Moffit: We Americans may enjoy unprecedented prosperity
and undisputed military power, but we have no monopoly on wisdom,
and we can certainly learn from the rich, practical, day-to-day
experience of other nations. This is especially true in the complex
and difficult area of health care policy.
President George W. Bush and leading Members of Congress
from both political parties have declared their intention to reform
Medicare, the huge government health insurance program that covers
40 million senior and disabled citizens. They also have proposed to
improve substantially the functioning of the broader private health
insurance market with a view to reducing the large number of
Americans who are without private insurance coverage while
expanding consumer choice of health care plans and personal control
of health care decisions.
However, a significant group of public officials, in
Congress and in the states, as well as several prominent American
health policy experts, are suggesting a very different approach. In
contrast to the President's bipartisan approach, they would prefer
that the United States adopt a health care system based on the
European, or Canadian, model: government management of the
financing and delivery of health care services. Under such a
scheme, perhaps most often described as a "single payer" system,
the government is the universal insurer of health care for all
citizens, and the government insurance is financed by general
Proponents of the "single payer" model or
European variations of government management of the health care
system often argue that changing to such a system would solve
America's major health care problems. They say it would guarantee a
superior performance from providers for Americans who are currently
benighted by private insurance arrangements run by crass,
insensitive, and overpaid health insurance profiteers. They say
such a change would ensure a far more equitable, fair, and rational
delivery of medical services to the American people.
But do we want the government to control the financing and
delivery of health care? From the congressional debate on the
"patients' bill of rights" for private insurance to the reform of
the Medicare and Medicaid systems, this is, at bottom, the
fundamental policy question. We know well the weaknesses and the
distortions that afflict the private employment-based health
insurance market. Government management of the health care system
on a universal basis is another matter.
Americans, the good news is that we do not have to rely on the
noble intentions of public officials, the promises of superior
performance by government officials, or the abstract formulas of
public administration theory. On the crucial issue of how
government institutions behave in practice in the management of
health care systems, we have access to a more than ample body of
Recently, The Heritage Foundation, in conjunction with the
Centre for the New Europe (CNE), a prominent European public policy
institution based in Brussels, Belgium, 2 held an
international conference in Washington on precisely what Americans
can learn from the European experience in health care and pension
policy. With the kind assistance of Hardy Bouillon, President of
the Centre, the presentations at the Heritage-CNE forum offer
American policy experts a keen idea of:
- What works and doesn't work in
- What steps are being taken to improve
European health care systems, and
- What key lessons the European experience
holds for Congress, state legislators, and the American people with
respect to the reform of public health care programs.
advice comes from an impressive array of European health care
policy experts: Philippe Manière of France, David Green of
Great Britain, Paul Belien of Belgium, Johan Hjertqvist of Sweden,
and Friedrich Breyer of Germany.
Americans will probably be surprised to learn from the
remarks that follow that Switzerland's health care system relies
almost entirely on a system of private insurance. They might be
surprised to learn that there is a growing reliance on the private
sector in the financing and delivery of health care in Europe,
particularly in the Netherlands, Germany, and Sweden. Even the
labor government in Britain has entered into an agreement with
representatives of the private health care industry to improve
health care delivery in certain vital areas.
Reforms in Europe, where they are
diligently pursued, have taken on a certain urgency. A major factor
affecting recent health care policy making in Europe, including
Privatization efforts, is the rapid aging of the European
population. Continental Europe is comprised largely of countries
that have rapidly aging populations. Although life expectancy has
increased, fertility rates have decreased, and much of Europe faces
demographic stagnation. This unfavorable ratio of old to young
persons is far worse in major European nations than in either
Canada or the United States.
unfavorable shift in the demographic balance is particularly rapid
in France and Germany, and will impose tremendous financial
pressures on their existing health care-social security
arrangements. America's Medicare and Social Security reformers
should take note.
For Members of Congress and state legislators, there are
some valuable lessons from the European experience that should be
- If you insist on government management of
the health care system, do not expect freedom from waste,
inefficiency, or inequity in the delivery of care (look at
- If you want to promise citizens a national
or state program of universal insurance coverage, don't expect that
you will be able to deliver universal access to high-quality health
care. You won't and you can't (look at Britain).
- If you want to fix prices for medical
services, prescription drugs, or other medical devices, don't
expect demand for these goods and services to be met or investment
in research and development to continue apace. It won't (look
- If you insist, with a straight face, that
in a government-run health care system, all of your fellow citizens
will be treated equally -- regardless of their class, station in
life, or disease condition -- you are not merely enthusiastic or well
intentioned. You are lying.
Health care policy is complex and
difficult. In the reform of America's public health programs, and
in creating new opportunities for individuals and families in the
private markets, policymakers at the state and federal levels
should learn as much as they can about what works and what doesn't
in every health care system. In that way, they can better determine
what should and should not be done here. The experts assembled by
the Centre for the New Europe who came here to speak are an
Robert E. Moffit, Ph.D., is Director
of Domestic Policy Studies at The Heritage Foundation.
The Coming Crisis in France
France's health care system is typical of
those of most European countries: It is a state-oriented system
that operates with little concern for the economic dynamic of
supply and demand or efficient management. As the client base of
the system increases, without innovative policies to augment
finances, curtail waste, and more effectively target services, a
crisis is increasingly more imminent.
Problems in France's System
France's health care system is the epitome of
mismanagement, riddled with opportunism. In France, about half of
all the hospitals (and all the largest ones) are state-owned. They
are run on the assumption that people will not pay. With high rates
of refunds to patients, the system provides virtually free care,
attracting clients from beyond the country's borders. It has been
said that people from developing nations take cabs directly from
the Charles de Gaulle airport to hospitals in Paris and that they
can expect that even their taxi fare will be taken care of through
Mismanagement of Hospitals
Mismanagement and waste compound the burden of the health
care system. The majority of France's state-owned hospitals are
managed in a way that is reminiscent of the old U.S.S.R. For
example, in the average French public hospital, it is not uncommon
for every window to be open, even in winter, because the heating
system for the building cannot be regulated. With the only options
being no heat or unbearably high heat, everyone opts for the latter
and lives with open windows. Predictably, this is not very
Hospital staffing brings an added fiscal
burden. No tasks are outsourced, since outsourcing is something
that unions strongly oppose. The staff of an average French
hospital includes carpenters, electricians, cooks, and people in
charge of laundry.
Nearly all of the doctors outside of hospitals are
"chartered" -- that is to say, their fees and the cost of their
prescriptions are systematically refunded to the "assuré
sociaux" who have national health care coverage, i.e., virtually
every person in France. Any doctor who has a diploma has a right to
be chartered upon simple request: The government cannot legally
refuse to charter him. In other words, a diploma guarantees a right
to public expenditures.
Meanwhile, the French can consult with as
many doctors as they wish, as often as they wish, receiving refunds
for their medical expenses that are as high as 70 percent to 100
percent. Any unpaid balance is paid by the mutual companies that
most employers subscribe to for their employees. A patient does not
pay for his doctors, and there is no gatekeeping for doctors'
visits, whether to general practitioners (GPs) or specialists.
might be expected, under this system, there are people who consult
with doctors as often as five times a week. This is especially true
of older people because they have plenty of time and enjoy being
able to talk about their problems with someone.
the demand for doctor care is met by a guarantee of unlimited
services, with no costs and no constraints, the result, of course,
will be a boom in health care consumption, and that is what France
is experiencing. There is currently a 5 percent to 8 percent
increase in expenses per year in real terms, resulting in enormous
deficits and even greater problems when the rate of unemployment
rises. When employment rates improve, the deficits are eased
because more taxes come in. But as soon as employment falls again
(which is not so uncommon in France), deficits come back, and they
are here to stay as long as the system is not changed. In a futile
effort to deal with this imbalance, the government issues continual
prorogations of temporary taxes to pay for the deficits.
France's health care system was created in 1946-1947, just
at the end of World War II and a time when the people who were in
charge of France were given unlimited legitimacy because they had
opposed the Germans. As a result, the historical legitimacy of
France's state-oriented system makes it very difficult to challenge
or change today.
The system is also immune from criticism, in spite of waste and
mismanagement, because it is rooted in the economic culture of
France, where there is a general belief that the government can
always step in with needed funds when a problem arises. When people
talk about addressing deficits, they talk about the state
"unblocking" money. This phrase -- to "unblock" money -- is very common
in the French political and media arena. There is an underlying
assumption that there is some huge amount of money that is
typically blocked by evil politicians and (thank God) can be
unblocked during times of crises, such as a flood or hurricane.
Most of the people I know in France cannot seem to understand that
there is no money "blocked" anywhere and that the government needs
to raise money before it can give it away.
the United States, when funding is discussed, it is not uncommon to
hear that "the taxpayer will pay" for it. In France, it is said
that "the government will pay" for it. There is a broadly based
misconception that there is a pool of money somewhere that can be
tapped without limits. In such a cultural environment, it is very
difficult to implement reforms and to convince people that, in
funding a social system, it is crucial to balance accounts.
In France, physicians and other medical professionals form
a powerful lobbying bloc that opposes any restriction of medical
consultation. They invoke a right to what has been called "medicine
liberale" -- the belief that all people have a right to consult any
doctor. There is, also, a widely held belief that any Privatization
or entry of competition in the arena of health insurance would only
promote the interests of insurers and health care providers at the
expense of their clients' health.
attitude is central to the problems faced by France and continental
Europe as a whole, and it is a factor that should not be
underestimated by scholars and researchers. Many choices made
collectively by the European people cannot be understood from a
element of French culture is what I call an assumption of a
"disjunction of interest." In the United States, most people do not
think of it as impossible that what is in John's interest may also
be in Peter's interest, but in Europe, there is a broad belief that
there can be no common interest with the exception of the unifying
entity of the state. As a result, any private agent who strives to
reform a state-owned or socialized system (even one that clearly
does not work) is treated with suspicion. The worst offense is to
pursue private interest. This explains the French people's
acquiescence with high taxation and their resistance to reform -- the
fear that reform would be in the interest of some particular
category of the people.
The devastating effects of such a system are far-reaching.
Pharmaceutical companies and hospitals, for example, are becoming
more and more constrained. Rather than addressing the need to
reform the system, the government opts for a quick fix -- imposing
homothetic price cuts. According to this lazy solution, the
organization in charge of managing the health care simply tells all
the producers of pharmaceuticals that, because expenditures are too
high, they must cut all their prices, for example, by 5
blanket policy is irresponsible. In certain fields of medicine,
more investment is needed to support research and development. In
other fields, there may be so much waste that prices should be cut
not only by 5 percent, but by 30 to 50 percent. But to develop a
well-targeted policy would require investigation and reform, which
seems to be unthinkable to those who are currently managing the
result of failed policies, certain hospitals are now experiencing
labor shortages. Recently, a hospital in Lyon was so desperate for
nurses that there was consideration of importing nurses from Greece
and Portugal. Fortunately, just in time, the hospital recognized
that this would have been a recipe for disaster, given that nurses
in Greece speak Greek and nurses in Portugal speak Portuguese
while, typically, the people who are in French hospitals are French
and speak only French.
research and development area of pharmaceuticals has suffered from
the cash-strapped health care system. Whenever a new drug arrives
on the market, negotiations are made to determine the rate of
refund that the health care body will accept. In comparison with
other European countries, France's rate of refund for prescription
drugs is very low. As a result, research and development is not
funded and France's pharmaceutical industries, which ranked third
in the world in 1975, have not produced a cutting-edge product
within the last 20 or 25 years.
the other hand, there are some companies that have learned to play
the system to their advantage. In order to help the small
laboratories (that never invent a thing) to make a profit and keep
their people employed, the state has agreed to offer refunds for
products that would be considered ineffective in any other country.
There is, for example, a very popular drug in France that women use
for "jambes lourdes" (heavy legs). This product is used in no other
country because it has virtually no effect. Yet the people in
France who use it have their costs refunded by the state. This is
nothing less than a "gift" from the French state to the small
pharmaceutical company that produces that product. In other
instances, it has been reported that some pharmaceutical industries
have made arrangements with the state to purchase official
authorizations to market a product.
Another perverse effect of a system that
promotes irresponsibility is that people abuse medicine and drugs
simply because they are "free". people who visit their doctor, or
multiple doctors, five times a week receive many prescriptions,
which they often use together. Honest doctors would warn their
patients of the dangers of mixing medicines. When two or three
drugs are combined, it is difficult to predict what may happen, but
when five to seven drugs are taken together, it is impossible. The
only certainty is that the person's health will not be improved. In
many cases, people suffer serious disorders only because they are
taking too many drugs. Were they to quit taking all but the one or
two drugs that were truly necessary, many of them would
Finally, the system's waste of massive
amounts of money and energy is having a very negative effect, not
only economically but sociologically as well. Everyone is aware
that the system cannot be sustained, but there is no reform.
Therefore, French people tend to feel less confident and more
reluctant to spend, invest, or create; they know a crisis in the
health care system is inevitable.
In spite of all that has been said about the flaws and
failures of France's health care system, France miraculously
appears to thrive. It is still a very wealthy country with quite
robust economic growth and -- if one makes the reasonable assumption
that half of the officially unemployed are happy not to work -- even
its unemployment rate is acceptable. France ranks first, before
Japan, in terms of per-capita exports, and it is the fifth richest
country in the world in terms of GDP. It seems that a situation
that should be hell is almost paradise.
LESSONS FOR U.S.
As Philippe Manière explains, France's health care system
faces an impending crisis. His overview here offers America's
health care reformers some valuable lessons.
Lesson #1: Universal coverage does not mean universal access to
quality care. In France, health care is non-negotiable; it is
simply unacceptable that a person should suffer from the lack of
care. Although people should have access to some form of health
care coverage, the result of France's guarantee is a cash-strapped
system riddled with abuse.
Lesson #2: Making across-the-board price cuts on pharmaceuticals
to save money can have adverse effects. In France, such cuts
tend to restrict research and development and to reduce the
availability of cutting edge drugs, while other areas of medicine
requiring significant reform are overlooked.
How can this be? Perhaps because the French have
perfected the art of running while shooting themselves in the
France cut its work week by 10 percent,
for example, a step that should have devastated its economy. But it
did not because, almost instinctively, employees increased their
productivity. Like France's prosperity in spite of health care and
pension systems that seem doomed, this outcome is not one that
would have been predicted.
French suffer with a system that is riddled with overconsumption,
fraud, and waste because it is a system that is more aligned with
the spirit and culture of the people than others might be. The
people of the United States and the French may not be willing to
make the same sacrifices toward the same ends.
long ago, I spoke with a taxi driver in the United States who told
me of a friend who had a very serious kidney problem but was unable
to have surgery because he had no money. The French would prefer a
system that can be abused and overused to one in which people who
are in need of treatment do not receive health care because of
their financial situation. Very few Frenchmen and Europeans would
sleep well knowing cases such as the one the taxi driver spoke of.
Their health care system may not be economically efficient; it may
even be absurd; but it is apparently the system that the French are
most comfortable with.
Philippe Manière is editor in chief
for economic and scientific affairs of Le Point, a weekly
newsmagazine in France, and head of Le Point-Edition Affaires,
a joint venture with Business Week. He serves on the
Board of the Centre for the New Europe in Belgium.
A British Perspective
David G. Green, Ph.D.
China's experience helps us to understand
that many countries are trying to solve similar problems underlying
health care. Its approach is not ideal, not least because insurance
works best when it covers expenditures that are not easily
predicted for any one individual; but China's approach does
recognize the value of competition and price-conscious consumer
choice. France's social insurance system is based on personal
responsibility combined with solidarity across classes. Moreover,
there is an understanding that free care would lead to
irresponsible demands. By comparison, Britain's National Health
Service recognizes the value of neither competition nor choice.
Providing Quality Care for All
The biggest challenge in providing quality health care to
all is the result of the competing interests of two groups in the
population: people who earn enough to be self-sufficient and who
want some control because they have earned it, and those who are
not self-supporting. Among those who are not self-sufficient, there
are degrees of dependency.
Before governments took responsibility for
the poor, it was generally accepted that health care was not
exactly like other consumer goods. The provision of medical care
has always had a moral dimension. Just as decent human beings would
not let someone else starve, neither would they let someone die or
suffer because of a lack of health care.
Before it became a government
responsibility, doctors provided free care for the poor, or
charities paid the doctors. Some hospitals and doctors charged
according to income. Provident associations were created for people
on low incomes: They paid what they could afford, and donors paid
the rest. Friendly societies organized pre-payment schemes along
Today, government assumes the
responsibility to provide health care, and the policy conundrum has
been made more complex by political involvement. I will focus on
one issue of overwhelming importance: how to decide what standard
of care should be guaranteed to everyone. The standard will be
lower than can be afforded by the rich, but it should not be
obviously inferior to the standard generally available.
One approach is to argue that all health care should be
equal so that there is no difference between the standard of care
enjoyed by the rich and the poor. Britain's National Health Service
puts equality first, and successive governments have argued that
ensuring equality requires public-sector payment and provision. NHS
coverage is touted as being equal (uniform across the country and
uniform between rich and poor), comprehensive, of the highest
standard, and free at the time of use. Its aims are all
superlatives, and part of the political problem is that if you
criticize the NHS, it is very easy to come under attack for being
against "the best."
In fact, the NHS achieves none
of its aims, with the exception of being largely free of charges.
Ironically, it is this determination of successive governments to
avoid charges that has made it impossible to achieve the other
social insurance systems of France and Germany are also based on
solidarity across social classes, but in these countries, it was
accepted from the outset that personal responsibility should be
encouraged and that free care would lead to irresponsible
To qualify for health coverage in France, it is necessary
to have paid a social insurance contribution. In addition, fees are
payable at the time of use and can be claimed back from the insurer
or waived for the poor. The outcome in France has been that a very
high standard of care is available to everyone without the waiting
lists that characterize the NHS.
France has a reputation for central
direction, but French health care is based on a compromise between
egalitarianism and liberalism. All citizens are said to be equal,
yet choice and competition are fiercely protected.
France, individuals can identify on their pay slips how much they
are paying for coverage and thus can form a view about whether the
cost is justified. Consequently, the standard of care guaranteed by
the state reflects the personal preferences of people who are
self-sufficient through work. It is this high standard of care that
is made available to all. France performs well on nearly all health
status measures; when the World Health Organization ranked the
world's health care systems in 2000, France was at the top of the
Compulsory health insurance covers the
whole population, and contributions are charged as a percentage of
income. Until recently, employers paid 12.8 percent of salary and
employees 6.8 percent; but complaints by employers that they were
meeting too much of the burden led to reform. Employers still pay
12.8 percent, but employees pay 0.75 percent of their salary toward
health insurance plus an additional general social contribution of
7.5 percent of their whole income, including interest, dividends,
and other earnings. Most, but not all, of this general social
contribution goes toward health insurance.
Altogether, this means that the total cost
of health insurance is about 20 percent of payroll, including the
employer's and employee's contributions. The insurers are
non-government, nonprofit agencies, which owe their allegiance to
employers and employees. In addition to their compulsory
contributions, most employees pay an additional voluntary 2.5
percent of their salary to a mutual insurer.
French have complete freedom to choose their doctor, whether a
general practitioner (GP) or specialist. They typically pay their
doctor's fee and then file a claim for 75 percent to 80 percent of
the payment. Because requiring payment up front might deter the
poorest people from seeking care, about 6 million people are not
required to pay.
patients, whether they are exempt from co-payments or not, may go
directly to a specialist either outside or within a hospital. The
French dislike GP gatekeepers. French national insurance makes no
distinction between public and private hospitals, and patients have
unrestricted freedom of choice. Public hospitals provide about 65
percent of the available beds.
doubt, it will be said that the French government has been trying
to control costs. It has, but it has done so under a system that
deliberately encourages responsible consumer demand by requiring
modest consumer payments. It also has a built-in safety valve of
supplementary insurance, in case the wishes of the French
government are out of sync with the preferences of the French
result has been that, as the government has tried to lower
expenditures since the 1970s, the French people have taken up the
slack. In the 1960s, about 30 percent of the French people paid
privately for supplemental health insurance. The proportion
increased to 50 percent in the 1970s, and today about 85 percent of
the people purchase private supplemental insurance.
central planner, the French system may look like a chaotic mess,
but in reality it is a pragmatic blend of consumer choice,
professional autonomy, central regulation, and a government-backed
guarantee for the poor that exceeds the NHS standard by far. Like
the Belgians, the Dutch, and the Germans, the French, in their own
way, have discovered how to universalize the benefits of a
competitive market. The NHS, in contrast, has universalized the
drawbacks of the public sector.
I have argued that the French system of social
insurance -- competition combined with supplementary insurance and
out-of-pocket payment -- is better than the NHS. The French system of
regulating pharmaceuticals is, however, one of the worst in the
addition to national control through the national objective on
health spending, known as ONDAM, the pharmaceutical industry in
France is bound by the Pharmaceutical Sector Agreement and by
complex procedures necessary to gain approval for reimbursement.
These involve drug evaluation by the Transparency Commission and
price regulation by the Economic Committee.
appendix of the Sector Agreement lists the permitted rates of
growth by therapeutic class. Companies can either negotiate and
sign a "convention" agreement with the Economic Committee or have
their drug prices fixed, and probably reduced, by public decree. If
sales exceed the target, companies have to make "penalty payments"
of at least 25 percent of the excess. These penalties are called
"quantity discounts for everybody." In other words, companies can
be punished for selling too much of a product.
British system, by comparison, gives each pharmaceutical company a
target profit for all its sales to the NHS. In addition, there are
measures to reduce demand, the latest of which is the National
Institute for Clinical Excellence (NICE) established last year to
evaluate medical technologies, especially new and expensive ones.
Although its name implies independence, it is a department of the
NHS. The chief rationale for NICE was that it would end "postcode
central dilemma of the NHS was brought to public attention in
December 1999 by a gentleman who lived on the Norfolk-Suffolk
border and suffered from motor neurone disease. He was unable to
obtain Rilutek from his own health authority; had he lived a few
miles away in the neighboring county, it would have been provided.
As it was, he had to pay personally for the medicine. The Secretary
of State for Health responded to this situation on national radio,
declaring that he would end the "lottery of care."
likely is it that NICE will end the "lottery of care"? A recent
NICE appraisal of the glycoprotein IIb/IIIa inhibitors in the
treatment of coronary heart disease is a case in point. The
medication was recommended by NICE for use by two groups, one of
which is patients suffering from either high-risk unstable angina
or mild heart attack. For this group, the total cost was put at
£17m [approximately US$12 million] 3 a year -- a net
increase in NHS expenditure of £14.5m to £16m [US$10
million to US$11 million] since about 5 to 10 percent of patients
already were receiving the treatment. Despite the NICE
recommendation, the decision about funding still lies with health
authorities and the clinical judgment with each patient's doctor.
Whether or not the use of this new generation of drugs will
increase following the NICE recommendation remains to be seen.
may also slow down the process of scientific discovery. The
imposition of a national policy for new technologies may be
ill-advised because it assumes that all relevant evidence can be
assembled at an early stage in the life cycle of new therapies. In
reality, it cannot. Moreover, if NICE recommends delaying the use
of technologies because it feels that "all" the evidence is not
available, as it has done in its appraisal of beta interferon for
multiple sclerosis, Britain will find itself looking overseas for
studies from which to learn and will be free-riding on the
experience of other countries. Indeed, if all governments took the
same view, no experience would emerge to be studied.
British government is taking too narrow a view of
cost-effectiveness. Legitimate questions include: Does a new
technology achieve its clinical purpose more cheaply than any known
rival? Does it produce offsetting savings elsewhere in the NHS?
Does it produce savings or increase productivity in the wider
economy? Does it benefit patients even if it does increase total
net expenditure? Many new technologies may bring corresponding
savings elsewhere in the NHS or in the economy, but others simply
add to total costs by permitting patients to benefit in entirely
NICE Web site has a section for frequently asked questions. One is,
"Will the appraisal process include wider costs and benefits to
society?" The answer: "Companies will be free to submit any
relevant data, although the NICE appraisal process will focus on
the health benefits achievable from NHS budgets." These controls
result from attempts to impose a single payer and a single provider
in the United Kingdom.
final question remains: If price-conscious consumer choice and
market competition are acceptable to both French socialists and
Chinese communists, why are they not acceptable to everyone?
David G. Green, Ph.D.,
is the founder of CIVITAS: the Institute for the Study of Civil
Society in London. From 1986 until 2000, he served as Director of
the Institute of Economic Affairs' Health and welfare
LESSONS FOR U.S.
The question of regulating pharmaceuticals aside, the experience
of the French health care model offers three important lessons for
anyone seeking how best to provide quality health care for all
citizens in a market-based system.
Lesson #1: Aim to make the market serve everyone, whether they
are self-supporting through work or not. Governments should
confine themselves to what they can do best and leave the rest to
civil society. This implies that:
-- Governments should not try to be the single payer, because this
will result in rationing; and
-- Governments should not impose a
single provider, because this would mean that consumers could not
escape bad service and incentives to raise standards would be
Lesson #2: Take into account the special nature of health care,
which is partly a moral necessity and partly an ordinary consumer
good. The element that is like other consumer goods is
vulnerable to overuse when provided free. This recognition
implies two further aims:
-- To get as close as possible to ensuring that self-sufficient
people are completely price-conscious and that dependent people are
as price-conscious as possible, and
-- To ensure that people who are not self-sufficient should not
receive an obviously inferior service.
One approach to meeting these goals is to make a political decision
about the guaranteed standard. Another is to apply a market test.
Some countries have tried to determine the services that should be
guaranteed for all citizens through a "core services" committee. In
the United States, Oregon introduced a list of prioritized
services. Countries such as France and Germany, in essence, apply a
The state cannot guarantee the standard enjoyed by the wealthiest
people, so it cannot honestly promise an "equal service"
without suppressing all private health care. But it can underwrite
the standard chosen by people on middle incomes who are
spending their own money. The assumption underlying this theory is
that, once a health insurance market is functioning, we can expect
a popular-choice plan to emerge. This plan should be the basis of
the government guarantee. This may result in a work-incentive
problem, but that can be addressed.
Lesson #3: Avoid a compulsory link with employers, which would
make it more difficult to move toward a system based on responsible
consumers. If someone else seems to be paying, personal
responsibility is diminished. However, collective purchase of
insurance through voluntary groups, including employers, is often
efficient. One promising approach would be to introduce individual
refundable tax credits.
A Belgian View
The rising cost of health care is a
problem which has plagued governments in Western Europe for almost
three decades. The root of the problem is everywhere the same:
Health care is financed on a pay-as-you-go basis. Because funds are
not set aside for the future and are spent for immediate needs, the
healthy, usually young, people of today pay for the needs of the
sick, usually older, people of today. In turn, those who are young
and healthy today will rely on future generations to pay for their
needs when they are sick and old.
Problems arise when the number of young
people in a society declines. Then there are only two ways to keep
the system intact -- either by drastically increasing the financial
burden on those at the paying end or by limiting the quality and
the availability of health care for those at the receiving end.
When Costs Override Care
As the financial burden on the young has become
intolerable, European governments have chosen the option of cutting
back the quality of health care. Certain medical treatments or
drugs are no longer available to persons above a certain age or to
persons who are considered to be too sick, or they are not made
available at all, at least for a certain period.
Gradually, health care in Europe is
becoming a horror story. This is not an exaggeration. Many people,
even in Europe, do not realize what is happening, because they are
confronted with this problem only when they get sick or when they
have become old and frail. At that time, one is often in a weak
position, and it is too late to raise one's voice.
But people in the medical and nursing profession know very
well what is going on. In a March 28, 2001, article about Belgian
hospitals in the Belgian weekly magazine Knack, a nurse is quoted as saying, "I am
ashamed of my work. I would not want to be nursed in my own
Another nurse complains that the number of
beds in her department has recently been lowered in order to cut
costs, although the number of patients has not decreased. The nurse
explains what happens if an extra bed is urgently needed: "We
drastically augment the level of morphine that we give to the very
sick, or we inject them with pentothal." In other words, they kill
them. The nurses and the doctors call this "euthanasia."
nurse I just quoted does not like what she has to do. "It is not
good for the patient whose life is being terminated," she says,
"nor for the new patient who now lies in the free bed and who puts
his trust in us."
early as 1996, the president of the Flemish League of Physicians,
Dr. Anton Malfliet, warned against "economic euthanasia and
government decrees which allow the elimination of certain
categories of people, while at the same time resolving the pension
Restriction of Treatment
Another method currently used to cut costs is to restrict
the access of patients to costly health care services. Sometimes
these services are denied to all patients; sometimes, only to
certain categories -- for example, the elderly.
have experienced the impact of this policy in my own family when,
several years ago, my grandfather needed an operation. Because he
was over 80 years old, my grandfather was given an old antibiotic
that has drastic side effects: It causes deafness. Though there
were other, but costlier, treatments available, the hospital gave
the old drug to my grandfather because of his age. They knew about
the side effects, but it did not strike them as unreasonable or
unjust to reserve the modern treatments for people of a younger age
group and to give old rubbish to the elderly.
recent study shows that while over 50 percent of patients in the
United States receive the latest, most effective pharmaceuticals
for arthritis, they are available to only 15 percent of patients in
Germany and the United Kingdom. The same trend is revealed with
regard to cardiovascular medicine. In Italy and Belgium, the
threshold condition for receiving the most innovative and effective
therapy is having a cholesterol level of about 290 as well as proof
of a family history of heart trouble, even though established
medical opinion holds that a cholesterol level of 190 is the
appropriate threshold for treatment.
medications are a critical component of health care, yet patients
in many European Union countries have to wait years before they
become available. In most European countries, pharmaceutical
companies must not only get approval from the national departments
of health, but must also obtain pricing and reimbursement approvals
before they can introduce a new drug into the market. Because this
can result in delays averaging 18 months, many breakthrough
medications are simply unavailable for extended periods of time. A
study conducted by Europe economics
revealed that, from 1995 to 1997, more than half of the new
medications surveyed were unavailable through pharmacies in
Portugal, Italy, and Greece. More than one-third were unavailable
in Belgium, France, and the Netherlands.
delays serve an economic purpose: Because the new products are more
expensive than the old ones, by delaying access to the new drugs,
the governments save money. Though European politicians try to save
money by cutting services across the health care sector,
pharmaceuticals are frequently targeted because cutting drug
expenditures is relatively easy.
The Problem with Politicized Health
When politicians become involved in the health care
sector, the inevitable consequence is the politicization of health
care. For example, in June 1999, multiple sclerosis patients in
Belgium had to fight very hard to get the government to reimburse a
new drug, to the point of holding public protest demonstrations in
the streets. At the same time, AIDS patients who were demanding
reimbursement for very costly medical treatment received an
immediate response. The AIDS lobby was able to muster enormous
influential support from the media and the political
Simply put, some diseases are politically fashionable and
some are not. If you suffer from a "politically correct" disease,
you get state-of-the-art treatment. You are not so lucky, however,
if you are a patient suffering from a politically unfashionable
disease. Some sick people are "more equal than others" in a health
care system that has become highly politicized.
Throughout West European states, there are varying degrees
of delay in different facets of health care, depending on the
different political options taken. For example, patients living in
France and Belgium have to wait longer for new drugs than do
patients in Britain or Germany.
France and Belgium, however, the government tends to favor surgical
remedies over pharmaceutical remedies. As a result, although access
to new, innovative drugs is restricted for a person living in
Belgium, it is easier for him to obtain access to certain surgical
treatments than it would be, for example, for someone living in
has led to transnational medical shopping. In January, a Belgian
newspaper featured an article on the phenomenon of Englishmen
travelling to Belgium for inpatient surgery. In the article, a
surgeon relates that many German patients also come to Belgium for
However, travelling abroad for surgery or
buying drugs that are not reimbursed by the official health
insurance system are options that are open only to very rich people
or to privately insured patients.
The Move Toward Private Alternatives
In addition to the statutory or official health insurance
provided by the state or the sickness fund, an increasing number of
Europeans have private insurance to cover medical treatment that is
not provided by the official system. Hence, a two-tiered health
care system is developing. One tier includes those who can afford
to pay twice for health care -- once via their income taxes or
payroll contributions and once via premiums to a private insurer.
The other is made up of those who cannot afford to do this -- those
who are trapped within the official system and whose access to
quality care is constantly diminishing due to politically imposed
Opting Out of the State System
There are, however, three countries in Europe that allow
their citizens to opt out of the official system and to take with
them the taxes or wage contributions they make to the official
system to purchase private insurance in the health market. These
countries are Germany, the Netherlands, and Switzerland. There,
citizens do not have to pay twice in order to acquire private
health insurance. The systems of these three countries are
important in that they may point the way to a solution for the
current financial problems Western health care systems are
Germany's system is the prototype of the European sickness
fund health care system. The most interesting aspect of the German
system, however, is that Germany allows people whose income is
above a certain level to opt out of that system. They are no longer
obliged to pay a percentage of their wages to the sickness fund;
however, they must use that money to buy private health
10 percent of the German population has opted out of the public
system. The premiums these individuals pay for private insurance
are calculated not on the basis of their personal health risk, but
according to the average health risk of their age group (in
five-year cohorts). Over time, the insurance premium is never
increased as a function of the insured's age. The premium remains
at the level set for the age of an individual when he first joined
the insurance plan. The premium can only be raised to reflect
general increases in health care costs affecting all age
policy is an incentive for people to insure themselves at as young
an age as possible. The younger the person when he or she enrolls,
the lower the cohort's health risks are and the lower the premium
will be. This system may seem good, but there is a problem. Like
the government sickness funds, Germany's private insurers are
predominantly financed on a pay-as-you-go basis. They, too, have
almost no capital reserves. The payments of each cohort today are
not set aside for their future needs, but instead are spent almost
entirely on the contemporary needs of the insurance company's
Another fundamental flaw of Germany's
sickness fund system is also present in private insurance: No money
changes hands between the patient and the provider. Because German
patients are not aware of what health care services actually cost,
there is little sense of responsibility or incentive to
Nevertheless, the German private
system -- in which premiums are a function of the collective risk of
an age group and are not raised from the time of initial
purchase -- can provide an idea of what an equitable and fair
capitalized private system could look like.
Like the Germans, the Dutch also can leave the sickness
fund system once they earn more than a certain income. The
financial threshold is lower in the Netherlands than in Germany,
and as a result, one-third of the population is privately
the Netherlands, private insurance is generally affordable to
everyone because the highest risks (the so-called catastrophic
health care needs, which are very expensive) are covered under a
separate nationwide system. The Dutch have a compulsory
government-regulated, single-payer system for expensive health
risks and a sickness fund system for the other risks. Catastrophic
health insurance is mandatory and paid for through income taxes. It
covers very costly medical procedures and long-term care.
catastrophic care is financed by the Exceptional Medical Expenses
Fund that all citizens pay into according to their income. In
addition to long-term and catastrophic care, the fund also covers
certain drugs and medical equipment. Though, in practice, this fund
has been used for other things, the concept seems sound. Realizing
that the costs of medical care for certain acute and chronic
illnesses are exorbitant, the Dutch require all citizens to pay
into a catastrophic pool. Non-catastrophic health risks are covered
by the sickness funds.
contrast with Germany, where individuals are free to leave the
sickness fund and purchase private insurance when their earnings
exceed a certain level, in the Netherlands, members are expelled
from the public system when they reach a designated income level.
In that event, they may buy private insurance, but they are not
obliged to. Dutch private insurers offer a variety of services for
their members; they provide patients with information about health
care choices, and they create contracts with providers offering
different types of care.
Switzerland has the least paternalistic health care system
in Europe. It is the only country in Europe with a health care
system that is based totally on private insurance.
Health insurance was made mandatory only
in 1995. Premiums are not risk-related or linked to income, but are
set on a per-capita basis with weightings for age of entry into a
fund, regional cost differences, and sex. The government subsidizes
poor individuals by paying a percentage of their premiums. These
subsidies account for approximately one-third of health care
funding by the Swiss Confederation.
Switzerland has also introduced a
risk-adjustment system. All insurers in the market are required to
pay a portion of the premiums or contributions they collect into a
central fund. The relative financial risk of each insurer is then
calculated, and insurers with a larger proportion of less healthy,
high-risk members receive an amount from the fund that compensates
for the higher financial risks involved in insuring their members.
This type of risk-adjustment prevents a situation in which all
low-risk people would flock to insurance companies that can keep
their premiums low because of their minimal risks, while other
insurers who have the majority of high-risk members would have to
ask exorbitant premiums.
Swiss health care system is self-managing. The health insurers set
their own premiums, subject to the risk-adjustment system. Premiums
differ from insurer to insurer, as do services they offer to
Swiss insurance funds have considerable freedom over the benefits
packages they offer as long as they include the basic services
outlined in the Health Insurance Law. However, even this law is
relatively vague in its specification of required services. This
has led to a considerable range of options for consumers. Thus, it
is the responsibility of the Swiss people themselves to purchase
health insurance coverage that best fits their needs.
Copayments are the linchpin of the Swiss
health care system. They apply to primary care as well as hospital
care and cover about one-third of the annual health care expenses.
Copayments have the intention of discouraging over-consumption of
health care services. Their levels are set by the government, and
in most cases, the government does not allow citizens to insure
Patients currently pay all their costs of
ambulatory care up to the level of a deductible, which is currently
around 150 Swiss francs per year (US$125), and then 10 percent of
the costs above this level. There is, however, an annual maximum
level of copayments. For adults, this is set at 500 Swiss francs
(about US$420). Insurance funds are free to offer their customers
higher annual deductibles in return for lower premiums.
For hospital care, patients have to pay the
boarding costs for the duration of their stay in a hospital. It is
possible to insure against copayments for these expenses, but not
for primary care. There is also a copayment of 10 Swiss francs per
day that patients are required to pay for hospital treatment costs.
Citizens are not allowed to insure themselves against this type of
Because one-third of Swiss health care is
financed through direct patient copayments and it is illegal to
insure oneself against most of these copayments, Swiss citizens
have to rely, to a large extent, on their private savings in order
to prepare for future health risks. As a result, the Swiss health
care system relies heavily on capitalization. Because they have to
pay a significant portion of health care costs themselves, the
Swiss must set aside money for future needs. They find themselves
"empowered" by a system in which they must make rational choices
and informed decisions.
system works so well -- even for the poorer and supposedly less
educated segment of the population -- that it has led to remarkable
results in comparison with other European nations. In terms of
health care outcomes, Switzerland ranks among the top countries,
and its position is improving among the other European countries
with regard to nearly all health indicators. Though health care is
privately financed in Switzerland, health does not appear to be
related to wealth. One explanation may be that the Swiss system
stimulates preventive action, encouraging people of all economic
strata to adopt lifestyles and behaviors that reduce risks to their
in all other countries, health care costs in Switzerland have also
risen rapidly over the past decades. According to the Swiss
authorities, development of supply (expanded facilities, growing
specialization, and greater use of technology) is the fundamental
factor in this increase. The impact of the aging population would
not be very significant.
Private insurance-based health care systems are often
criticized because premiums take into account individual risks and,
as a consequence, can differ substantially. Germany, the
Netherlands, and Switzerland have each reduced such inequities in
their own way. In Germany, premiums are set as the average for risk
pools of five-year age cohorts; in the Netherlands, very costly
catastrophic chronic and acute medical risks are taken out of the
private system; and in Switzerland, the government provides
subsidies to groups with higher health risks.
The Benefits of Privatized Systems
Apart from the few private insured health care systems of
Europe, European experiences offer little sound advice for
reforming health care systems. It is true that the private
insurance-based systems also have their problems, but there are at
least three important arguments to make in favor of privatized and
they constitute very interesting laboratories for health care
reform. They are consumer-driven, and they provide an opportunity
to experiment with interesting ideas, such as medical savings
accounts (MSAs) and bonuses.
in markets with an unrestricted supply of services and spontaneous
competition, prices tend to go down because of consumer influence.
For consumers to demand, choose, and pay for a service, that
service must be good and reasonably priced.
capitalization, even if it is only partial, can help the health
care sector become one of the most important growth sectors of the
future. Today, there are no adequate financial reserves available
in the health care system. Without these reserves, economic growth
is impossible. In a capitalization system, the money which is put
into the system today is set aside for future needs. In the
meantime, these savings will be invested and, as a consequence,
will generate new capital.
There is another aspect of the problem
that is seldom discussed but has broader implications. This is the
fact that the health care sector is, in many countries, the largest
single employer and the source of some of the most satisfying and
rewarding jobs in our society. From high-tech careers to the caring
professions, from research and development to the simplest nursing
tasks, the health care sector is one of the key elements
contributing to the economic prosperity of our countries; and as
the population ages, even more economic activity will reside in
Ordinarily, the prospect of future
economic growth of this kind would be a source of great exuberance.
However, because health care in the Western welfare states is
organized as a function of government, the cost of providing it is
viewed as a problem. Indeed, with the current systems in place, and
with the current sources of funding, and given the aging of the
population, there is an enormous shortfall in health care funding
which is constantly growing.
present government policies to cut health care spending are wrong
because they block the most important source of economic growth
that can be anticipated from the changing structure of the
population and the resulting changes in the life-cycle structure of
economic demand. The present policies are also self-defeating. The
attempts to choke off a natural development and expression of
consumer needs will lead to an increasing pursuit of health care
options outside the official national system.
present policies even lead to an exacerbation of the existing
problems. Indeed, to the extent that they are successful at slowing
domestic spending on health care, they will slow the growth of the
economy and the expansion of the government's tax base, making the
maintenance of health care programs even more difficult.
order to achieve patient empowerment, we need competition in health
care services as well as an unrestricted supply of these services.
All this has been lacking from the so-called market reforms in
Europe. These reforms were actually a form of managed competition
or the creation of internal markets within a global budget in order
to control costs. However, if one does not allow economic growth
and expansion, the market becomes a perversity and consumers lose
their options. In managed competition, consumers have no say. The
competition we currently see in European health care systems is a
competition to cut costs by lowering the quality that is provided,
or to attract healthy patients and discourage the sick. This is a
parody of health care and of markets.
Markets and market mechanisms only make
sense within a capitalist system -- a system that is driven by
capital. The problem with European health care systems is that
capital is running dry. In all of the European systems, even the
present private ones, today's healthy and young foot the bill for
today's sick and elderly.
Today, there are no adequate financial
reserves available in the health care system. Without such
reserves, economic growth is impossible. Therefore, we should
transform our health care systems from pay-as-you-go systems into
systems financed by means of capitalization. In a capitalization
system, the money put into the system today is set aside for future
needs. In the meantime, these savings are invested as capital and,
as a consequence, generate new capital. Only this "capitalist"
approach will allow the health care sector to expand.
Privatization of the health care sector
can only be an answer to the current problems to the extent that it
implies capitalization and, hence, an expansion of the health care
economy. If, as is often the case today, privatized health care is
also financed on a pay-as-you-go basis, private health insurers
will also try to ration quality health care and restrict access to
it. To simply replace the state with an insurance company is not a
viable alternative to the current health care crisis, nor will it
empower patients. If health care is rationed and patients' access
to a treatment or a drug they need is blocked because of budget
limits, it is hardly relevant to them whether the rationing
authority is the government, a sickness fund, a health maintenance
organization, or an insurance company.
|LESSONS FOR U.S.
The most valuable lessons to be learned
from the health care systems of Europe can be found in recent
experimentation with privatization.
Lesson #1: Move toward a funded system of health care
financing. The pay-as-you-go financing underlying government
systems makes healthy, usually young, people pay for the needs of
older, usually less healthy, people. That appears rational,
but it invites another set of problems.
When the number of young people in a society declines, there are
only two ways to keep the system intact: increase the burden on
those at the paying end or limit the quality and availability of
care for those at the receiving end. In Europe, this often has
meant the restricting or denial of the best care available
based merely on the age of the patient. Only under a system that
allows capitalization-reserving and creating funds for the future
through private investment-will the health care sector expand to
meet the needs of the future.
Lesson #2: Privatize health care delivery systems as much as
possible to foster innovation and competition. Privatized
health care systems are preferable to government-run and -regulated
systems because they allow more experimentation, and because they
can adapt more easily to any challenges the future may bring.
privatized health care system is preferable to a government-run and
-regulated system because it has one big advantage: It allows more
room for experimentation. Privatized health care systems are better
equipped for the future because they adapt more easily to
challenges and allow for the introduction of innovative strategies.
However, the most crucial element in patient empowerment is
capitalization. Capitalism is the medicine that we need.
Paul Belien, a Belgian
lawyer, is Research Director for the Centre for the New Europe. He
previously worked as a journalist for the financial-economic
weekly Trends in Brussels.
A View from Sweden
discussing future developments in the health care system in Sweden,
it is important to consider three factors that will influence the
decisions: values, relations, and recent challenges. Health care of
tomorrow will be essentially a relations-based set of services.
Every reform and every new system in health care must be designed
on the basis of dialogues with its consumers, the patients. Any
attempt to reform the health care system that ignores this fact is
destined for failure.
Today's challenge in Europe involves three
strong forces that are driving a movement toward change: values
that are becoming more individualistic, the demographic reality
that there will be more older people and fewer younger ones in the
future, and new perceptions regarding the way that services can be
Changing Values About Health Care
In terms of a transition in values in the Western world,
the United States is five to 10 years ahead of Europe. Sweden is
following fairly close behind the United States -- a fact that may
surprise those who look upon Sweden as an old-style, socialist
welfare state. Values are changing -- not only among young people who
are looking to address their health care needs, but also among the
baby boomers who are, step-by-step, moving into a situation where
they will have increasing needs for health care services.
Today's patient is far from yesterday's
stereotype, who was docile, uninformed, and in a relatively weak
position compared to that of the doctor. The characteristics of the
new consumer are dramatically different. Today's patients are
well-informed and demanding. They think critically, and they are
building powerful networks.
would not be unusual for a young person today who is first meeting
his or her doctor regarding a particular illness to begin by
saying, "Before I came to this meeting, I had a chat with a user
group on the Internet, and we discussed relevant therapies. A
couple of my friends who live in Australia and Germany told me that
they were treated with a certain kind of very efficient drug. Now
you are offering me another drug, which is second-class and is not
even in use in those countries any longer. Why?"
a doctor's point of view, a confrontation with this kind of patient
activism would be a nightmare, but that is the direction of change
in values and perceptions. Well-informed and articulate
patients-consumers will be far more demanding. They will, of
course, ask for a variety of services. They will demand freedom of
choice and won't accept gatekeeper mechanisms. They will demand the
right to a second opinion and will be members of powerful health
care consumer groups.
Throughout Europe, changing values have
also had an impact on health care employees. Health care
institutions are meeting ever-growing complications when they try
to recruit employees -- not only doctors and nurses, but all levels
of personnel. Not very many young people are attracted by a sector
that is often described in the mass media and public debate as
being plagued with problems. Patients are waiting in the corridors
for days, nurses have suffered mental breakdowns, doctors have
committed suicide because of heavy stress, and the pay is generally
is exactly what would be expected from an old-fashioned crisis
sector that tells the world it is (or at least wants to be) run
like a competent business when, in fact, daily evidence shows just
the opposite. Today's employees ask for modern organization in the
workplace and reasonable, individually assigned wages that are
related to their competence.
Demographic Changes Affecting Health
There has been talk about an "aging" or "dying"
Continental Europe. Of course, somebody will have to survive -- or
there will have to be an enormous immigration to this part of the
world -- if our patients and senior citizens are going to receive the
care they need.
Demographic changes have had a powerful
impact with regard to recruiting employees as well as the demand
for services. A rapidly increasing number of very old patients
suffering from severe illness will dramatically increase the
complexity of care. Today, doctors can successfully perform
coronary operations on people who are as old as 85. This medical
capacity, coupled with a change in values in which patients are
demanding their rights, makes it more and more difficult to deny
treatment to anybody with critical needs.
the same time, a demographic shift will result in strong
restrictions with regard to financing health care. When every man
and woman in the European workforce is expected to carry two senior
citizens on his or her shoulders, things will get tough. Tax
competition is on a global playing field, and overburdened
taxpayers can emigrate -- even from Sweden, the home of high-tax
Changing Mindsets in Europe
All of the above factors will influence the future of
health care in Sweden and many other countries in Europe. It can
safely be said that the old welfare state is on the run. There is
word from all sides that confusion reigns. Conflicts have emerged
with trade unions as signs of future changes and present realities
confront old thinking about pensions, health care, and the labor
market. A new brand of welfare society is emerging, leaving the
traditional European welfare state behind. In Sweden, the Social
Democrat government is beginning to accept this development as a
tool to engender public efficiency, improve the quality of
services, and meet the expectations of the middle class -- if not
officially in party manifestos, in reality in its response to
year, the Swedish Parliament passed a bill welcoming private
providers in primary care and nearly all other kinds of health care
services with the exception of emergency care.
What's most important is for Europe to
change its perspective regarding the economics of health care.
Traditionally, European politicians frown on any move toward the
free market and declare that health care must be strictly rationed.
They are afraid of over-consumption. They're afraid of new
expensive drug therapies.
the perspective of most European governments, a successful year is
one in which there was a zero increase in health care costs. Very
seldom do these politicians relate costs with outcome, as any
a rational business point of view, every cost increase should be
accompanied by progress achieved. But within the health care
system, that kind of expectation is seldom met. A "square-minded"
perspective rules. A change of mindset with regard to costs and
quality of service is a condition for the new system of health care
to take shape, opening the gate for a more consumer-related
approach within the welfare industry. The old-style point of view
cannot address value-driven demand.
Individual well-being and quality of life
are the number one priorities of more and more people. A clear
demarcation between being sick or being well is being replaced by
another, more relative view. Today, many people expect that, in
spite of a chronic disease, an individual should still enjoy a high
quality of life, with access to the kinds of therapies and
medications he needs.
is a bit early to predict where these changes will lead. In terms
of pensions, a number of countries have entered a period of reform,
but others have a lot of mental homework to do before they are
ready to engage in that kind of "reinventing process." The
situation is the same with regard to health care. Some nations will
be able to move relatively easily in the right direction. For
others, this process will involve a lot of pain and effort. Because
health care is influenced by culture and local traditions, change
will occur in different ways and at a different pace in different
Recently, the political leadership of the
European Union declared that Europe will be the number one arena
for economic growth in the near future. That assumes that, in just
a couple of years, Europe will outrank Asia and the United
States -- an awesome challenge. It's rather hard for that kind of
declaration to be trusted if such massive service industries as
pension and health care are bound by a barrage of regulations. If
European Union leaders such as Lionel Jospin and Gerhard
Schröder are serious about the target they set for economic
growth, they are going to have to confront this fact.
New Perceptions About Service
The primary problems facing the European health care
system are economic restrictions, a shortage of workers, and an
aging population. But an untapped solution may already exist.
Thirty years ago, every large company had
one person who was appointed as a computer manager -- a technician in
a white coat who was supposed to solve all computer problems of the
entire company. Today, that position exists in very few companies.
Instead, everybody has his or her own personal computer, and
employees are expected to handle most computer questions on their
development illustrates what might be called the "democratization
of competence." This is an integral part of service production
strategy. The machinery is simplified, and the potential of the
workers is maximized. This means allowing people to grow in
competence and to take on more complex work.
any modern car factory, a number of workers, male and female, will
be working on very complex assignments. These employees have not
graduated from institutions like the Massachusetts Institute of
Technology. They have basic training. Yet they have proven their
competence to perform the entire gamut of the company's operations,
such as planning the production, communicating with subcontractors
abroad, and checking the quality of the goods. These are tasks
that, just a few years ago, were within the domain of "experts in
shows that people have enormous potential to develop their skills.
It also tells us that procedures can be simplified and that various
support systems can be utilized. This paradigm has important
significance for the arena of health care, which is still a very
bureaucratic and hierarchic operation. Employees are categorized
not according to their individual competence, but with regard to
their designated position.
of the strain on the health care system can be reduced if the
competence of individual employees is maximized and their potential
for growth and development is realized. Nurses can take care of
many of the tasks of that doctors now perform. Within other
categories of personnel, there are people who can take on many of
the tasks that nurses do today. Even patients can take a much more
active role in addressing their health needs through
self-treatment, self-medication, and patient networks.
Reforming the System
The key to reforming and salvaging the health care system
is to focus on results and outcomes rather than on budgets or
procedures. New methods of service delivery and innovative
assessments of the roles of patients and personnel could
dramatically increase the overall efficiency and capacity of the
system. A health care organization that is truly based on
competence could serve its clients without having to recruit
between 20 and 30 million new employees (the number that was
considered necessary to meet the health care needs of Western
Europe in the next generation).
Given the projections for the future, two options are
possible for meeting the health care needs of Europe:
- Organizing the entire system according
to a competency-based paradigm, or
- Eliciting a massive immigration of a
largely unskilled workforce from the Third World.
There is also the possibility of a mix of
these two strategies. Within the next 10 to 15 years, most European
countries will adopt an approach that involves some form of
individual savings accounts, voucher systems, or another mechanism
that gives the consumer the final purchasing power over health care
services and elderly care. There is no reason why those decisions
should be entrusted to HMOs and other entities when consumers are
capable of making their own choices.
The Stockholm Approach
Stockholm has adopted an interesting approach to health
care reform. Two million people live in the Stockholm region where
the Greater Stockholm Council serves as the regional health care
authority. In Sweden, health care is almost completely paid for by
taxes. Patients pay a minimal out-of-pocket fee that is little more
than $10. Everybody has access to all services, regardless of where
they live and whether or not they are employed.
the early 1990s, in an effort to meet the demand for services and
shorten waiting lists, the center-right political majority in the
Council decided to start replacing the traditional welfare state
delivery system with a health care services market approach while
retaining the elements of universal access and tax financing. The
process started by contracting out technical services, ambulance
services, laundry, cleaning, and other non-medical functions. In
the next phase, a number of contractors competed for contracts to
provide X-ray and laboratory services. The third wave opened up
competition among the providers of primary-care services.
Timbro Policy Group in Stockholm is conducting a four-year research
project to determine how emergency services -- the "heart of health
care" -- can be made competitive beginning in 2004. According to
their plan, the large emergency hospitals in the region would
become Council-owned corporations with professional boards. In
1998, one of the hospitals in the region, St. George, was bought by
Capio, Inc., a major private Swedish health care company.
While it has accepted private, for-profit
providers in the primary-care arena and for other services, the
Social Democrat national government strongly opposes profit-making
in emergency care. A two-year moratorium has been imposed by the
Parliament to give the government time to develop a system to
regulate ownership of emergency-care hospitals.
Stockholm region will be the main battleground between Social
Democrats and the center-right parties in the general elections
next year. This health care experiment provides a symbol that suits
both camps well and can be used to contrast the goals of
each -- promoting freedom of choice or defending the old
service-delivery market reform in Stockholm builds on a
purchaser-provider relationship. All 2,200 producers in the
system -- public and privately owned -- are paid by the same mechanism,
which rewards productivity. (Even if Sweden officially denounces
every American influence, many of the technical aspects of this
system, such as the payment structure, have been imported from the
LESSONS FOR U.S.
What should U.S. policymakers take away from Sweden's efforts to
ensure that adequate health care is available to all?
Lesson #1: Remember that health care consumers today are far
different from those of the past. They are well-informed,
through such vehicles as the Internet and patient support groups,
and they want freedom of choice and quality services. In an
industry that is consumer-driven, traditional service
provision by the welfare state will be less and less
Lesson #2: As patients demand better services and aging
populations need more service, the pressure on the system will
increase rapidly. With a smaller workforce anticipated for the
future, the ability of health care personnel at all levels to
maximize their potential and competence should increase. New
paradigms for service delivery will be needed. As the Stockholm
project shows, a market-based approach that includes privatizing
hospitals and outsourcing tasks-from ambulance service to
laboratory services and emergency care-can increase the
quality of health care overall.
result of this competition and the number of private service
providers, services have increased dramatically in the Stockholm
area while long waiting lists continue to plague health care in
most other parts of Sweden. In fact, there is a direct correlation
between a monopoly of old-style health care and long waiting lists.
Outside the metropolitan region, patients must wait for up to one
year for cataract surgery and two years for hip surgery.
the Stockholm region, health care employees are actively encouraged
by the Council to become entrepreneurs. Many start their own
enterprises, working as contractors for the Council. It is
interesting that the nurses union and the doctors union are key
supporters of this development. They recognize that there is a much
greater possibility of raising the wages of their members when
there are a number of employers rather than a single employer who
holds a monopoly on services, as in the old system.
Finally, health care consumers in
Stockholm are supported by new information systems. The politicians
have opened new opportunities for comparing the quality of care
providers and services, releasing pressure for reform from below
and creating an alliance between elected and electors to force the
administration to change -- an interesting concept.
Johan Hjertqvist, a Swedish health care
consultant and adviser to the Stockholm City Council, is project
manager of health care for Timbro, a Swedish think tank that
focuses on enterprise.
Analytical Approaches to
Friedrich Breyer, Ph.D.
important factor in estimating the projected amount of health care
spending for Europe and, in particular, Germany is the impact of
population aging. How big a financial problem will health care be
in Europe in 2030 and 2040? What percentage of the payroll will
need to go into health insurance contributions at that time? There
are various methods of answering these questions that yield sharply
differing projections. I will discuss two: the accounting method
used by the German government and a regression analysis.
Federal Ministry for Health in Germany commissioned the PROGNOS
Institute, a consulting agency based in Basle, Switzerland, to
produce a forecast for 2030. According to the system adopted by
PROGNOS, health insurance expenditures by 2030 will rise from their
current level of 13.5 percent of payroll to a 16 percent payroll
tax. people were fairly relieved with this modest 2.5 percentage
point increase, which seemed a normal development.
contrast, my colleague Professor Volker Ulrich from the University
of Greifswald, Germany, and myself calculated expenditures by 2030
and 2040 using a different (and we believe more accurate) method of
calculation yielding significantly different, and troubling,
projections. We projected that the contribution rate -- the amount of
payroll going toward health care contributions -- would increase from
over 13 percent in 2000 to 20.7 percent in 2030 and rising to 23.1
percent in 2040.
contribution rate, expressed as a fraction, has as its denominator
the tax base, which is equal to labor earnings. These are
determined by birth rates and net migration, labor force
participation, and labor productivity -- the realm of the labor
economist. I am not a labor economist; I am a health economist, so
I basically accept the existing forecasts of the denominator and
will instead address the problem of assessing the numerator, health
major determinants of health spending in the future will be
population aging and medical progress. The denominators for both
methods of projecting 2030 contribution rates are the same. The
difference in the projections themselves is due to different
calculations of the numerator.
Germany's Projections Using the Accounting
PROGNOS, in developing the projections that are now used
by the Federal Ministry for Health, used what I will call the
the first step, it looked at present age-expenditure profiles. On
average, the sickness funds will spend a different amount of
deutsche marks per year on health care for a typical 20-year-old
than it will for the typical 60-year-old, and so on.
the second step, PROGNOS extrapolated the age-expenditure profiles
with the assumption that the rate of increase per year is the same
as the rate of increase of productivity. This means that it
excluded this as a cause of tax increase because productivity means
wage growth, and if expenditures grow as fast as wages, then it
can't be a factor in the increase in the payroll tax.
the third step, PROGNOS multiplied this new age-expenditure profile
by the age distribution forecast for the future and came up with a
projected payroll tax of 16 percent for 2030.
There is, however, a systematic error in
this method as well, although it is a downside error: Insofar as
the future age distribution reflects lower death rates in older
ages, you cannot use today's expenditure patterns because this
exaggerates health care costs, since a large portion of
expenditures occur in the last year of life. Everybody is in the
last year of life only once, and if people die later, this means
that fewer 70-year-olds are in their last year of life, so the
standard expenditure for a 70-year-old in 2030 will probably be
lower than it is now.
is a "downside" error, but its impact is small compared with the
error in the other direction that results from nullifying the
impact of increased expenditures and thus nullifying medical
Projections Using a Regression
The method used by us to forecast future health
expenditures is based on a regression analysis. Basically, we are
predicting the future increase by looking at what factors explain
the development of health care expenditures in the past three
decades. Our dependent variable -- the variable that we wanted to
explain -- was total health care expenditure of sickness funds per
capita in real terms. The explanatory variables were the
structure , which we measured very simply as the portion
of sickness fund members who are over 65 years of age;
- Real taxable
income per member; and
- The calendar
year (as a proxy for medical progress).
We also looked at a few other variables -- such
as the death rate -- because, as I said, a large share of health care
expenditures occur in the last year of life. So there may be a
relation between the death rate and expenditures.
estimate the relationship, we used a time series of sickness fund
data for the 26 years from 1970 to 1995. Altogether, we were able
to explain more than 99 percent of the increase in health care
costs in Germany during that period.
main findings from this analysis are:
- Income is a
strong predictor of health expenditures. When income rises
by 10 percent, health expenditures increase by 4 percent.
- Age structure is
very important , of course.
- The time trend
is very strong. This factor, which was virtually excluded
by the PROGNOS Institute, adds a 1 percent increase in per-capita
expenditures every year. This means that, even if income and age
structure remained constant, per-capita health expenditures would
increase by 1 percent every year. Such an exponential time trend of
1 percent each year makes a significant difference over a 30- or
40-year time period.
- The death rate
is not a significant predictor of expenditures.
Simulation . Using this regression analysis, we attempted
to predict future expenditures. Here, we just plugged the PROGNOS
forecast for taxable income, for the consumer price index, and for
the age structure into our equation. As a result, we received
projections for the development of the contribution rate to the
Germany sickness funds in the next 40 years. The results are
presented in the last column of Table 1.
can see, based on the last year of our data analysis (1995), that
we projected a contribution rate of 13.1 percent in 2000. Actually,
the average contribution rate was 13.5. Also, according to our
calculations, the increase in the next 20 years will be rather
modest, to a level of 15.6 percent, since the real demographic
change in Germany will occur after 2020.
So for the next 20 years, the only factor substantially affecting
the contribution rate will be medical progress; but then, from 2020
to 2030, there will be an enormous increase in the number of
elderly accompanied by an enormous drop in young people and
working-age people. This will mean that there will be a dramatic
increase in the contribution rate to 20.7 percent in 2030 and over
23 percent in 2040. In all, we estimate that we will see a 10
percentage point increase in the contribution rate within the next
40 years just for health insurance.
projection is in striking contrast to the 2.5 percentage point
increase by 2030 projected by the PROGNOS Institute. Our projection
of the increase over that same time period is literally four times
the projection used by the German government.
give you another example, the German Bundestag -- facing an impending
pension cost crisis -- recently passed pension reform in which the
benefit level was cut considerably. Without the reform, the
contribution rate for social security was forecast to rise to about
24 percent of payroll. Parliament instituted a reform to bring it
down to 22 percent.
Here, we are talking about a 10 percentage
point increase. Yet nobody in Germany is talking seriously about
the long-term issue of health care financing. The major reason why
is that the overnment believes that, by putting health care
providers on a global budget, it can keep expenditures from
effects of this policy can be illustrated by the following
metaphor. Suppose you have a pot of boiling water and you put a lid
on the top. If you press down on the lid, the pressure of the
boiling water in the pot will increase. Sooner or later, it will
explode. This is exactly what is done when a global spending cap is
put on the health care budget with the expectation that everything
will run smoothly.
as expenses continue to rise, we will see more of what I would call
"bad rationing" -- the type that is unforeseen and that people cannot
prepare for or insure against -- because it comes unexpectedly,
through waiting lists and in a haphazard way. Instead, we could
follow the model implemented by the state of Oregon and ask what
benefit package we could afford to pay for through the public purse
in 2030, and what additional services people would have to decide
to purchase privately. If Germany were to use this direct, explicit
rationing approach, people could start building up supplementary
insurance now, and over 30 years could build up the reserves they
would need to pay for these additional costs.
Applying These Trends to Other European
How does Germany's situation compare with that of other
European countries? Take a look at Table 2.
The first of the four columns shows the net reproduction rate at
the end of the 1990s. The next two columns show the consequences
for the old-age dependency rate at two different points in the
Column 1 shows the 1996 rate at which
women are having daughters who live to their 15th birthday, the
beginning of reproduction age. In essence, this rate measures to
what extent a generation of women replaces itself. A value of 1.0
indicates that the population will be fully replaced. A value of
0.5 indicates that the succeeding generation will be half as large
as the parenting generation.
the table shows, all the countries in the European Union (EU) have
net reproduction rates below 1.0 in 1996 -- even Ireland, a Catholic
country that had above-replacement fertility rates throughout the
1970s and 1980s. The countries with the most extreme drop in
fertility have been Germany, Greece, Italy, and Spain. These
countries have a net reproduction rate that is not below 0.6, which
means that the next generation will be only 60 percent of the size
of the previous generation.
Columns 2 and 3 show what this net
reproduction rate implies for the old-age dependency ratio -- the
number of people over age 65 for every 100 people aged 20 to 65 in
2030 and 2050.
There is concern in the United States that
there will be a demographic crisis when the baby-boom generation
retires. As the table shows, in 2030 there will be 36.8 people over
age 65 per 100 people of working age in the United States. The
average dependency ratio for all EU countries in 2030 is 43.8,
while Italy's will be 49 and Germany's 46.7.
Similarly, in 2050 the situation will be
most extreme in Italy, Spain, and Greece, nations that have the
lowest fertility rates today. So what I have described about
Germany, demographically, appears to apply to Italy and Spain as
Another factor in evaluating the viability
of a country's health care system is its "generosity," indicated in
the last column of Table 2 as
health expenditures in 1997 as a percentage of the country's gross
domestic product (GDP). Germany again is at the top, with France
and Italy trailing only slightly behind.
LESSONS FOR U.S.
As the analysis by Friedrich Breyer indicates, the European
experience with rising health care expenditures will compound
as demographics change. Several lessons from this experience are
worth noting here.
Lesson #1: Today's health care expenditure patterns are not
accurate predictors of tomorrow's needs. Demographic shifts,
such as those in fertility, often have dramatic effects on future
contributions to a system and on future expenditures.
Lesson #2: Income and age structure are strong predictors of
future health care costs. Without reform, for example, as the
proportion of people in retirement rises compared with the number
of working-age adults, a health care system will experience rising
demands for services that become increasingly more difficult to
Lesson #3: Technological progress in medicine is an additional
cost factor. Rather than making medical services cheaper
to produce, which is true for most other commodities, technological
progress adds to the demand for health care and thus has an
enormous potential to create exploding medical
am asked to summarize the problems health care financing in Europe
faces in the next decades, I will likely conclude from this
analysis that the problems will be most severe in countries that
already have very generous health care expenditures and
increasingly high dependency ratios by 2050. As the table indicates
in bold, these countries, especially Germany and Italy, have both a
health care expenditure problem and a demographic problem.
Friedrich Breyer, Ph.D., is a Professor of
economics at the University of Konstanz in Germany. He is the
coauthor of Health economics (Oxford, 1997), an in-depth look at
the economics of health care.