Do Rising Administration Costs Threaten Future Shifts to Private Health Insurance Risk-pooling in Hong Kong?

Abstract

Hong Kong has achieved good health outcomes at low cost (health care spending at 6.2% of GDP). However, Hong Kong’s tax-financed revenue pool accounted for only half of total health care expenditure (51.6%) in 2016/17. There is no mandatory health insurance scheme or specific health-related tax. Pooling through health insurance is limited to one-quarter of the population, with out-of-pocket payments (34% of total expenditure) well over the WHO recommended threshold of 20%. The insurance system is fragmented with many small pools that varies greatly in price and coverage. A government-regulated voluntary private health insurance scheme was established in 2019 to improve scheme quality and provide subsidies to incentivize uptake. Analysis of the Hong Kong domestic health accounts showed administration costs represented 5.7% (USD 1.09 billion) of total health care spending in 2016/17. Administration costs are substantial and were greater than spending on preventive care (2.7%) and long-term care (5.4%). Administration costs grew from 3.5% of private expenditure in 1989/90 to 9.9% in 2016/17; but fell from 2.7% to just 1.5% of public expenditure. The distribution of administration costs is skewed: voluntary health insurance plays a relatively minor role at 16.2% of total health expenditure in Hong Kong, yet it accounted for 86% of total administration costs. These costs represented 42% of total private insurance expenditure, compared to 17.8% in employer-based insurance schemes, and just 0.1% of household out-of-pocket expenditure. Administration costs are often overlooked when considering the efficiency of these health financing polices. The rapid growth of administration spend is concerning as future public funds are diverted to subsidize uptake of voluntary private insurance, with potential negative effects on efficiency and equity.