Comparative Healthcare
Systems
And Health System Reform
November 11, 2006
(!!!!!!comparative healthcare systems
fall 2006.ppt)
Why study different systems?


First, many European countries have
constructed programs that predate U.S.
programs by decades. (There is a wide
variation in programs and experiences that is
worth discovering in and of itself.)
Second, the U.S. system has some huge
holes compared with the coverage in many
other systems.
Understanding the approaches used by
other countries may provide important
clues to assessing our own system.
Many industrialized countries either
provide:
 1. health care directly through the
government
 2.publicly funded health insurance with
comprehensive coverage.

Classifications of Health Care
Systems
1.
2.
Traditional sickness insurance:
fundamentally a private insurance
market approach with a state subsidy.
(Example: Germany)
National health insurance: a nationallevel health insurance system.
(Examples: Canada, Finland, Norway,
Spain, and Sweden.)
Classifications of Health Care
Systems (con.)
3. National health services: state provides the
health care. (Examples: Denmark, Greece,
Italy, New Zealand, Portugal, Turkey, and
the United Kingdom.)
4. Mixed systems: contain elements of both
traditional sickness insurance and national
health coverage. (Examples: Switzerland,
and the United States.)
The Countries Vary
Substantially from the US



Other countries (e.g., Denmark, France, Italy,
the Netherlands, and Switzerland) spend
larger percentages on inpatient care than
does the United States.
For 1998 the U.S. pharmaceutical
expenditures were among the lowest in
percentage terms among all of the countries.
Several countries have lower rates of infant
mortality (deaths per 1,000 live births) than
does the United States.
Several countries also have higher lifeexpectancies at birth.
 The United States has the largest
expenditure per capita ($5,267). It is
also the biggest spender as a share of
GDP.
 Such facts and concerns about access
to health care are some indicators
causing many to question whether
Americans are getting the biggest bang
for the buck.

Note: High expenditures may have
three potential meanings:
High average level of services
 High resource costs for services
 Inefficient provision of services

Keep these points in mind.

A high level of services could reflect the
possibility that populations have chosen
to spend their incomes in this fashion.
(Healthcare is a normal good)
THE UNITED KINGDOM-THE
NATIONAL HEALTH SERVICE



National Health Service (NHS) was
established in 1948 and provides health care
to all British residents.
It is financed largely (about 83%) through
general revenues, with the capital and current
budget filtering from the national level down
to the regional, and then to the district level.
Services are free to patients at the point of
use.
It pays general practitioners on a
capitation basis and hospital physicians
largely on a salaried basis.
 There is also a private sector health
system. (About 10 percent of Britons
purchase private health insurance.)
 Services are not entirely free.
--private hospital rooms extra
--small surcharge for drug prescriptions
filled outside the hospital.
--copayments: Dental care & eyeglasses

The general practitioner (GP) is the
gatekeeper to the health care system.
(GPs are not government employees.
Rather, they are self-employed and
receive about half their incomes from
capitation contracts.)
 approximately 35,000 GPs in 9,000
practices, servicing 90 % of all patients
 Consultants are specialists, and patients
must be referred to them by GPs.


(Spending per capita ($2,160) in the
United Kingdom in 2002 was just 41
percent of the United States level
($5,267) and a little more than half
when expressed as a ratio to GDP (7.7
percent as opposed to about 15
percent).
How does the United Kingdom keep
its health care expenditures this
much lower while providing
universal access to health care?

Though patients have relatively easy
access to primary and emergency care,
specialty care is rationed through long
waiting lists and a limit on the
availability of new technologies.
Performance Under the NHS
and More Recent Reforms


The effect of a system such as the NHS that
depends on queuing (waiting lists) for access
to care is often to postpone, or simply not
provide, certain services.
The NHS devotes considerable resources to
high-return services as prenatal and infant
care. To the populations served, and to the
larger public concerned with equitable
provision of care, the universal nature of the
service is beneficial.


Although the United Kingdom has spent
considerably less on health care than the
United States and many other countries, by
most measures of mortality and morbidity the
UK does about as well.
Certainly, many non-medical factors are
involved in determining disease and death
rates in a population, and these factors also
will vary across countries.
Despite universal access to care in the
United Kingdom, historically there have
been considerable regional disparities in
funding and in the use of health care.
 Evidence shows that upper-class
patients have received substantially
more care for a given illness than have
lower-class patients

Conclusion




The experience of the NHS in the area of cost
containment is fairly clear.
Rationed care cuts money costs, and even
with increased expenditures from the
healthcare reforms, total U.K. expenditures
are expected to be well below the European
Union and the United States.
45 million uninsured is a limitation of the US
system.
A wait list of 1 million is a short coming of UK
system.
GERMANY: Sickness Funds



The German health care system is based on
programs laid out by Bismarck in 1883.
Legislation required workers in various
occupations to enroll in sickness insurance
funds.
The basic approach of mandatory enrollment
in autonomous (independent) sickness funds,
financed by payroll taxes, lies at the heart of
the German social insurance program.
The German health care system is
characterized by the "three S's"- social
solidarity, subsidiarity (decentralization
to public and private organizations), and
self- governance.
 Social Solidarity: the sense that all
citizens are concerned with the provision
of equal access to health care. This is at
the heart of the German health system.

Structure of the German
System




All working persons must have health
insurance.
Costs are divided equally between employer
and employee.
Employees' shares collected as payroll taxes
at rates proportional to their gross wages.
(average contribution rate to sickness funds
in 2003 was 14.3 percent.)
Since the funding is based on wages, if wages
fail to grow at the same rate as costs of
health care, funding issues will arise.




Individuals with income beyond a given ceiling
may choose the private health system, which
handles from 10% of the population.
The social insurance component is organized
around about 292 localized sickness funds.
These funds are independent and selfregulating.
Funds pay providers directly for services
provided to their members at rates that they
negotiate with individual hospitals - 70% of
health spending.

It was not always possible for members
of the Statutory Health Insurance (SHI)
system to choose which sickness fund
they wished to join since membership
was determined by occupational status.
As part of reforms of the late 1990s,
however, individuals have been able to
change funds.
 Altenstetter (2002) notes that the bulk
of membership changes occurred from
the general sickness funds (with the
highest number of the elderly) to the
"enterprise funds," which offer lower
payroll taxes.
 What concept is illustrated here?

The sickness funds are required by law
to provide a comprehensive set of
benefits.
 (e.g. physician ambulatory care
provided by physicians in private
practice, hospital care, home nursing
care, and a wide range of preventive
services.
 The funds, like disability insurance in
the U.S., also provide additional cash
payments to those who are unemployed
as a result of illness.)





Reimbursement: ambulatory providers are
paid on a fee-for-service basis, hospitals on a
prospective basis.
Doc fees are negotiated between sickness
funds and regional Doc associations.
Both public and private hospitals exist, public
about 50%. Hospitals tend to use salaried
physicians.
Hospital operating expenses covered by
sickness funds and capital expenses covered
by the state.

Unlike the United States, physicians in
private practice generally do not have
hospital admitting privileges.

Thus, many doctors have invested in
well-equipped clinics to compete with
hospitals by being able to perform a
wide range of procedures.
Why is the German experience
relevant to the United States?



Coverage is provided through a number of
relatively small and independent plans.
In this sense, the delivery of health care is
similar to that found in the United States
In the U.S., for the most part, large numbers
of employee groups, independent insurers,
and providers reach agreements without
direct government intervention.
 Many
Americans propose mandated
coverage for the working
uninsured. Germany relies on a
mandated approach where
coverage for certain conditions is
required by law.
 Germany also introduced cost
controls similar in principle to
prospective payment under the
DRG mechanism in the U.S.
Medicare program.
Each level of Government has
specific responsibilities.
The central government passes
legislation on policy and jurisdiction.
 State governments are responsible for
hospital planning, managing state
hospitals, and supervising the sickness
funds and physician associations.
 Local governments manage local
hospitals and public health programs.

 Within
this framework,
decentralization is considerable.
 As noted, the sickness funds and
physician associations have
considerable administrative
autonomy.
 Despite this autonomy, government
intervention is extensive and has
been increasing steadily.
Cost Containment Act of 1977
introduced a fixed budget for payments
by the sickness funds to the physician
associations. (program similar to
prospective payment schemes
developed in the US.)
 Hospitals were required to negotiate
prospective budgets with sickness
funds.
 Note the incentives here.

As sickness fund costs continued to rise
at a greater rate than incomes, the call
for reform continued, leading to the
1993 Health Care Reform Act.
 To introduce supply-side competition,
the reforms also gave members the
freedom to choose among a range of
sickness funds whose revenues would
be determined by the risks of their
members.

The reforms further changed the
hospital payment system from a perdiem payment to a DRG-styled
prospective payment basis.
 Subsequent legislation in 1997 was
aimed at continuing the momentum
toward competition.

The SHI Modernization Act of
2003: increase efficiency and
quality of the system
Cost savings achieved by shifting costs
to users and the SHI insured.
 Costs savings also from targeted
providers and the pharmaceutical
industry.

Main elements of savings or costshifts:



Exclusion of some benefits: especially overthe-counter drugs.
While children under 18, antenatal care, and
preventive services are still exempt from copayments, the general exemption of poor
people was abolished.
Annual co-pays are limited to 1% - 2% of
household income.
Performance of German
System
German health system has been
relatively successful at controlling costs.
 Before the period of reforms, 1970 to
1977, spending increased at a 14.4
percent annual rate, but this dropped to
6.5 percent from 1977 to 1983 and to
5.1 percent from 1983 to 1989.

German health system has been
relatively successful at controlling costs.
Although the expenditures as a
percentage of GDP have risen over the
decade of the 1990s, this was because
of German reunification.
 It has a publicly funded system with
virtually universal coverage but has
avoided queues and extensive
government intrusion. (Both patient and
provider have considerable autonomy.)

Challenges to German
System:



The German population is aging rapidly
causing a demographic change that will place
severe pressure on its social security and
health care programs.
Rurst (1991) claims that an overemphasis is
placed on high-tech medicine at the expense
of preventive and long-term care.
High unemployment rates has narrowed the
base for payroll contributions to the funds.
 Those
with private insurance have
more choice than those in the
statutory programs,
 and similarly situated individuals
may contribute different amounts
to their sickness funds because the
membership profiles of their
respective funds are different.
 Co-payments are now an integral
part of the German system.
The German system has put
considerable emphasis on free choice,
ready access, high numbers of
providers, and technological equipment.
 Formal waiting lists are virtually
unknown.
 The public has accepted these priorities
and they are used to assess the system.
 They have placed less emphasis on cost
containment.
 Germany has many problems similar to
those in the U.S. (e.g. aging population)

THE CANADIAN HEALTH CARE
SYSTEM: Why the interest?



There have been rapid increases in U.S.
health care costs and growing concern over
the large number of uninsured.
Is Canada's health system a possible model
for reform in this country?
There is a widespread perception in the U.S.
is that Canada has successfully developed a
comprehensive and universal national health
insurance program that is cost effective and
highly popular.

The extraordinary U.S. interest in
Canada's approach is attributable to the
fact that Canada and the United States
share a long border and similar heritage
in terms of language, culture, and
economic institutions.
Key Facts about Canada & the US
1.
2.
3.
Canada is geographically larger than the
United States but has slightly more than
one-tenth the U.S. population.
Although a wealthy country, its GDP per
capita is only about 80 percent of the U.S.
level.
Canada has a relatively high level of social
services, with public expenditures
representing 42 percent of GDP compared
to 34 percent for the United States.
4.
5.
With a national health system
providing universal coverage, public
funds account for more 70% of total
health spending while it’s 45% in the
U.S.
However, not all services are covered
(e.g., vision, dental, prescription
drugs, semiprivate and private rooms),
meaning that private funds account
for nearly a one-third share that has
grown in recent years.
6.
7.
8.
Canada has maintained lower health
spending and share of GDP per capita than
the United States, despite its higher bedpopulation ratio and longer lengths of stay.
Canada's physician-population ratio is 12
percent lower and its nurse staffing level 27
percent higher than the U.S. level.
Americans spend 82 percent more per
capita on health care ($5,267 vs. $2,931),
although about 15 percent of the U.S.
population goes without insurance coverage
at any time.
9.
10.
Despite lower spending, health status
indicators-such as life expectancy
(about 2 1/2 years longer for both
men and women in Canada).
Public opinion polls indicate that
Canadians support their system more
than Americans support theirs and are
concerned about any threats to it.
BACKGROUND
The Canadian system of financing and
delivering health care is known as
Medicare
 Each of the 10 provinces and 3
territories administers a comprehensive
and universal program that is partially
supported by grants from the federal
government.

Various criteria established by the federal
government with respect to coverage must be
met.
1.
2.
3.
Coverage must be universal,
comprehensive, and portable, meaning that
individuals can transfer their coverage to
other provinces as they migrate across the
country.
There are no financial barriers to access
Patients must have free choice in the
selection of providers. (i.e. usually no outof-pocket charges)
Differences between Canada's Medicare and
Britain's National Health Service.
Most Canadian physicians are in private
practice and have hospital admitting
privileges.
 They are reimbursed by the provinces
on a fee-for-service basis under fee
schedules negotiated by the provinces
and physician organizations.

Hospitals are also private institutions,
although their budgets are approved
and largely funded by the provinces.
 The Canadian system originated in the
1930s when compulsory health
insurance programs were introduced by
some provinces.
 Since 1972, every province and territory
has provided universal coverage for
hospital and physician care.

Health researchers have focused on the
sources of the savings under the
Canadian plan.
U.S. fees were considerably higher in
each category. The net incomes of U.S.
doctors were also substantially higher
than were their Canadian counterparts.
PHYSICIAN FEES AND QUANTITY
Fuchs and Hahn (1990) provide a
detailed breakdown of Canadian and
U.S. expenditures by specific services,
while separating their price and quantity
components
Fuchs and Hahn (1990)
disparity in spending on physician
services it was 72 percent higher in the
United States
 178 percent higher for the procedures
component. (The relative ratios of Iowa
to Manitoba were slightly lower.)

Fuchs and Hahn (1990)



Because spending is the product of prices and
quantities, it seems logical to pursue
differences in fees (prices) and utilization per
capita (quantities).
Overall, fees were 239 percent higher in the
United States for 1985. U.S. fees were
considerably higher in each category.
The net incomes of U.S. doctors were also
substantially higher than were their Canadian
counterparts.
Fuchs and Hahn (1990)



Perhaps more surprising than the fee
differentials are estimates of the service
volume.
Despite the much higher spending per capita
for physician care, the quantity of care per
capita was considerably lower in the United
States.
Thus, the savings in Canada, at least for
physician care, do not come from reduced
volume of care.
WHY ARE FEES AND HOSPITAL
COSTS LOWER IN CANADA?


Patients in Canada have longer lengths of
stay, in part because of the greater use of
Canadian hospitals for chronic long-term care.
Nonetheless, after adjusting for differences in
case mix between the two countries, the cost
per case-mix adjusted unit was roughly 50
percent higher in the United States. Several
reasons can be proposed for this
phenomenon.




Why????
Single purchaser of medical services keeps
prices below market rates.
In Canada, unlike the United States, physician
fees result from negotiation between
physicians' organizations and the provincial
governments, as well as from other limits on
total spending.
Physicians cannot evade the fee controls by
charging extra (sometimes called balance
billing) to patients who can afford it.



Hospital costs are similarly regulated by the
provinces through approval of hospital
budgets.
Hospitals and provinces negotiate operating
budgets financed by the provincial
governments. The capital budget may include
other sources of funding, but provinces still
must approve capital expenditures.
Thus, a centralized mechanism allocates
resources to the hospital sector and
determines the distribution of resources
among hospitals.
Occupancy rates are higher in Canadian
hospitals.
 The provinces have limited the capital
costs associated with expensive new
technologies.



One study provides comparisons on the
availability of several relatively recent and
expensive technologies among Canada, the
United States, Germany, and Korea, with
some other OECD countries available for
comparison.
Although analyses from the 1980s indicated
that the United States has greater availability
of many of the technologies, data for 2002
suggest that other countries are catching up.
ADMINISTRATIVE COSTS



The centralized system of health care control
in Canada has led to theories about the
possible economies associated with
administrative and other overhead expenses.
Administrative costs in the United States
increased account for about 31 percent of
health care spending.
Similar costs in Canada are about 14 percent.
(If we could get to this percent, the savings
are estimated at about $160 billion.)
A COMPARISON


Canadian system appears to be more
effective than the U.S. system in several
respects.
Costs are lower, more services are provided,
financial barriers do not exist, and health
status as measured by mortality rates is
superior. Canadians have longer life
expectancies and lower infant mortality rates
than do U.S. residents.



However, the comparisons do not tell
necessarily imply that the United States
should adopt the Canadian approach.
Many Canadians are no longer confident that
the provinces will be able to afford their
current systems.
As a result of unprecedented federal deficits,
the Canadian government has reduced
substantially its cash transfers to the
provinces.
The provinces are thus faced with the following
options to cope with their increased burdens:
 find new sources of tax revenue,
 impose more stringent fee and budgetary controls
on health providers,
 find ways to increase efficiency in health care
delivery,
 scale back on benefits by no longer insuring some
previously covered services, and
 impose user fees.
(Similar to the shift we have seen for the U.S.,
the provinces have forced large reductions in
hospital capacity with a corresponding
substitution of outpatient care for inpatient
care.)



Regional boards with budgetary authority
have replaced centralized provincial
departments.
The goals of this reorganization are similar to
those expected from managed care: develop
an efficient, coordinated, and accountable
system for the regional population.
Done with planning instead of competition
through markets.
Rationing of care like in the UK (note: a
famous Quebec court case in 2005 has
opened up the private health insurance
market)
 The consensus is that the limits on
capacity and on new technology result
in longer waiting periods for hospital
services.

Defenders of the U.S. approach
claim that:


The waiting and queues found in Canada
would be unacceptable to many U.S. patients.
There is a greater level of amenities in the
United States, and the greater availability of
specialized care, together with high-tech
medicine, often is viewed as an indicator of
superior quality.
NATIONAL HEALTH
INSURANCE




Return now to the question of broader social
insurance for health care.
Should the United States adopt national
health insurance?
Steps toward cost containment may be more
palatable in the current climate.
Health system reform is still on the agenda in
the United States and many other countries.
It is wise to be acquainted with the possible
features of such plans.
DIFFERENT KINDS OF POSSIBLE
NATIONAL HEALTH INSURANCE (NHI)
PLANS
A national health insurance scheme
should possess several desirable
aspects. It should:
 provide a health "safety net" for all
residents, irrespective of age or
employment status.
 provide choice for providers and
patients.


provide market incentives for cost
containment.
be relatively easy to administer.
Policymakers faced a dilemma as to whether to
fund national health insurance coverage by
individual mandate, employer/employee
mandate, or general revenues.
What are the additional costs to
society from the imposition of NHI?


From society's point of view, the incremental
cost of NHI in the United States is the extra
total expenditure on health care that would
be incurred if we switched to national health
insurance.
Since most people already are insured for
almost all hospital care and most physician
care, the extra cost of NHI would be much
smaller than many people expect.
True incremental costs stem
from several sources.
The major reason for switching to a
national health insurance plan is to
extend coverage to the uninsured, more
than 45 million people.
 The estimated incremental cost is
between $34 and $68 billion, about
$459 per person, or about 3 - 6 percent
of health care spending.


Second, the insured population will incur
some incremental cost to the extent that
the national health insurance proposal
chosen provides greater typical
coverage than people already choose to
buy or have provided to them by other
sources.



Third, any tax-supported system of financing
care necessarily entails a deadweight loss to
society.
This is true even if the program is of the
employer-mandated type because a law
forcing employers to incur expense is really a
tax.
The deadweight loss of a tax means that
some efficiency loss will result, caused by the
disincentives to work and invest.
ENSURING ACCESS TO CARE

Let’s group reforms by their two main
motivations:
1. the desire to see that people who
are sick get health care
2 the desire to control the rising
cost of health care.
INDIVIDUAL VERSUS EMPLOYER
MANDATES

The country that wishes to provide
universal coverage for health care must
choose one scheme or another to
extract tax payments from its
households.
In the U.S. health debate, two mechanisms
were featured in proposals and thus contrasted:
Individual versus Employer Mandates.



Employer mandates are important to health
systems in Europe, Latin America, and Asia.
Under the employer mandate, the employer
must procure health insurance for its
employees and their dependents.
Although the employer writes the check, the
firm undoubtedly will pass on as much of this
cost as it can to customers in the form of
higher prices, or to employees in the form of
lower wages.
Under the individual mandate, workers
are obligated to purchase health
insurance for themselves and their
families, either from private insurance
(individually purchased) or through a
group such as a work group,
professional organization, or religious
group.
 The poor are subsidized in their
purchases through government taxation
of the relatively well-to-do.

SEPARATION OF HEALTH
INSURANCE FROM EMPLOYMENT
In postwar years, employer
contributions to health insurance were
and continue to be tax exempt,
providing workers with a substantial
discount and thus inviting inefficiencies
of over-insurance.
 If you are not employed, you probably
will have trouble getting insurance.


Health insurance problems also occur
when workers change jobs. When
leaving their old company's health
coverage behind them, workers have
little choice but to buy an individual
policy or do without insurance entirely.

To deal with these and other
distortions, some economists
recommend radical changes in the tax
system to remove the tax subsidy that
effectively ties health insurance to the
workplace. Fuchs (1994, p. 11) argues:
". ..that if government imposes enough
mandates, enough subsidies, enough
surcharges, and enough controls and
regulations, the tie to employment can
be severed.”

Fuchs recommends a value-added tax
to finance universal coverage of health
insurance. It is not without controversy,
but it does suggest an alternative
system in which health insurance is not
tied to the job.
Single Payer
May reduce administrative costs.
 May be able to guarantee a minimum
level of coverage for everyone
(Free marketers would argue that this
takes away from choice.)

Structure of the Korean
System
 In
1977, South Korea required all firms
with more than 500 employees to
establish insurance societies to provide
health care benefits. (By January 1988
it included firms with fewer than five
employees.)
A
second scheme was phased in for
government employees, teachers,
dependents of soldiers, and
pensioners under another law.
Similarly, the self-employed,
farmers, fishermen, and other
occupational groups were phased
in under a third program. Finally,
low-income individuals were
covered by public insurance similar
to Medicaid.

The insurance was to be provided by
over 350 insurance societies and
financed by employer contributions and
payroll deductions. (e.g., for the
employee program (class I), deductions
are taken as percentages of wages or
salaries. These are shared equally
between employers and employees at
rates ranging from 3 to 8 percent.)

The insurance societies also determine
the benefits and cover a broad range of
inpatient and outpatient services. The
system is characterized by a relatively
high coinsurance rate of 20 percent for
hospital inpatient care and 30 to 55
percent for outpatient care.

The expansion of insurance and the
rapid growth of South Korea's economy
has been a rapid increase in utilization
and costs. (e.g., annual outpatient visits
per person for class I beneficiaries
increased from 1.3 in 1977 to 6.2 in
1987; hospital inpatient cases increased
from 3.0 to 6.2 per 100 persons.
Spending as a share of GDP also rose
from 2.8 percent of GDP in 1978 to 3.9
percent by 1990 and 5.0 percent by
1998.)
Performance in South Korea's system

1.
2.
(SK’s cost-containment policies rely on fee
controls & high coinsurance rates.)
Under the fee schedules, all providers
in each of three categories
(comparable to community hospitals,
teaching and specialty hospitals, and
clinics) are reimbursed a uniform
amount for an insured service.
In addition to high coinsurance rates, a
fixed consultation fee for each
outpatient medical and dental visit was
introduced in 1986 to help limit
spending.
It’s difficult to isolate the effects of the
cost-containment measures because of
the rapid increases in income since the
health care plan was put in place.
 As one would expect, the co-payments
reduced the probability of outpatient
visits. However, they had no effect on
spending because patients and
providers reacted rationally by offsetting
the reduced contacts with more services
per visit.

Conclusion:

the South Korean experience is a
powerful demonstration to emerging
industrial countries that it is possible to
phase in a mandated employment
based insurance system without serious
adverse effects on a nation's economy.
Transition to a Single Insurer


South Korea was able to bring universal
coverage to a then less-developed country in
a very short time.
The pluralistic financing system (350
insurance societies) has ultimately proved to
be unworkable. (particular problems in risk
pooling, particularly among the smaller
societies, and in determining the appropriate
worker contributions.)

Response: a fundamental change in
the structure of the national health
insurance system. All health insurance
societies were merged into one in July
2000 to improve the ability to engage in
risk pooling.