A GUIDE TO HEALTH CARE SYSTEM MODELS
by Madeline Tress
As more of us enter the fray of the health care reform debate and examine proposed federal, local and state legislation (see Ilene Winkler’s “A Short Guide to Issues Around Health Care Access”), it is important for us to understand just what is meant by the various terminologies such as universal health care, single-payer, and social insurance systems, private insurance, etc.
Universal health care refers to delivery by a combination of public and private systems. In most cases, the law says that everyone must have access to health care. Germany, for example, has universal coverage, and social insurance plans cover the majority of people.
Under a social insurance plan, various sickness funds finance the health needs of its members with a percentage of wages of its members. The US equivalent are the various ERISA funds, with the difference being that in Germany and other countries with social insurance plans there are no networks. 1,200 sickness funds provide 90 per cent of health care in Germany. Government only subsidizes 15 per cent of the costs of the funds.
There are also 42 private insurers that cover 9 per cent of the population, viz. those in upper income brackets who are excluded from the public social-insurance programs. The Netherlands, which has a similar system, has deemed that 35 per cent of its population is ineligible for the social insurance programs due to high income.
In both countries, the municipalities, through their various social assistance (welfare) programs, cover those who are both ineligible for social insurance plans and cannot afford to purchase private insurance. The public discourse of two- or three-tiered systems is lacking. Compare this to the US, where Medicare plans to implement higher co-insurance payments for those with higher incomes, have created a climate of wondering if there is going to be means-tested Medicare vs. Medicare for wealthier people.
A single payer system is characterized by one provider being able to create a market power that would buy all goods and services in the healthcare market. For example, Canadian Medicare allows provincial governments to purchase all of the health services that are covered by the provincial health plan and used by the province’s residents.
Health care providers have a minimum set price, but since there is one main buyer, their prices will tend to be fairly close to the minimum set price. As a result, fees for procedures are about one-third in Canada as they are in the US. Other examples of single-payer systems are the National Health Service in the UK, the Veteran’s Administration in the US, and the public health care systems of Italy, Sweden and Spain.
Single-payer systems are combination social-insurance and income-transfer programs as the financing comes from a combination of specific payroll taxes (social insurance) and general tax revenues (income transfer).
Multiple payer private insurance- based systems characterizes health care in the US. Under this model, health care is paid for by premiums for insurance policies plus additional cost-sharing (deductibles, coinsurance and costs not covered by policies). In this system, there is less bargaining power over the price and quality of care.
It also contaminates public systems such as Medicaid and Medicare, which are viewed as de facto insurance systems.
No country, however, has a pure type of system. In countries with strong public health care systems, there is still a market for private insurance. Complementary private insurance covers cost-sharing requirements and is popular in France, where about 90 per cent of the population holds such policies; the US equivalent would be Medigap.
There is a market for supplemental private insurance, which finances goods and services excluded from public coverage. Such plans are popular in Canada, the Netherlands, and Switzerland. Finally, there are duplicate markets, viz. private health insurance that duplicates public universal coverage and operates parallel to the public delivery system.
All the Anglophone countries, which are considered to have the weakest public systems, have duplicate markets (Australia, New Zealand, Canada and Ireland; it accounts for about 15 per cent of health care delivery in the UK).
The High Cost of Health Care in the US
Public Spending. US public spending on health care as a percentage of GDP is virtually identical to public spending in the UK, Italy and Japan, and not much smaller than Canada. However, the percentage of the healthcare dollar financed from public sources in the US is low compared to other OECD countries
In most OECD countries, public health plans dominate, averaging around 75 per cent of all health care costs. Premiums paid by families and individuals for private health insurance account for the remainder of costs. However, it accounts for 55 per cent of US costs. Moreover, US private spending per capita on health care is five times the OECD median.
Complexity and Fragmentation.
As stated above, the complexity and fragmentation of the US healthcare system, particularly the payment system, results in higher prices. More is spent on administrative costs. Private insurers tend to have less bargaining power over the price and quality of care as compared with public systems driving health care costs up.
This is also evident, although to a lesser extent, in all countries with multiple sources of primary coverage, particularly those with significant private health insurance markets.
Cost of Goods and Services.
In the US, health care workers salaries, medical equipment, and pharmaceutical and other supplies are more expensive than they are in other OECD countries. US hospital stays may be shorter, but they are more service intensive than elsewhere.
Compare this to Germany, which has fewer deficits than other European system. If doctors overcharge, they financially penalize themselves, not the patients, the sickness funds or the State.
Insurance Pools. In the American private health insurance system, coverage is provided collectively but the premium is calculated upon individual risk. In German private insurance, coverage is individual but the premium is calculated upon a collective risk, viz. the risk of your age group. This allows everyone to acquire affordable health insurance.
The Western European systems are not without their problems. Membership in the European Union requires that no more than 3.5% of GDP be spent on deficit spending. However, a number of factors in EU countries are causing deficits to increase.
Most EU countries have highly regulated labor markets. Unemployment averages around 10 per cent, decreasing the tax base for both single payer health care systems and government contribution to social insurance programs.
Attempts to loosen labor markets have met with massive protests, as shown in France last spring. Moreover, EU countries are “graying” faster than the US due to falling birth rates and denying immigrant populations social and political rights. The net result is not having replacement populations for pay as you go systems.
To counter potential problems in health care delivery as a result of aversion to deficit spending, the private insurance market has made great inroads in the EU within the past few years to compensate for waiting lists in the UK, cost and access to prescription drugs in Sweden and the high cost-sharing in France.
In general, immigrants have difficulty accessing care in the EU, because it is administered by municipalities on a case by case basis.
At the same time, the problems impeding the European health care system do not exist in the US. There are deregulated labor markets and higher fertility rates, both of which, in theory would create a higher tax base in the US. But Americans are tax averse, making the solution of significant taxes earmarked to cover the uninsured unlikely in the near future, and while the Conyers bill to expand Medicare sounds promising, it is highly unlikely that the health insurance lobby will let it go anywhere.
Another approach might be expanding ERISA programs. Under this model, there would be more mandatory health insurance programs provided by the employers, but funded by employers and employees.
Currently, about one-third of Americans with private insurance are in self-insured plans. Expanding ERISA health insurance plans would provide a German or Dutch type of social insurance system through various sickness funds but at the same time provide the insurance industry with a role.
Another incremental approach would be creating more uniformity of benefit coverage, and creating regulations concerning provider fee levels, ranging from individual practitioner and prescription drug costs. But, as noted above, such regulation will be difficult if not impossible to be implemented if the system remains as complex and fragmented as it is.
For Additional Reading
Gerard F. Anderson, Uwe E. Reinhardt, Peter S. Hussey, & Varduhi Petrosyan, “It’s The Prices, Stupid: Why The United States Is So Different From Other Countries,” Health Affairs—Volume 22, No. 3, 2003 (available at http://content.healthaffairs.org/cgi/reprint/22/3/89.pdf#search=%22It's%20The%20Prices%2C%20Stupid%22)
James Banks, PhD, Michael Marmot, MD, Zoe Oldfield, MSc, & James P. Smith, PhD, “Disease and Disadvantage in the United States and in England,” JAMA—May 3, 2006—Vol. 295, No. 17:2037-2045.
Paul Belien, Health-Care Reform in Europe, Centre for the New Europe, Brussels, November 1994 (available at http://www.cnehealth.org/pubs/belien_healthcare_sep_96.pdf#search=%22%22Health%20Care%20Reform%20in%20Europe%22%20Centre%20for%20a%20New%20Europe%22)
Bianca K. Frogner & Gerard F. Anderson, Multinational Comparisons of Health Systems Data, 2005, The Commonwealth Fund (publication no. 825), April 2006, (available at http://www.cmwf.org/usr_doc/825_Frogner_multinational_comphltsysdata.pdf#search=%22Multinational%20Comparisons%20of%20Health%20Systems%20Data%22).
George H. Lesser, “Medical miasma,” The Washington Times, August 16, 2006 (available at http://washingtontimes.com/commentary/20060815-094231-9720r.htm).
OECD Health Data 2006: Statistics and Indicators for 30 Countries (available at http://www.oecd.org/document/30/0,2340,en_2649_37407_12968734_1_1_1_37407,00.html)
“Policy Brief. OECD Health at a Glance – How Canada Compares,” OECD Observer, 2001 (available at https://www.oecd.org/dataoecd/5/25/2465559.pdf)
“Policy Brief. OECD Health at a Glance – How France Compares,” OECD Observer, 2003 (available at https://www.oecd.org/dataoecd/58/13/16073264.pdf)
James L. Reed, Timothy S. Barclay, & William J. Fox, International Approaches to a Socialized Insurance System, Arizona Health Care Cost Containment System, August 27, 2001 (available at http://www.statecoverage.net/statereports/az35.pdf#search=%22arizona%20cost%20care%20containment%20system%20international%20approaches%20to%20a%20socialized%20insurance%20system%22)
Robert Wood Johnson Foundation State Coverage Initiatives website (available at http://www.statecoverage.net/)
Cathy Schoen, Karen Davis, Sabrina K.H. How & Stephen C. Schoenbaum. “U.S. Health System Performance: A National Scorecard,” Health Affairs, 20 September 2006 (available at http://content.healthaffairs.org/cgi/content/abstract/hlthaff.25.w457)
Cathy Schoen, Sabrina K. H. How, Ilana Weinbaum, John E. Craig, Jr., & Karen Davis, Public Views on Shaping the Future of the U.S. Health System, Commonwealth Fund, August 2006 (available at http://www.cmwf.org/usr_doc/Schoen_publicviewsfuturehltsystem_948.pdf#search=%22public%20views%20on%20shaping%20the%20future%20of%20the%20u.s.%20health%20system%22)
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