DOES IT MATTER HOW HEALTH CARE SYSTEMS ARE FINANCED? COMPARE TWO OR MORE COUNTRIES IN A DISCUSSION OF THE IMPACT OF APPROACHES TO FUNDING ON EFFICIENCY, QUALITY, AND/OR ACCESS TO HEALTH CARE
HEALTH CARE IN THE DEVELOPED WORLD
Abstract:
Developed countries face similar problems for improving the performance of their health care system. The way the financing of a health care system is organised has effects on the funding levels, the rationing mechanisms, the provision of health services and the expenditure. The first part of this essay will discuss the various methods of funding – the Beveridge system, Bismarck system and the market-oriented system.
The second part of the essay will show that the differences in the above affect the levels of efficiency, quality, and/or access to health care systems. We will illustrate this using the United Kingdom (UK) which use the Beveridge system, Germany which use the Bismarck system and the United States of America (USA) which is market-oriented.
Introduction
There are various approaches to funding health care in the developed world. The methods are the Beveridge model which is funded by public insurance, the Bismarck model funded by social insurance, and the market-oriented system funded private insurance. These are augmented by an increasing reliance on out-of-pocket payments which are user charges, co-payments or cost-sharing depending on the health care system.
A health care system is a framework of users, payers, providers, and regulators. The health care systems are complex and even countries which use same method of funding have different ways of application which is usually based on historical, political contexts e.t.c.
The cost of providing high quality care has been on the rise in the developed world possibly due to the ageing population, increase in life expectancy, and the development of new technology which has led to the development of highly effective drugs which not only prolong life, but also create the need for more resources to be used for treating chronic conditions.
Also there is an increased demand by the public on the type of treatment they get and the need to able to exercise a greater choice about the health care needed.
This means that policy makers are faced with the problems of ensuring that the resources are used as efficiently as possible in achieving maximum benefits for the population while placing importance on the issue of equitable access to health care.
Upon analysis of the three systems, we concluded that the method of funding health care systems has a large effect of their overall performance.
Financing of Health Care Systems
There are three different types of methods for funding health care systems which are the Beveridge system, the Bismarck system and the market-oriented system.
1. The Beveridge System
The Beveridge system is named after Sir William Henry Beveridge who founded the British welfare state. In 1942 he presented a comprehensive report, known as the Beveridge report to the British Parliament on social policy. In the report was a proposal for the creation of a comprehensive social insurance which will include the integration of social insurance forms, creating a general health service to provide occupational accident insurance, family protection and ensure employment (Franke, 2004). The health system under the Beveridge model is provided and financed by the government through general taxation and many of the hospitals are publicly owned. Most doctors are employed by the government and there are also private doctors paid by the government. There is low cost per capita because the government controls the charges made by the doctors and since it is publicly owned it is more responsive to public priorities, as (Baggot, 20004) commented, since it is the government that acts as the provider and purchaser in a tax-funded system, this makes general taxation to act as a mechanism for cost containment as the providers are not able to increase revenue by raising prices or premiums as in the case of private or social insurance. The underpinning principle of this system is that all basic health care finance is covered by the general taxation so that individuals are able to have access to health care free at the point of delivery; hence (Cremer and Pestieau, 2003, p 182), concluded that the Beveridge system of social security is highly redistributive and achieves equal benefits for all. It can be seen that this system ensures cost control while at the same time providing equitable health for all its citizens.
Under this system individuals have access to health care not based on their income or health condition but according to need as (Donaldson and Gerard, 2005) argued, health system financed by taxation usually redistributes using two indicators of individual well being, health and income and can be more efficient than redistribution based solely on income. Unlike the market-oriented systems based solely on income and the social insurance system based on income and income. But this is not a guarantee because if taxation becomes less progressive, inefficiency will result. A main cause of inefficiency in this system is the issue of moral hazard which occur in any system that offer free service at the point of consumption and this has been controlled by the use of waiting lists, waiting times and general practitioner (GP) consultations as rationing mechanisms for controlling unnecessary demands. Amongst countries using tax-financed systems it is only Finland and Iceland that do not use gatekeepers. The use of gatekeepers is to control costs as (Gerdtham and Jonsson, 2000) argued, countries which use gatekeepers have a lower spending capita. Since they spend less it has been argued that the health system is under-funded which leads to rationing of care and that the quality of care is poor when compared to either social- or private-financed systems. The problems of the public systems are the difficulty of increasing funding to an appropriate level especially when the public sector is weak: ineffective application of rationing coupled with the difficulties in managing incentives to improve performance (McPake and Normand, 2008).
2. Bismarck System
The Bismarck system dates back to 1883 when the German Chancellor Otto von Bismarck introduced the statutory health insurance. He enacted a social legislation which was to protect workers against accidents, sickness, invalidity and old age because he had the vision that the only way to protect citizens from the catastrophic problems of ill health was if the whole community shared the risks. This gave rise to the comprehensive social insurance system with its underpinning principles based on solidarity. The health care system is funded through compulsory social insurance contributions but the taxes are specifically earmarked for health services and it is independent from the government. One distinct feature of the social insurance from the tax-based finance is that the revenue is earmarked for health and there is higher willingness to pay when use of funds are known (McPake and Normand, 2008). Therefore there could be higher spending owing to transparency, less interference and increased benefits from contributions when compared to Beveridge system. This is actually the case as most countries operating this model are over-funded and there is over allocation of resource which can lead to inefficiency. The issue of moral hazard will also occur here as health care is delivered free and under this system price mechanism is used to ration care unlike the case of the public insurance which uses the GP gatekeepers e.t.c., the only country that use gatekeepers under the social health insurance is the Netherlands, though France and Germany has introduced soft GP rationing, it is not effective. Also compared with the tax-financed system, social insurance system use the contract model form where the there is separation of the purchaser and provider function where the insurers e.g. sickness funds purchase services from the providers. Under this arrangement the patients have a wider choice of providers compared to the Beveridge system, also coupled with the fact that there are rationing mechanisms like GP gatekeepers to prevent direct access to specialists’ services the quality of care are expected to be higher. The quality of care will likely be the same with that in a market-oriented system. Patients usually have a wider choice of provider under the social insurance when compared with general taxation and the fact that this feature is a feature of the social insurance shows the extent to which the traditions of insurance have been retained (McPake and Normand, 2008).
A key feature of this system is that the insured makes regular contributions from their income, and the employer and employee make payments, but there are differences between countries. Individuals make contributions as a percentage of their income rather than specific health risks and are often shared by employers and employees (Blank and Burau, 2004). Since payment is not related to risks factors it can be seen that it provides redistribute policy like the Beveridge system ensuring universal coverage though it may be less � since eligibility is based on formal or informal employment it may limit the access of the unemployed. Though, the unemployed have the same entitlements as the working population and can have access to providers, thus there is solidarity which is the underpinning principle where the rich pay for the poor, the young for the elderly and employed for the unemployed. Hence there is equitable health for almost everyone.
3. Voluntary Insurance-based health care Systems
Under the voluntary health insurance (VHI) there is no health cover provided by the State and the patients pays for all health services they receive. Reliance on private insurance place considerable emphasis on individuality and this is never complete and therefore private funding co-exists with some public funding particularly for the poor and elderly (Blank and Burau, 2004). This clearly indicates that this system is complex and also inequitable as most individuals will not have access to health care because it is based on income as McPake and Normand (2000) argued, private insurance has an important role because in countries where it is applied it always co-existed with some form of compulsory arrangement for those excluded. This system operates a market based health acre whereby private insurance sell to the public at a price of the population average so that can make profits while guarding against adverse selection which common in the insurance market. “The process, whereby the best risks are selected out of the insured group, is called ‘adverse selection'” (Donaldson and Gerard, 2005), and coupled with the fact that access to health care becomes free at the point of delivery for those who have insurance leads to moral hazard and hence market failures which can lead to inefficiency. Since it is based on income and risks the health care spending is very high and there is provision of high quality care for those who can afford it. There is no gatekeeper which means that the patients also have wider range of provider when compared to the Beveridge system but this is based on income. Under this system co-payments and cost-sharing are used to control moral hazards, but noted by (McPake and Normand, 2005) insurance agencies still ration not by price but based on disease and service exclusion lists such as cosmetic surgery. But with these controlling costs even with public intervention is difficult. This is the case with the USA.
The funding and provision of the health care system is the same as that funded through taxation, but the contracts are not subjected to public regulation directly and therefore there is principle for providing care for everyone based on their needs. Therefore there is limited coverage always as access to basic health care needs.
A Comparison of the Three Systems
Cost containment and maximisation of health outcomes in terms of quality of care, ease and equity of access to health care have been the principal objectives of health care systems worldwide. The extent to which these objectives are achieved will determine the overall performance of a health care system.
Apart from the USA which is unique and dichotomous and characterised by mixed sources of funding, which public contributes 45% and private 55%, the UK and Germany are funded through taxes though in Germany these are earmarked for health services only, while in the UK revenue from tax compete with other expenditures.
1. Efficiency
In economic terms, performance is a measure of efficiency: a health system is considered efficient if it is able to use the scarce resources at its disposal to achieve much, while it is considered inefficient when there is a waste of resources in achieving high levels of health, responsiveness and fairness (World Report, 2000). The USA health system is the most expensive in the world and health care expenditure as a percentage of the gross domestic product (GDP) was 16% in 2007(OECD, 2009), and funding is income-based and risk related and is said to be regressive according to the Kakwani index. The German health system is funded through SHI spends about 10.4% as a percentage of GDP (OECD, 2009) but national figures indicated a higher value at 11%, the Kakwani index is negative, therefore financing is also regressive. While according to OECD data the UK spends 8.4% as a percentage of its GDP in 2007 and funding is by general taxation which is proportionally to income, therefore the Kakwani index is positive.
However, the higher expenditure levels for the USA and Germany do not imply that there health system is more efficient than the UK, but that there is greater allocation of resources to their systems which is likely to lead in improvements to services: the earmarking funds to the health care sector only in the Germany system created a greater acceptance to any increase in premiums due to the transparent nature, while in case of the USA , it is market-based and consumers must pay to get access. In contrast, increasing taxes will tend to cause uproar as this can be done via increasing income tax rate or reducing funding to other public sectors which is politically sensitive. This is one of the reasons why user charges were introduced in the UK. This user charges also address the issue of moral hazard which is a persistent problem in publicly financed systems. To correct the problems of unnecessary use the UK system makes use of gatekeeping. This issue of moral hazard is also common to the German and USA systems and co-payments and cost-sharing have been used to deter over-use of the systems. The use of gatekeeping has been shown to reduce inefficient use of health resources.
The funding in the USA is based on income and risk related this leads to adverse selection which is prevalent in the UK but to a lesser extent, but apparently non-existent in Germany. Adverse selection arise as a result of asymmetric information in the insurance market, as (Donaldson and Gerard, 2005) commented, it is the process of selecting those with the best risks out of the insured group. This means that a lot of individuals will be left without health insurance and cannot access health as in the case of the USA where about 46 million persons are not insured and this will introduce market inefficiencies. The first cause of this inefficiency is that the insurer sets a price that do not reflect the consumer’s marginal cost, hence the consumer feels that the amount they are prepared to pay is more than the premium set by the insurer, who cannot set prices on individual basis because of lack of signaling. Donaldson and Gerard (1993, p31) comments, “thus the market fails to transmit efficient price signals to consumers”. This will lead to a situation where the risk pool may include those with high risks and thereby causing premiums to increase and more people will drop out and finally insurance companies will then design their plan which will deter the sick and attract the healthy.
In terms of efficiency the German and the USA health systems are considered to be inefficient when compared to the UK NHS, for example in both systems there is a lot of wastage where some investigations are carried out without medical justification. The NHS is under-funded so more emphasis is placed on more productive allocation and the efficient use of scarce resources. There is over-provision of funding in the German and the USA systems which results in fewer incentives to use these resources in a productive manner.
In terms of overall performance, the UK was ranked 18th, followed by Germany ranked 25th and the USA was ranked 37th in WHO ranking in 1997.
2. Quality of Care
From their expenditure the USA is expected to have high quality health care, but quality of care is difficult to measure as it involves value judgements, as Blank and Burau (2004, p 90) argued, “the main difficulty with defining quality is that we lack an objective means of measuring what quality medicine is”. The USA Institute defined described quality as the degree to which health services for individuals and populations increase the likelihood of desired health outcomes and are consistent with current professional knowledge (Docteur and Berenson, 2009). The USA , the quality of care is high because the patients are selected by insurers health, therefore the consumers have a wide range of providers to choose from and also access to latest advances in medical technology. They have better facilities and waiting lists are short. This definition refers to quality in terms of technical and /or clinical quality but McClellan and Kessler (1999) disagrees and argued that defining quality in terms of the number of machines, the number of specialists and the intensive medical interventions performed can be misleading. The quality of care is also better in Germany that the UK since they also have access to a wide range of providers and no waiting times, though the NHS has also moved towards the trend where patient have choice of providers but the problems of under-funding with rationing of services will lead to poor quality care
3. Access to Health Care
Access to health care can be either financial or geographical. Most countries in the developed world have restructured their health care funding to provide universal coverage for its citizens. Germany and UK whose health systems are funded by public funds guarantees universal coverage for almost everyone as Blank and Burau (2004) commented, that public funding by use of taxation or SHI contributions creates universal or near universal access to health care. The USA has an unfair system of financing which has led to majority of the population not having access to health care because they are uninsured. Except for the USA which does not have a national health system, all other countries were successful in achieving universal access despite using various means (Blank and Burau, 2004).
Conclusion
In conclusion in can be seen that the method of financing health systems affects the performance of the health care system. In terms of controlling costs and affordability the Beveridge system appear to be more successful than the Bismarck and Voluntary Insurance-based systems, while these are better in terms of access to health care. Though comparing health system is very controversial because selecting indicators to use for comparisons. In comparing these countries we used health outcomes, health care expenditures and quality of care � where these indicators covers the most relevant aspects of health system comparison is open to future debate.
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