At first blush, Vietnam’s socialized healthcare system looks hale and hearty, a key measure of the ruling Communist Party’s ability to deliver crucial public goods. But underneath the surface, shifting demographics and financial woes signal ill health ahead.

The majority of Vietnamese have access to state-subsidized national health insurance, unlike many of the world’s wealthiest nations. Average life expectancy in the communist nation is 76 years, only two years shorter than in the United States.

Many Vietnamese, moreover, have accumulated enough wealth during several years of fast economic growth to put aside funds for private insurance that affords better health care than is generally provided through public schemes.

Though the percentage who have private insurance is small, revenue in the sector was worth around US$5 billion last year, a whopping 24% increase from 2017. The Insurance Association of Vietnam, an industry body, recently said that it expects the market to grow 25% this year.

Still, Vietnam’s healthcare system suffers from various maladies. Despite state efforts in recent years to expand the Vietnam Social Security (VSS) public insurance scheme, as of the end of last year some 13% of the population, or more than 10 million people, were uninsured.

The Vietnam Public Expenditure Review, an annual World Bank report, found that about two million people are pushed into poverty every year because of unexpected healthcare costs, a problem affecting mainly those without insurance.

The government now aims to increase health insurance rates to close to 88% this year, but critics say it isn’t reaching those who need it fast enough.

Vietnam’s population is greying, and while the issue isn’t as stark as in fast-aging societies like Thailand or Japan, the percentage of over 60s is set to jump to 21% of the population in 2040, up from 12% today. While Vietnam’s median age is currently a youthful 26, the nation is simultaneously aging at one of Asia’s fastest rates.

An International Monetary Fund (IMF) report last year argued that “Vietnam is at risk of growing old before it grows rich.” Indeed, when Vietnam’s working age population, or the number of people aged 15 to 64, reached its demographic peak in 2013, annual gross domestic product (GDP) per capita was just over US$5,000.

South Korea and Japan, by comparison, reached this peak demographic when their average incomes were $32,000 and $31,000, respectively. Vietnam is not even close to that income growth trajectory: the government projects GDP-per-capita won’t reach $10,000 until 2035.

Meanwhile, caring for Vietnam’s elderly will be particularly costly, not least because the nation now has the second-highest life expectancy in Southeast Asia.

At present, only 30% of over-60s receive a state pension and less than 10% have any savings, news reports say. The latter figure might improve as incomes rise, but if the former is to get better it will certainly cost the government billions of dollars.

The IMF predicts that pension costs, at the present rate, could raise government spending as a share of GDP by eight percentage points by 2050, faster than in any of the other 12 Asian countries surveyed in the IMF’s report, media reported.

All of this might sound like fear-mongering about a future problem that may never materialize with forward-looking central planning.

After all, Vietnam’s economy is growing at one of the highest rates in Asia at about 7% annually and it doesn’t look to slow significantly anytime soon.

At the same time, the government is showing signs that it doesn’t want to foot the entire fast-rising bill, even before the demographic shift from young to old starts to eat more significantly into state coffers.

The VSS public insurance scheme has been in dire financial straits for years. The fund, which covers some medical costs, retirement, maternity and unemployment, could run into deficit by 2021, economists warn.

To stay afloat, it will likely have to up significantly the amount of dues that are paid by employees and businesses in the coming years, they say.

More importantly, despite government rhetoric on providing universal welfare, state expenditure on healthcare has actually fallen over the past three years. In 2018, the government’s budget only allocated US$137 million to hospitals, a smaller amount than in 2017, according to local media reports.

The reason: the government is running out of money and needs to tighten its belt. Both the fiscal deficit and share of public debt-to-GDP have been rising in recent years, to such an extent that the government has imposed many severe austerity measures.

The Communist Party has set a public debt ceiling of 65% of GDP figure, and shows signs of sticking to this goal. At the end of 2018, public debt was $134 billion, or about 61% of GDP, a reduction of 2.3 percentage points from 2017.

But in an attempt to waive its responsibilities for healthcare costs, the government has pushed a policy of “autonomization” for the sector, putting the burden on public hospitals to increase their revenues.

Although the policy was first launched in 2002, when a government decree provided healthcare facilities with greater autonomy, analysts say it has been more intensely promoted in recent years.

Nguyen Nam Lien, director of the Planning and Finance Department under the Ministry of Health (MoH), said this month that 160 public hospitals completely controlled their own expenditures and revenue as of the end of 2018, while another 1,364 hospitals control about 90% of their finances.

On paper, this means less bureaucracy and greater control by doctors and practitioners, who arguably know better than the apparatchiks in Hanoi about how the money should be distributed and spent.

But while the government claims the policy improves the ability of public hospitals to meet their patients’ demands, critics say it actually diminishes the quality of services, as hospitals prioritize wealthier patients over the poor.

It has also steered public hospitals towards more profit-seeking, an issue that will become more acute if state expenditure on healthcare continues to diminish.

One government decree states that if public hospitals want to purchase new medical equipment or expand their facilities, they must seek investors and follow procedures just like a private business. It’s a move that critics say often prevents hospitals from getting the modern equipment they need because it’s deemed as too expensive.

Minh Thi Hai Vo, a PhD graduate in public policy at Victoria University in Wellington, New Zealand, wrote in recent paper that “Communist elites have thus instituted autonomisation as a strategy to reduce – and progressively remove – the state subsidy for healthcare services.”

She claims that public hospitals are now induced to engage in “unethical revenue-maximizing practices.”

Sections of public wards are now given over to higher-paying patients, who are happy to fork out for the extra comfort, while costly high-tech equipment is being used unnecessarily so that patients can be billed, she claims.

Hospitals are also unnecessarily increasing the length of time patients have to stay or overprescribing medication, all designed to bump up patients’ fees and the hospitals’ revenues.

All of this adds to the outlays of the VSS public insurance scheme, increasing the risk it runs up deficits it won’t be able to afford in the years ahead.

Moreover, hospital-level bribes are becoming more habitual, a problem that is unlikely to be cured any time soon considering that Vietnam already has one of the highest rates in Asia for petty corruption.

“Arguably, these practices are a manifestation of the distortion and abuse in the healthcare industry,” Minh Vo writes. “It sees some rent-seeking health professionals trying to squeeze as many out-of-pocket payments from service users as possible,” Minh Vo writes.

The government has admitted some faults. Recent inspections by the Ministry of Health also found that doctors were prescribing unnecessary treatments or urging patients to stay excessive amounts of time in hospitals.

The ministry’s solution to the problem, it seems, is to improve administrative processes at hospitals, engage in more inspections to deter malpractice and better educate patients.

Yet given the government’s patent inability to curb petty corruption, from police bribes to “payments” to secure positions at the best schools, it will be an uphill and likely fruitless struggle, analysts say.

Minh Vo, for one, says that the government should start to think of “healthcare services and their contributions to economic growth – they must be regarded as an investment for greater development, not as an economic burden.”

By David Hutt - Asia Times - January 28, 2019