In this essay I discuss the cost of financing public health care inHong Kongassuming the present health care system remains largely unchanged. I shall make some simple projections of the public cost involved, interpret the results, and discuss the consequences. Public health care services have declined and I believe the main reason has been the low supply of health care manpower, mainly doctors and nurses.  IfHong Kongfails to increase the supply of doctors and nurses then the cost of attracting and retaining them into the public sector will certainly rise, and this will add further burden to the already growing total public health care expenditures.   I believe it is necessary and desirable to import more doctors and nurses into the public health care services. In the area of nurses the shortage is even more acute and it would be necessary to contemplate more aggressive policy measures.


The cost of health care depends critically on the size and age structure of the population. Table 1 presents figures on the average health care expenses per 1,000 population in the period 2009-11. Health care expenditures increase rapidly after age 65 and especially after age 75.


Table 1: Hospital Authority Health Care Cost per 1,000 population ($ mn)




Age below 15



Age 15-64



Age 65-74



Age 75 & above







By applying these figures to other periods, we can estimate the hypothetical “constant cost” of health care funding that is required to support the Hospital Authority in the past and into the future. This is a useful exercise because we can compare it with actual expenditure and also apply it to the projected future make-up of the population to estimate how much health care funding may cost us in future.


Rising Unit Cost of Health Care Manpower


In Figure 1 we plot the “constant cost” health care funding for the Hospital Authority backwards to 1992/93, based on 2009-11 costs. This exercise shows that the “constant cost” of health care funding has increased over the past two decades at an annual real rate of about 2.1%, reflecting the growth and ageing of the population.


We also plot the actual expenditures of the Hospital Authority adjusted for consumer price inflation. These were initially significantly lower than the hypothetical “constant cost” of health care funding – almost 53% lower – reflecting an actual lower cost structure. The gap narrowed over time as funded expenditures began to rise rapidly and by 2000/01, had caught up with the 2009-11 cost structure.


This was the best period in the history of the Hospital Authority. It was widely recognized that service quality improved during this period and an important contributing factor was probably more generous funding. However, since then the cost structure has remained largely unchanged except to catch up with consumer price inflation, with negative consequences for the service quality of health care services.


The “true constant cost” required to support the same quality of health care services should have risen faster than consumer price inflation, driven by the fact that about 85% of the cost structure is related to human resources and health care personnel costs have definitely risen faster than inflation. Moreover, medical equipment and capital costs have most likely also risen faster than consumer price inflation. Therefore, adjusting for the inflation rate alone would understate the increase in the “true constant cost” of same quality health care services from 1992/93 to 2010/11.


Admit More Overseas Students


Unfortunately, a good deflator for health care services is not available. But the fact that actual expenditures and hypothetical “constant cost” expenditures are almost the same suggest the quality and level of service delivered by the Hospital Authority since 2000/01 has most likely deteriorated. If not, then the staff of the Hospital Authority would deserve congratulations for achieving continuous productivity increases over an entire decade, which the facts do not bear out. The rising waiting times for certain services, reduced working hours of doctors, limited supply of doctors and nurses, and the reported loss of staff to the private sector suggest there have not been productivity gains. So we are left with the likely conclusion that services have deteriorated since funding has remained at the “constant cost” level.


Now let us look to the future. In Figure 2, I project the “constant cost” health care expenditures of the Hospital Authority to the year 2039, which is the final year for which the Census and Statistics Department has provided population projections. The “constant cost” is the baseline projection and it implies a continuous deterioration in the level and quality of service unless the cost of health care personnel rises only at the rate of consumer price inflation. This is of course unlikely. If we increase the supply of doctors and nurses more rapidly over time, the rate of increase in health care personnel costs may be moderated, but it will still rise faster than consumer price inflation.


I construct three scenarios to reflect different rates of cost increases above and beyond the baseline “constant cost” levels that may arrest the deterioration of service quality and levels. These are guesstimates since, as mentioned, a good deflator for public health care costs is not available. I assume that the annual rate of cost increase needed to arrest the deterioration of service quality and delivery in the Hospital Authority, will depend heavily on increasing the supply of doctors and nurses through foreign importation and local education-training. If we maintain the present levels of supply then the cost escalation will necessarily be faster. In the short run, foreign importation is the best available choice. In the long run increasing the number of university students admitted for training as doctors and nurses will be important. At the education-training stage, the recruitment of foreign students should also be enhanced, especially for nursing students. These three scenarios are outlined in Table 2. I regard these estimates as conservative estimates of the required increases in funding levels.


Table 2: Tradeoffs between Health Care Manpower and HA Expenditures


  Strategy to increase supply of doctors and nurses Annual % increase in HA expenditure above constant cost levels
Scenario 1 Aggressive initiative mainly through foreign importation and to a lesser extent local education-training


Scenario 2 Aggressive initiative based on a balanced approach of foreign importation and local education-training


Scenario 3 Moderate initiative based on a balanced approach to foreign importation and local education-training



The cost projections for these three scenarios are also shown in Figure 2. Scenario 3 would be approximately similar to the present plans to increase medical student intakes from 320 to 420 each year from 2012 and rely on modest increases in foreign doctors. With only a planned increase in nursing student intakes from 690 to 730 starting from 2012, the future manpower situation for nursing staff would still remain precarious under Scenario 3.


Declining Service Quality and Supply


A related and absolutely relevant question is whether we can afford such increases in expenditures. One useful comparison is to determine the share of Hospital Authority expenditures as a percentage of GDP from 2012 to 2039. In 2011 this was about 2.1% of GDP.


To estimate GDP up to 2039, I assume that the economy will grow continuously at levels prevailing in 2003-11 throughout the 2012-39 period. This is because the real GDP growth rate we experienced in the period 2003-11 is probably the maximum potential level we can attain given the productivity of our workforce and the low levels of unemployment in the economy. Unless we embark on an aggressive policy to attract highly skilled immigrants and returning migrants and invest heavily in higher education for our own young people, our future workforce is unlikely to be significantly better skilled than our present one. Therefore, I am inclined to believe that this rate of growth is likely to be an optimistic estimate.


Projections of GDP to the year 2039 are long term projections, which are sensitive to the changing age composition of the population. The larger the proportion of the population above retirement age and below working age, the smaller the proportion of the potential working population. I therefore use the growth rate of real GDP per working population during 2003-11 to provide a more stable forecast of the level of real GDP in 2039. Table 3 shows the average annual growth rates of real GDP, real GDP per capita, real GDP per working population, and population by age groups in different periods of time for comparison.


Table 3: Real GDP and Population (Annual Percentage Growth)






Real GDP





Real GDP per capita





Real GDP per working population





Working population





Elderly population Age 65+





Total population






Table 3 shows that the average rate of growth of real GDP per working population is 4.0% per annum in 2003-11. This rate is used to forecast the future growth of real GDP. It is interesting to note that the growth rates of real GDP and real GDP per capita are both lower in 2011-2039 compared with 2003-2011. This is because the growth rate of the working population is lower – 0.1% in 2011-2039 as against 1.0% in 2003-2011. As our population ages, the future growth of real GDP and particularly real GDP per capita will be adversely affected.


If real GDP were to grow at the average rate of 4.2%, an optimistic estimate, then the ratio of “constant cost” Hospital Authority expenditures to real GDP will decline over time, dropping eventually to about 1.2% in 2039 from the present ratio of 2.1%. At this level of funding we are basically keeping the cost unchanged at 2009-11 levels and only increasing funding to cover inflation and changes in the population structure (see Figure 3). Service quality and delivery will decline substantially because it will be unlikely to secure the additional health care staff required to meet a larger population/larger population requiring medical care.


If funding were to grow each year above the “constant cost” levels, then it may be possible to see some improvements in service quality and delivery. The level of funding will depend very much on how we recruit our health care manpower as outlined in the three scenarios above. The result will be that the ratio of the Hospital Authority expenditure will increase over time but the size of that increase will vary depending on the path chosen. By 2039, it could rise by 2.4%, 4.8% and 9.7% depending on whether the additional growth of funding is above 2%, 4% or 6%.


To keep health care costs from escalating as a share of GDP it is obviously necessary to significantly increase the supply of medical personnel. This is the basic guarantee for moderating the rising cost of health care. To arrest the declining quality and delivery of health care service and to restore it to its level in 2001/02 in the short and medium run, it is essential to have more doctors and nurses. This means increasing the level of funding of the Hospital Authority and recruiting foreign doctors.Singaporehas a list of 157 universities from 28 countries whose medical graduates are allowed to practice medicine in the city.


The Hospital Authority should recruit medical graduates from a list of overseas medical schools maintained by the Medical Council, perhaps with limited registration. It is not the business of the Medical Council to vet individual cases; this should be the job of the Hospital Authority. The Medical Council should not adopt the case by case approach of the Lands Department in dealing with land conversion premiums. A case by case approach is designed to limit supply even when there are many qualified candidates overseas, many of whom are actuallyHong Kongresidents who have been trained in some of the best medical schools in the world. One should adopt a rule based approach likeSingapore. The recruitment of nurses would be even more challenging. The supply is unlikely to keep up with demand growth inHong Kong. Yet nurses have to be able to speak the local language. A more considered approach to recruit students from across the border, particularly in the neighboring areas to be trained inHong Konghas to be a serious part of the solution.


Hong Kong’s rapidly ageing population will significantly increase the demand for health care services. Most of our health care services are delivered through the public sector. Funding the supply of health care requires more funding to be allocated to the public sector.  Unfortunately, are working population will not be growing rapidly, therefore, public money will not be in abundance. It is necessary to pursue a pro-active strategy to increaseHong Kong’s working population growth in general and the supply of health care personnel in particular. Training alone cannot be an adequate answer. Importing health care workers to supplement our supply likeSingaporedoes will no doubt be controversial and resisted. But do we still have a choice?

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