By: L.N. Reklai
KOROR, Palau — The Palau Health Care Fund (HCF), the nation’s medical insurance program, is sustaining itself largely through investment income, according to the latest report from the HCF Governing Committee. The report indicates that annual benefit payouts from both the National Health Insurance (NHI) and the Medical Savings Account (MSA) nearly match yearly contributions, with payouts exceeding contributions by more than $200,000 in the past year.
Investment earnings and government-subsidized NHI premiums for unemployed individuals over 60 have prevented the fund from dipping into its investments to cover the deficit. However, the fund remains vulnerable to market fluctuations and policy changes that could increase expenses without a corresponding rise in contributions.
Investment Volatility and Financial Trends
From 2010 to 2021, HCF investments performed well, but the fund experienced a significant downturn in 2022, recording a 21% decline and a net loss of $4.7 million. While the market improved slightly in 2023, HCF still reported a negative return of 2%. Last year, however, unaudited financial statements showed a strong recovery, with returns reaching 20.29%. These fluctuations highlight the program’s dependence on market performance and the importance of prudent investment strategies.
Meanwhile, the number of NHI members has declined from 17,000 in 2020 to 16,000 in 2024, a reduction of 740 members attributed to unemployment, death or relocation. The drop in membership has led to decreased contributions, further straining the fund.
Rising Medical Costs and Financial Viability
The cost of off-island medical referrals has steadily increased since the COVID-19 pandemic. While referral numbers have remained relatively stable—260 patients in 2019 compared to 264 in 2023—the total cost of treatment rose from $2.8 million in 2019 to $3.3 million in 2023.
The HCF report underscores that NHI remains financially viable only through investment income and government subsidies. Member premiums alone are insufficient to sustain the program, making any proposed benefit increases contingent on additional funding sources.
“What we need to understand is that the 2.5% contribution from employers toward health insurance premiums is the fixed amount we have,” President Surangel Whipps Jr. said. “If we want to expand benefits, we need to increase the amount of money coming in.”
Whipps suggested that discussions should take place regarding raising the contribution rate to 3% to support increased benefits, such as a proposal to raise the cancer coverage cap from the current $70,000. “We don’t want to create the same situation we now have with the pension system and Social Security Administration, which are nearing insolvency,” he added.
Additional Financial Pressures
HCF also faces additional financial challenges due to its management of the Medical Referral Program’s off-island operations, which were transferred from the Ministry of Health and Human Services in 2021. While the national government has appropriated funds to cover referral program expenses for fiscal years 2022 to 2024, funding for 2025 remains pending. The program, which operates medical referral houses in Hawaii, Taiwan and the Philippines, requires $728,980 in operating costs for 2025—an expense not covered by member contributions.
Future Plans and Structural Changes
To enhance services, the HCF Governing Board is seeking greater autonomy, proposing structural reforms that would separate the program from the Social Security Administration. Plans include expanding NHI to cover home health services, increasing pharmaceutical benefits, and improving diagnostic capabilities.
The report highlights the program’s financial vulnerabilities, stressing that any benefit expansions must consider funding sources.