scheme. They do not need to have double insurance.

According to a Government-commissioned actuarial study conducted by a consultancy firm, if a statutory health insurance scheme is to be launched in 2011 with the working population aged 18-64 earning a monthly income of $15,000 or above as participants and an insurance coverage of specialist out-patient services, in-patient services and long-term medications for chronic illness, and assuming that 80% of the claims (for private in-patient services at the general ward level) are within the benefit limits of the insurance scheme, then the monthly premium to be charged will be $300. If retirees who have joined the statutory health insurance scheme before retirement are allowed to stay insured at the same basic premium, the monthly premium will be around $500 by 2023.

At present, for those who are protected by individually-purchased or employer-provided health insurance, they certainly may opt for keeping their existing insurance schemes if the coverage of these schemes meets the statutory requirements, or they may opt for migrating to the statutory insurance. They do not need to have double insurance. However, the benefits of a legislation-regulated health insurance scheme as mentioned above are only available in the context of mandatory insurance. If voluntary participation is to be maintained, the premium will be higher as the insured base may be relatively small while those who are willing to get insured may have higher health risks and the costs for underwriting and other insurance costs may be higher. For individual participants, the insurance premium they have to pay will increase to an unaffordable level as they get older or if they have been struck by severe illness or are suffering from chronic illness. All these problems cannot be tackled by tax concessions alone.

While the number of people who have voluntarily taken out health insurance is not small, there are only a small proportion of healthcare expenses paid by insurance. As information reveals, only one out of eight patients had their healthcare expenses paid by voluntary health insurance. For those who had their healthcare expenses paid by health insurance, 60% of them had their healthcare expenses paid by employer-provided health insurance while the other 40% had their healthcare expenses paid by individually-purchased health insurance. Of the premium paid by individual participants, less than 70% were used to pay for healthcare expenses while the other 30% were spent on administrative expenses, costs for underwriting (e.g. body check-up, examination of medical history, etc.) and other insurance costs or profits.

If legislation is introduced by the Government to regulate health insurance and require the high and middle income employees to take out health insurance, then with guaranteed number of participants and risk sharing, a flat premium rate can be charged and the costs for underwriting and substantial insurance costs an be saved. Hence, the premium will certainly be lower than that of voluntary private health insurance. Besides, participants can be charged the same basic premium rate regardless of their age, gender and health conditions. They can also stay insured when changing jobs. The low premium will be affordable to individuals who are temporarily out of work. Moreover, the statutory health insurance scheme will also allow individuals who have taken out insurance before retirement to stay insured at the same basic premium rate after retirement. However, the premium will still rise with an increasing age profile of the insured population.

Services which are heavily subsidised (such as public healthcare) or are to be paid by a third party (such as health insurance) are prone to abuse. Nevertheless, there are various ways to minimise such moral hazards if mandatory health insurance is to be implemented. For example, the scope of coverage can be limited to surgery and in-patient services, etc. This is because under normal circumstances, people who are healthy and happy will not seek in-patient service or unnecessary surgery for the sake of using the insurance benefits. This is similar to the case in which people having the protection of accident insurance do not want any accident occurring to them no matter how high the compensation is. For services which the insured are allowed to use at their choice and the utilisation of which can hardly be controlled, the insured will usually be required by the insurer to pay a certain amount of deductible for using these services in order to prevent abuse. This is similar to the use of deductible in motor vehicles insurance to prevent abuse by the insured in making their claims.

Currently, the administration cost of the Mandatory Provident Fund (MPF) is mainly comprised of charges for account management and fund investment and the fee charged in this regard is currently at the rate of 1-2.5% of the MPF contribution on average. On the other hand, the administration cost of private health insurance is comprised of the costs for underwriting for the insured (e.g. body check-up, examination of medical history, etc.), the costs for processing claims as well as other insurance costs and profits. If a legislation-regulated health insurance scheme is implemented in future, the costs for underwriting can be saved while the administration cost and other charges of the insurance scheme can be subjected to regulation. According to overseas experience, the administration cost of mandatory health insurance in Switzerland currently accounts for less than 10% of the insurance contribution and is much lower than that charged in other economies where voluntary health insurance is adopted such as the United States of America.

Many people like to use the fee charged by MPF management firms at 1-2% of the MPF contribution for comparison. Actually, it is not appropriate to do so because with an element of risk-sharing, health insurance allows insured patients to choose private services at any time they wish and this will give rise to a huge amount of claims required to be processed each year, resulting in higher administration cost. But for the MPF, what only needs to be done is the accumulation of the contributions of account holders and let them take back the contributions in one go when they have reached the age of 65. The fee charged under the MPF is used to cover the expenses arising from management of the contributors' accounts and their investment. The MPF serves to make provision for people's future retirement without any element of insurance. If the public opt for a statutory health insurance scheme to be implemented in future, the Government will ensure the transparency of the scheme and introduce legislation to regulate the premium level.

This reader's question probably refers to the sixth option in the consultation document, i.e. Personal Healthcare Reserve (PHR). This option comprises two components, namely savings and health insurance. Members of the working population are required to save a certain percentage of their income as contribution which will be deposited into their individual PHR account, from which a flat-rate premium for the mandatory health insurance will be deducted periodically. The remaining deposit will then be accumulated in the PHR account. Contributors can choose to use the savings to accrue investment return for subscribing health insurance after retirement, so as to secure continued healthcare protection in the event that they feel unwell and require in-patient care in future. They may also use the savings to pay for their healthcare expenses at old age. With both insurance and savings available, it remains possible for them to receive medical treatment in private ward of either private or public hospitals at their choice even when they are at old age.