chapter
three
Social health
insurance financing
Charles Normand and Reinhard Busse1
The social health insurance model
Funding access to health care through social health insurance has its origins
in Germany in the nineteenth century. The earliest versions of health insurance developed without any significant government intervention. Industrialization brought with it the emergence of large firms, and the workers in these
firms started to organize themselves into trade unions. Sickness funds organized by the workers for mutual support often attracted support from employers,
who saw benefits in their workers having access to better health care. Thus,
a model arose in which health insurance was provided for some or all the
workers in a firm, with much of the control remaining with the workers but
with some management and financial input from employers.
The early sickness funds varied in their structures and governance but were
mainly based on mutual support (in which contributions were based on income)
and provided access to care based on need. In Germany, under Chancellor
Bismarck, the sickness funds were formalized into a broader and more consistent
system of health insurance. This led to the eventual development of territorial
funds, which provided health insurance for those who were unable to obtain
benefits through large formal employers (Altenstetter 1999; Busse 2000). The
current arrangements in Germany have evolved slowly and in response to
problems that emerged. In addition, traditions and unwritten rules have a
strong role in the German system. These are just as important as the formal
rules. It has continued to use the language and traditions of insurance, despite
formal similarities to systems of government financing of care. It has also
given priority to allowing choice of provider.
This chapter is organized into five sections. The first outlines the key features
of social health insurance and how it operates. The second considers the variation in social health insurance in western Europe, in particular in France,
60
Funding health care: options for Europe
Germany and the Netherlands. The third section analyses recent reforms in western
Europe and considers to what extent they have met their objectives. The fourth
section evaluates social health insurance and presents its strengths and weaknesses,
and the final part draws conclusions about the lessons from western European
experience for the development of social health insurance in other countries.
There is substantial literature on the structures, operation and various technical aspects of social health insurance (Roemer 1969; Ron et al. 1990; Normand
and Weber 1994). In this section, we outline the key features of social health
insurance and how it operates.
Social health insurance has no uniformly valid definition, but two characteristics are crucial. Insured people pay a regular, usually wage-based contribution. Independent quasi-public bodies (usually called sickness funds) act as
the major managing bodies of the system and as payers for health care. These
two basic characteristics have certain limitations. In France’s mutual benefit
associations, contributions are based on income and usually split between
employers and employees – but insurance is entirely voluntary (also called private
social health insurance). A part of Switzerland’s compulsory health insurance
is not run by sickness funds but by privately owned insurance companies.
We therefore use a pragmatic definition that also leaves room for innovative
approaches: social health insurance funding occurs when it is legally mandatory to obtain health insurance with a designated (statutory) third-party payer
through contributions or premiums not related to risk that are kept separate
from other legally mandated taxes or contributions. In Figure 3.1, these two
characteristics relate to the arrow C and the box ‘payer/purchaser’.2
Several other characteristics are frequently found in social health insurance funding and fund management, although they are not essential features of the model.
1 Social health insurance is compulsory for the majority or for the whole population.
Early forms of social health insurance normally focused on employees of large
firms in urban areas. Over time, coverage has expanded to include small
firms and, recently, self-employed people and farmers. It is today typically
compulsory for most or all people, although some countries exclude people
on high incomes from social health insurance (such as the Netherlands) or
allow them to opt instead for private insurance (such as Germany).
2 There are several funds, with or without choice and with or without risk-pooling.
Some countries have more than one sickness fund but little choice, since
people are assigned to funds based on their geographical location, occupation
or both. In others, there is a choice among funds, which stimulates competition but may also bring potential difficulties in ensuring equal access to
care for all. Four broad types of organization of sickness funds can therefore
be differentiated: a single fund for the entire population of a country; single
funds serving geographically distinct populations within a country; multiple funds serving the population in the same geographical area but that do
not compete for insurees; and multiple competing funds. Where there is
more than one (competing or non-competing) fund, risk-pooling should
ensure that funds with low-cost and/or high-income members subsidize
those with high-cost and/or low-income members. However, this is politically
and technically difficult.
Social health insurance financing 61
Figure 3.1 Simplified model of the financing functions and monetary flows in
countries with social health insurance
Social health insurance financing system
Social health
insurance
revenue
collector
U
E1
C
Payer/
purchaser
Risk pooler
V
W
Tax collector
E2
Z
T
X
Y
Insurees and
employers
P
Providers
Consumers
Key:
C = contributions (both income-related and non-income-related);
E = earmarked health taxes;
P = private expenditure (cost-sharing for social health insurance services; voluntary health
insurance; and out-of-pocket payments for non–social health insurance services);
T = (general) taxes;
U = tax-financed contributions, such as for non-employed people;
V = general subsidies for pooled social health insurance financing;
W = subsidies for individual sickness funds;
X = reimbursement of services for people not covered by social health insurance;
Y = reimbursement for non–social health insurance services (such as public health);
Z = non-service-related payments (such as for investment) or subsidies.
Note: The dotted lines are outside the scope of this chapter
3 Contributions made by government (or special funds) on behalf of people not in employment are usually channelled through the sickness fund(s). In any social health
insurance system, some people cannot contribute directly and some people are
likely to need government support. If funding for these people is channelled
through the social health insurance system, this can increase the size of the
risk pool. It can also ensure that all people get the same service (if there is a
single sickness fund or multiple funds with a common benefit package), and
there is less danger of the service for poor people becoming a poor service.
4 Both employers and employees pay contributions and share responsibility for managing fund(s). As employers make significant financial contributions to social
health insurance, it may be important that they feel some control over it.
In summary, the key features of social health insurance funding of health
services are that contributions are paid based on ability to pay and the system
provides a separate, transparent system for the flow of funds from the contributors to the sickness fund (and on to providers of services).
62
Funding health care: options for Europe
Variation in systems of financing social health
insurance in western Europe
This section uses the countries with social health insurance systems in western
Europe (Austria, Belgium, France, Germany, Luxembourg, the Netherlands and
Switzerland) to illustrate the variability in arrangements outlined in the first
section. These include the definition of ‘insured’, the organization of the sickness funds and the determination, collection, pooling and redistribution of
contributions. The major findings are summarized in Table 3.1.
Who is insured (and are the conditions equal)?
As social health insurance has its roots in work-related insurance, populationwide coverage was not the original intention. Although coverage has been
gradually expanded to non-working parts of the population in all countries,
population-wide coverage was only very recently achieved in Switzerland (1996),
Belgium (1998) and France (2000). An exception to this is the universal AWBZ
insurance under the Exceptional Medical Expenses Act in the Netherlands,
which was introduced in 1968; as the so-called first compartment, it covers
long-term care and population-wide disease prevention programmes.
Austria and Luxembourg have de facto universal coverage, although a few
people (1–3 per cent of the population) remain uninsured, mostly wealthy
people in Luxembourg (Kerr 1999). Germany has a large proportion of the
population (74 per cent) mandatorily insured and a small portion legally
excluded,3 leaving a third group (mainly employed people with income above
a threshold) with a choice between statutory and private health insurance
(Busse 2000). For acute care, the Netherlands strictly separate along an income
limit between the mandatory scheme governed by the Sickness Funds Act
(ZFW) and private health insurance, with no choice between the two systems.
The ZFW income limits in 2000 were a29,300 for people younger than 65
years and a18,700 for people older than 65 years.
Coverage does not necessarily mean insuring everybody for the same benefits. Although this is usually the case, Belgium has a two-tier system for the
88 per cent of people in the ‘general regime’ (with a comprehensive benefits
package) and the 12 per cent in the ‘regime for self-employed’ (for whom the
benefits package covers ‘major’ risks only) (Nonneman and van Doorslaer
1994).
How are the sickness funds organized (and is there
any choice among them)?
The number of funds and their size and structure vary widely, as does the
extent to which they compete for members. Austria, France and Luxembourg
have comparatively small and stable numbers of non-competing funds, as
these are defined based on occupational status and, for Austria, place of residence. Luxembourg, for example, has nine sickness funds: one each for manual
Table 3.1 Important characteristics of social health insurance systems in western Europe relating to financing, 1999 or 2000
(unless stated otherwise)
Belgium
France
Germany
Luxembourg
Netherlands
Switzerland
Social health
insurance coverage
(percentage of
population)
99%
99–100%
100%
88%
97–99%
AWBZ 100%,
ZFW 64%
100%
Number of sickness
funds
24
About 100
(all but 2
organized in 5
mutual benefit
associations)
19
420 (in 7
associations)
9
30
109
Percentage of
insured people with
choice of fund
0%
About 99%
0%
96%
0%
100%
100%
Contribution rate:
uniform or varying,
percentage of wage
(distribution
employer : employee)
Varying by
profession:
6.4–9.1%a
Uniform: 7.4%
(52 : 48)
Uniform: 13.6%
(94 : 6)
Varying by
fund: mean
13.6% (50 :
50)
Uniform: 5.1%
(50% : 50%) +
0.3–5.0% sick
pay (50 : 50)
Uniform: AWBZ
10.3% (0% :
100%), ZFW 8.1%
(78 : 22)
No
Ceiling on
contributory income
Yes (a44,000)
No
No
Yes (west:
a40,000; east:
a32,000)
Yes (a70,000)
Yes (AWBZ
a22,000, ZFW
a29,000, a19,000
for pensioners)
Not applicable
Other personal
contributions to
funds (excluding
co-payments to
providers)
No
Plus a nominal
premium per
capita (varying
by fund)
General social
contribution
7.5% + social
debt repayment
contribution
0.5%
No
No
Plus premium per
capita (varying by
fund), mean a180
annually
Only premium
per capita
Determines
contributions
Government
Government b
Government
Individual
funds
Union of
Sickness Funds
Government b
Individual
funds or
insurers
Social health insurance financing 63
Austria
(cont’d )
64
Table 3.1
Belgium
France
Germany
Luxembourg
Netherlands
Switzerland
Collects
contributions
Individual
funds
National
Social
Security
Officeb
Local
government
agencies,
transferred to
Central Agency
for Social
Security
Institutions
Individual
funds
Union of
Sickness Funds
AWBZ/ZFW Fund
managed by
Board for Health
Care Insuranceb
Individual
funds or
insurers
Mechanism for
pooling or financial
risk-sharing among
funds
No, but funds
in deficit may
apply for
transfers from
other funds
Mainly joint
expenditure;
limited
prospective
allocation to
funds (1999:
4%; 2000:
7.5%)
Subsidies from
major funds
(up to 42%)
and
government to
smaller funds
Risk-structure
compensation
mechanism
at the federal
level (for
> 90% of
income)
Joint expenditure
Mainly joint
expenditure;
limited
prospective
allocation to
funds (ZFW 35%
in 1999)
Risk-structure
compensation
at the cantonal
level
Tax financing of
social health
insurance (if
available: percentage
of fund income)
Generally no,
except 23%
for farmers
fund: 0.5%
of the total
Yes, 35–40%
Yes (up to 8%);
plus special taxes
(up to 34%)c
Generally no,
except 52%
for farmers’
funds: < 1%
of the total
Yes, maximum
40% d
Yes, AWBZ < 1%,
ZFW 25%
Only indirect
subsidies (to
insurees rather
than to funds)
Social health
insurance
expenditure as a
percentage of total
health expenditure
48% (1996)
62% (1994)
74% (1996)
61% (1994)e
75% (1997)
73% (1999):
AWBZ 37%, ZFW
36%
28% (1997)e
a
b
c
d
e
Manual workers 7.9% (50% : 50%) + 2.1% sick pay (100% : 0%), white-collar workers 6.9% (51% : 49%), civil servants 7.1% (44% : 56%), self-employed 9.1%,
farmers 6.4%.
Individual funds for per-capita premiums.
On car insurance, alcoholic drinks and pharmaceutical marketing.
250% supplement on pensioners’ contributions, 10% on other contributions.
Plus health expenditure from other social insurance schemes (4% and 7%, respectively for Germany and Switzerland).
Funding health care: options for Europe
Austria
Social health insurance financing 65
workers, white-collar workers in the private sector, self-employed people, the
agricultural sector, civil servants of the state, civil servants of local authorities,
manual workers at ARBED (a private company), white-collar workers at ARBED
and the Luxembourg railways.
Western European countries with competing funds have more funds, but
the numbers are decreasing. In 1993, Germany had 1221 funds, but these were
merged into 420 funds in 2000 and are classified into seven groups: 17 general
regional funds, 12 substitute funds, 337 company-based funds, 32 guild funds,
20 farmers’ funds, one miners’ fund and one sailors’ fund. Belgium has about
100 funds organized according to religion and political affiliation. All but
two funds are members of five associations (Christian, Free and Professional,
Liberal, Neutral and Socialist), the remaining ones being the Auxiliary Fund
and the Fund of the Belgium Railway Company. In the Netherlands, mergers
between 1985 and 1993 halved the number of sickness funds from 53 to 26.
The number has since increased slightly to 30, as competition among funds
was introduced in 1995. In Switzerland, sickness funds and private insurance
companies offer compulsory health insurance (the companies may only profit
from supplementary insurance), and the number of insurers declined from
207 in 1993 to 109 in 1999 (Minder et al. 2000).
The presence of more funds in a country does not necessarily mean more
choice, as demonstrated by Germany, where membership of most funds was
legally assigned until 1995. Since 1996, most insured people may choose
which fund to join; only farmers, miners and sailors are assigned membership
to the corresponding funds. Insured people in Belgium have traditionally had
a choice among funds (except for railway employees) but not insured people
in Austria, France and Luxembourg. If insured people are allowed to choose
and switch between funds, countries need to decide how often this should be
allowed. When the Netherlands opened their funds to competition in 1995,
they opted for a 2 year interval but changed to an annual option from 1997.
People may switch every 3 months in Belgium, every 6 months in Switzerland
and every 12 months in Germany (generally). However, voluntary members
earning above the threshold in Germany could always – and still can – move
from one fund to another at any time with 2 months’ notice. However, a
decision to leave the social health insurance system and obtain private insurance cannot be revoked.
Paying contributions: rates, ceilings and
supplementary contributions
Contributions are mainly based on wages and are shared between employers
and employees in all countries (except Switzerland4). Nevertheless, there are
important differences relating to:
•
•
•
•
the
the
the
the
uniformity of the rate;
distribution of contributions between employer and employee;
existence of an upper contribution ceiling;
existence of additional non-wage-related contributions.
66
Funding health care: options for Europe
Insured people have the same contribution rate regardless of sickness fund
and membership status in Belgium, France, Luxembourg and the Netherlands.
In Austria, rates vary between 6.4 and 9.1 per cent according to employment
status but not between funds for a given employment status. In Germany, the
contribution rates differ among funds but not by employment status.5
The employer and employee each pay about half in Austria, Belgium,
Germany and Luxembourg. In France, the employers paid 70 per cent for a
long time, but the employees’ contribution has been reduced to 6 per cent
in favour of a health tax. In the Netherlands, employers cover most of the ZFW
but nothing of the AWBZ; in total, employers pay 35 per cent for those
insured under both schemes.
Austria, Germany,6 Luxembourg and the Netherlands have ceilings on contributions (differing between the insurance schemes in the Netherlands) but
not Belgium and France.
Belgium, France and the Netherlands impose additional contributions to
the wage-based contributions. In Belgium and the Netherlands, insured people
pay a non-income-related per-capita premium on top of their contributions.
These premiums, which vary among funds, are currently small in Belgium but
are about a180 a year in the Netherlands (about one-tenth of the income of
sickness funds) and are levied not only on sickness fund members but also on
their covered dependants.
France has replaced the employee’s part of the contributions with a
general social contribution that is also based on non-wage income; in addition, a social debt repayment contribution is charged. The reasons for these
complementary premiums differ: in France, containing costs and increasing
the financial base of the funds was the driving force; in the Netherlands,
the charges aimed to introduce an element of price competition among
funds.
Negative supplementary contributions are also theoretically possible. For
example, Germany experimented with no-claim bonuses – a refund of contributions if no services were used – after 1989 and opened up this option as
a market instrument for all funds in 1997, despite evaluations demonstrating
that only insurees with low utilization benefit (Malin and Schmidt 1996). As a
typical instrument used by private health insurance schemes, the bonuses are
no longer considered compatible with the basic philosophy of social health
insurance and were abolished by a new parliamentary majority in 1998.
As contributions are based on wages, contributions for non-waged people
must be determined. For the largest group, pensioners, contributions vary
between countries, both regarding how much they pay and who actually pays.
In most cases, pensioners pay the same rate on their pension as employees pay
on their income (or, in Switzerland, the same per-capita premium). This amount
is split between the pensioner and the statutory pension fund (substituting
for the employer) in Germany and Luxembourg and placed entirely on the
pensioner in the Netherlands. In Belgium, pensioners pay only the employees’
part of 3.55 per cent; the contribution rate is more than 11 per cent for
pensioners in Austria. As pensioners in Austria pay only as much as working
members on average (3.75 per cent), pension funds pay two-thirds of the
contribution (European Commission 2000).
Social health insurance financing 67
Decision-making powers
Although sickness funds are self-governing in most countries, the government
or parliament decisively influence the setting of contributions. In France, for
example, the government, representatives of employees and employers and
the social security organizations negotiate contribution rates, but the government ultimately decides. In the Netherlands, the Health Care Insurance Board
(College voor zorgverzekeringen, CvZ), which runs the Central Funds of ZFW
and AWBZ, recommends contribution rates for the following year to the Ministry of Health, Welfare and Sport, which sets the rates. Only Germany and
Luxembourg have delegated the power to determine contribution rates to selfgoverning bodies subject to government approval – in Germany to the individual funds and in Luxembourg to the Union of Sickness Funds. Similarly,
insurers in Switzerland set their own community-based premiums under the
supervision of the Federal Office for Social Insurance. The government amends
the contribution ceilings annually in all countries, taking into account changes
in wages. The sickness funds in Belgium and the Netherlands set their own
per-capita premiums. These differ in the Netherlands because of competition
(see previously) but have mostly remained uniform in Belgium: only one fund
lowered its rate from the usual a2.20 per month to a1.20 in 1998 but reverted
in 1999 (Schut and van Doorslaer 1999).
Collection of contributions and other social health
insurance revenue
The sickness funds collect the contributions in Austria, Germany and Switzerland. Associations of funds (Luxembourg) or government agencies may also
collect contributions. In Belgium, contributions are paid directly to the
National Social Security Office (RSZ/ONSS), which, in turn, redistributes the
money to the respective government agencies responsible for administering
different sectors of social security, such as unemployment and pensions. The
agency responsible for health benefits is the National Institute for Sickness and
Invalidity Insurance (RIZIV/INAMI). Similarly, in France, revenue is collected
by local government agencies that collect social security and family allowance
contributions. The money is passed to a national agency, the Agence Centrale
des Organismes de Sécurité Sociale (Central Agency for Social Security Institutions), which manages and allocates the money to the different social security
organizations and their branches.
Risk-pooling and allocation among funds
The next issue in social health insurance financing is risk-pooling among
funds and (re)allocation of financial resources to the individual funds. In
Belgium and the Netherlands, before the mid-1990s, complete national pooling of contributions went hand-in-hand with de facto joint expenditure: retrospective allocation of contributions to funds according to actual expenditure.
68
Funding health care: options for Europe
The reforms have led to the gradual introduction of per-capita risk-adjusted
allocations to the sickness funds. In Belgium, the prospective allocation
amounted to 10 per cent of the total health care budget for 1995–96 and
1996–97 and was raised to 20 per cent for 1998–99 and 30 per cent for 2000–
2001. Since the funds were only financially responsible for 15, 20 and 25 per
cent of that allocation in the respective years, the actual percentages ‘at risk’
amounted to only 1.5, 4.0 and 7.5 per cent. The Netherlands went ahead
more rapidly, from 3 per cent in 1993–95 to 15 per cent in 1996, 27 per cent
in 1997, 29 per cent in 1998 and 35 per cent in 2000 – but a special provision
that expenses for extremely expensive patients are shared provides a ‘safety
net’ for the funds (Schut and van Doorslaer 1999). Since the Union of Sickness
Funds in Luxembourg covers directly the expenses for services delivered on a
contract basis (such as hospital care), the retrospective approach is only used
for services with patient reimbursement such as physicians’ services. France
has both a compensation scheme among the local sickness insurance funds as
well as support for some of the smaller funds (those with insured people with
lower earnings) from the National Sickness Fund as well as through taxes.
Ensuring an equitable financial basis in countries where individual funds
collect the contributions is much more difficult. There are two reasons for
this. First, money not only has to be allocated according to some criteria but
actually needs to be reallocated; the money necessary for compensating one
sickness fund has to be taken from another fund. However, the better-off
funds tend to regard the contributions they collect as ‘theirs’, so that the issue
becomes politically contentious. The second reason is more technical: the
reallocation not only has to consider ‘need’ factors (or other factors determining utilization and expenditure) but also the differing contribution bases of
the funds. Thus, although revenue collection and risk-pooling are two distinct
functions, the organizational forms used appear to be related.
Not surprisingly, risk-structure compensation is discussed fiercely in Germany and Switzerland. In both countries, all of the expenditure required to
cover the uniform benefits basket – more than 90 per cent of all income – is
liable to pooling and redistribution. The Federal Insurance Office carries out
the risk-structure compensation in Germany7 and the joint organization of
insurers offers compulsory health insurance (known as Foundation 18 based
on the relevant paragraph in the health insurance law) in Switzerland. Austria
has no formal mechanism for financial redistribution, but funds in financial
difficulty may apply to the association of social insurance funds for financial
aid from other funds.
The role of taxes in funding social health insurance
The common assumption that social health insurance countries rely mainly on
contributions to finance their health systems has to be questioned. International statistics on sources of health care funding often do not specify whether
expenditure through taxation includes tax-financed payments to the social
health insurance financing system (U + V + W in Figure 3.1) or whether these
are included as social health insurance expenditure. Austria and Switzerland,
Social health insurance financing 69
for example, finance a substantial part of hospital care directly through taxation, and social health insurance therefore covers a relatively low proportion
of expenditure. In other countries, such as the Netherlands, the sickness funds
exclusively finance hospital care and, in turn, receive substantial subsidies
from general taxation. Besides the Netherlands, subsidies from taxes – which
are paid to a joint fund administered by the sickness funds (V in Figure 3.1) –
are quite substantial in Belgium and Luxembourg. In Austria, on the other
hand, as in Germany, funds receive no subsidies from taxes (except for the
farmers’ funds in both countries, indicated by W in Figure 3.1). France has a
mixed approach. Its direct tax subsidies are rather low and limited to funds
with members with a low income or high need such as the farmers’ fund, but
it allows the funds to accumulate sizeable deficits that were covered by the
state and are now being paid off through a special social debt repayment
contribution (E2 in Figure 3.1) – a mechanism by which social health insurance financing is retrospectively changed into tax financing.
Two factors have to be combined to estimate the extent to which countries
rely on social health insurance contributions based on wages: the percentage of
social health insurance income through contributions (C/(C + E1 + U + V + W)
in Figure 3.1) and the percentage of overall health expenditure covered by
social health insurance ( (C + E1 + U + V + W)/(C + E + P + T) ). Based on such
a calculation, Germany and the Netherlands are the only countries in western
Europe that cover more than 60 per cent of total health care expenditure
through wage-related contributions. Until 1997, France was the country that
relied most heavily on such contributions, but since it shifted to a wider base
for contributions, the share is currently below 60 per cent. Austria and Luxembourg finance a little less than 50 per cent and Belgium even less than 40 per
cent of total health care expenditure through wage-related contributions
(Table 3.1). In some respects, the Belgian system is more properly classified as
mixed in terms of funding sources, as taxes accounted for 38 per cent of
expenditure versus 36 per cent from social security contributions in 1994
(Crainich and Closon 1999).
Reforming social health insurance systems in
western Europe
Since the 1980s, reforms in financing in the social health insurance countries
have had several, partly conflicting objectives: to increase equity, efficiency
or choice for insurees and to stabilize contributions without adversely affecting the labour market. This section discusses the reforms aiming at different
objectives in the Netherlands, Germany and France.
Reforms to ensure equitable financing in the
Netherlands
In the 1980s, the system of voluntary insurance for elderly and self-employed
people collapsed because private insurers were offering low premiums to young
70
Funding health care: options for Europe
and healthy people. High-risk groups were left with a choice between a policy
with high deductibles or leaving the voluntary scheme. The government was
forced to take action and introduced two acts in 1986: the Access to Health
Insurance Act (WTZ) and the Act on Co-financing the Overrepresentation of
Elderly People in the Sickness Fund Scheme (MOOZ).
The WTZ guarantees access to insurance, as private insurers are obliged to
accept applicants from certain defined groups, and authorizes the Minister for
Health, Welfare and Sport to determine a guaranteed benefits package and its
associated premiums. However, premiums for this scheme were insufficient to
cover expenditure. In accordance with the legislation, an equalization fund
was set up, administered by representatives of the private insurers, to redistribute funds to compensate for insurees in these specific categories (corresponding to about 40 per cent of the total costs of the private schemes). The law also
enforces income solidarity among privately insured people, since they have
to pay a fixed amount per month to the equalization fund to compensate for
the costs of the insurees covered by the standard package policy. The MOOZ
requires solidarity payments to be transferred from privately insured people to
the Central Fund of the ZFW scheme. This compensates for the numbers and
costs of elderly people, who are over-represented in the statutory scheme.
The Council for Public Health and Healthcare (Raad voor de Volksgezondheid
en Zorg 2000) has said that both the WTZ standard package and the MOOZ
regulations could violate European Union (EU) law on fair competition and
recommends that the role of the EU and that of EU countries in health care be
redefined (Sheldon 2000).
Introducing choice of sickness fund and risk-pooling
in Germany
Traditionally, most insured people in Germany were assigned to a sickness
fund based on place of residence and/or occupation. This led to greatly
varying contribution rates because the income and risk profiles of different
occupations vary. White-collar workers had a choice of fund on joining or
when changing jobs. Only voluntary members, those with an income above a
certain threshold, had the right to choose among several funds and to change
funds.
The Health Care Structure Act of 1993 extended the right to choose a
sickness fund freely and to change funds each year (from 1996). All general
regional funds and all substitute funds were legally obligated to accept all
applicants for membership. The company-based funds and the guild funds
may choose whether to restrict access. However, if they opt to allow unrestricted access to members, they are also obligated to accept all applicants.
Only the farmers’, the miners’ and the sailors’ funds still retain the system of
assigned membership.
To ensure that all sickness funds started from an equal position when competition was introduced, a scheme for risk-structure compensation was introduced in two steps (1994 and 1995). In the second stage, retired insurees were
included. Previously, funds had shared the actual expenses of retired people.
Social health insurance financing 71
The aim of the scheme for risk-structure compensation was to reduce differences in contribution rates resulting from different income levels and
expenditure because of the age and sex composition of members. The compensatory mechanism requires all sickness funds to provide or receive compensation for the differences both in their contributory incomes and in their
average (standardized) expenditure (Busse 2001).
Free choice and the compensation scheme affected the social health insurance
system as follows.
•
•
•
•
Movement between funds increased. Changes in membership are correlated
with contribution rates: funds with higher than average contribution rates
lose members, whereas those with lower than average rates gain members
(Müller and Schneider 1999).
For people who have moved from one fund to another, 58 per cent cited
lower contributions as the main motive, whereas for people considering a
move, both the contribution rate and better benefits are equally important.
People not considering a move regard ‘better benefits’ – despite almost
identical benefit packages – to be more important (Andersen and Schwarze
1998).
The risk-compensation scheme has narrowed differences in contribution
rates between funds. This trend is especially observable in western Germany
but recently also in the east. In 1994, 27 per cent of all members paid a
contribution rate differing by more than one percentage point from the
average, and this figure declined to 7 per cent in 1999.
The movement of members between funds has not equalized the different
risk structures but has segregated membership further: the healthier, younger,
higher-earning people move more often and towards cheaper funds.
Replacing payroll contributions by an earmarked
health tax in France
France’s social security system was in constant deficit in the 1990s, with
health care being the main reason. Social contributions were blamed for increasing labour costs and for adversely affecting employment. They were also considered as an insecure source of revenue, as they depend heavily on employment
levels and economic activity. In an effort to address structural and financial
difficulties, Prime Minister Alain Juppé presented a plan to reform the social
security system in December 1995. There were three main aims: to avoid
negative effects on the labour market, to reduce the public deficit and to
achieve consistency between the founding principles of social security and
funding mechanisms (Bouget 1998).
One of the main proposals was to widen the base of the general social tax.
This tax, levied on all types of income, including savings, subsidies, pensions
and capital income, was set at 1.1 per cent in 1991 and was initially allocated
to family benefits. In 1996, it was earmarked for health. The employees’
payroll contributions for health were largely replaced by an increase in the
earmarked health tax from 1998: while the payroll contribution rate decreased
72
Funding health care: options for Europe
from 5.5 to 0.75 per cent, the earmarked health tax increased from 3.4 to 7.5
per cent – thereby reducing the overall percentage but widening the base on
which it has to be paid. The employer’s contribution was maintained. Another
measure was to create a new tax, the social debt repayment tax to clear the
debt of the social security system (Lancry and Sandier 1999). Starting from
1996 and due to last for 13 years, this new tax is set at 0.5 per cent of total
income and is levied on the whole population, except those receiving state
benefits and disability pensions. France has three different income bases for
financing the social security system: one for social contributions, a second for
the earmarked health tax (E1 in Figure 3.1) and a third for the social debt
repayment tax (E2 in Figure 3.1). Future debates will focus on the collective
choice between proportional taxes, notably the earmarked health tax, and
progressive taxes such as income tax (Bouget 1998).
Conclusion
In effect, reforms in these countries were often aimed at achieving more than
one of the objectives. By introducing monetary transfers from private health
insurance to statutory health insurance, the reform in the Netherlands not
only improved the equity of the system but also addressed the revenue crisis
within the statutory scheme. Germany’s main aim was increasing choice, but
the desire to increase efficiency was also important (mainly through better
contracting with providers, which is not the topic of this book). Eliminating
the previous inequality between white- and blue-collar workers was a third
aim – and secured the support of the Social Democratic Party of Germany,
which was in opposition at the time. A mix of objectives is also visible in
France: widening the contributory base and increasing equity.
Nevertheless, reforms in different countries with the same objectives may
lead to different outcomes; for example, the pro-competition reforms in Germany and the modified Dekker Plan in the Netherlands. In Germany, the
risk-structure compensation narrowed the traditionally large differences in
contributions (ensuring increased equity). In the Netherlands, however, the
non-income-related per-capita premium had the effect of widening differences
in contribution (decreasing equity).
Reforms within one country may have both conflicting aims and/or outcomes.
For example, the WTZ and MOOZ reforms in the Netherlands increased equity
in financing, but the subsequent Dekker/Simonis reform decreased equity in
financing by introducing a non-income-related per-capita premium.
Strengths and weaknesses of social health insurance
financing in western Europe
Properly discussing the strengths and weaknesses of social health insurance financing requires clarity on the objectives of health policy. The policy objectives
considered here are financial sustainability, equity, efficiency, responsiveness
and satisfaction.
Social health insurance financing 73
Although the models of social health insurance and general taxation are
similar, they differ systematically in practice. First, the separate structures
for collecting and managing funds tend to result in greater transparency.
However, the organizational autonomy of social health insurance funds
also requires adequate systems of accountability. Second, that access to care
depends on contributions to the fund gives the patient the status of a
customer. The relationship between insurer and member is therefore more
contractual, and thus the benefits to which the contributors are entitled have
tended to be more explicitly defined. Third, revenue is determined by contributions and not by political preferences; social health insurance is thus less
politicized.
Since there is no simple answer to the question of how much should be
spent on health care, adequacy is best judged in the context of a country’s
total resources and other development priorities (Cichon et al. 1999). There
are several reasons and some evidence to suggest that separating health care
spending from other government-mandated spending can increase funding
for health services. Most importantly, perhaps, greater social willingness to
pay for health care seems to be associated with the hypothecation of funds
inherent in a transparent arrangement for funding social health insurance.
This also appears to translate into greater population satisfaction with social
health insurance systems than with systems funded by general revenue or
voluntary insurance (Ferrera 1993; Mossialos 1998). Separating health care
financing from government financing allows people to consider separately the
desirability of higher contributions for better services, secure in the knowledge
that any additional contributions will not be diverted to other government
programmes they may consider to be of lower priority.
Most systems of social health insurance use current employment income as
the contribution base, in part because they originated as employer-sponsored
systems. Since income from employment has historically been a good proxy
for ability to pay, this has generally been fair. However, this narrow base
is becoming less satisfactory for several reasons. First, the trend towards
self-employment is increasing at the expense of employment. Second, more
people have more than one job. Third, wealth affects ability to pay but is not
taken into account. Fourth, capital income is an increasing proportion of
income. The introduction of social health insurance in the countries of central
and eastern Europe has shown that there are problems with this narrow
contribution base, and ways may be needed to take into account wealth and
non-employment income in assessing contributions to increase revenue and
improve equity.
The issue of who actually pays for social health insurance systems is not
straightforward, despite the visible division between insurees and employers.
Much depends on the amount of competition in product and labour markets.
If markets are very competitive, then firms will only survive if they contain
the total cost of employment, so that the total amount spent on wages and
insurance contributions is likely to be constant. If insurance contributions
rise, then wages over time are likely to fall. Thus, in economic terms, the employers may shift their share of the payroll contribution to employees in the
form of reduced wage growth. The tax treatment of insurance contributions is
74
Funding health care: options for Europe
also important. If contributions are exempt from tax, then contributions cost
the same for employers to pay as increasing wages and for employees to pay
and in principle it makes no difference who pays.
A tax is progressive if the proportion of income paid in tax rises as income
rises. In a regressive system, the proportion falls as income rises. Health care
financing can be analysed similarly – funding is progressive if the proportion
of income paid for health care rises as income rises. The findings of the ECuity
Project (van Doorslaer et al. 1993; Wagstaff et al. 1999) suggest that social
health insurance is, on average, slightly less progressive than tax financing but
much more progressive than private financing arrangements. Although The
World Health Report 2000 (WHO 2000) confirms the results regarding private
financing, social health insurance and tax financing do not differ systematically
in financial equity according to that calculation.8
While differences within tax-financed systems depend on the mix between
(progressive) income taxes and (regressive) indirect taxes as well as how completely they are collected, equity differences among social health insurance
countries depend on several factors:
•
•
•
•
the extent to which contributions are based on income (rather than percapita premiums);
whether richer and/or healthier people are paying relatively less (through
income ceilings or no-claim bonuses) or are allowed to stay out of the
system altogether;
the extent to which the contributions to different funds are pooled, i.e.
adjusted for differing risks; and
the extent to which benefits are fully covered or require cost-sharing.
All these points have to be considered with special attention to including
or excluding dependants: equity decreases further if per-capita premiums
are charged for members and dependants. Including dependants might lead
to greater inequity if a ceiling exists: an affluent couple with one nonemployed spouse pays once, whereas a middle-class double-income couple
pays twice.
Historically, many countries, most notably Germany, have had multiple
funds but not competing funds. This is changing as the right to choose insurer
has been introduced. Equity is not related to the existence or lack of competition, but rather to the existence or lack of functioning pooling mechanisms;
in other words, regional monopoly funds can be inequitable if resources are
not pooled and competing sickness funds can be equitable if resources are
effectively pooled.
If a perfect system of risk adjustment is introduced and full allowance is
made for differences in incomes, then full choice and competition between
funds and full solidarity are theoretically possible. However, such mechanisms
are complex and expensive, and increased diversity and choice can also
increase inequality in access to care. For a more detailed discussion of riskadjustment mechanisms between competing insurance funds, see Chapter 11
and Busse (2001) for Germany, Chinitz and Shmueli (2001) for Israel and
Okma and Poelert (2001) for the Netherlands.
Social health insurance financing 75
International comparisons show that social health insurance systems have
higher expenditure than tax-funded systems. The important question is whether
this higher spending reflects a higher volume of services or simply higher
costs of producing care, because of higher transaction costs and/or higher
provider income. The available evidence is limited and allows no clear conclusions. Again a combination of a priori reasoning and evidence is helpful.
Efficiency in the production of care requires structures, skills, motivation
and incentives. Structures affect efficiency both through the market power of
buyers and sellers and by affecting transaction costs. A serious issue in assessing the efficiency of different financing systems is how to minimize management and transaction costs. Evidence on the relationship between management
costs and performance is still poor (Street et al. 1999). Although much of the
transaction costs in social health insurance systems are related to contracting
and purchasing services (and whether funds do this individually or collectively is a major determining factor), only the transaction costs of collecting,
pooling and allocating contributions are relevant here. Unfortunately, the
management costs of sickness funds are not broken down into collecting and
pooling versus contracting and purchasing, and we do not have comparative
data from tax-based systems on the transaction costs of collecting taxes and
allocating them to, for example, health authorities. If, however, sickness funds
are small and have differing contribution rates and different ways of collecting
contributions, the danger of inefficiency is great – but there is no reason why
social health insurance should necessarily involve higher transaction costs
than tax financing.
However, as the desire for diversity and choice increases, the tendency to
incur high costs and to reduce the downward pressure on costs is a major risk
(Normand and Weber 1994). The choice of simple contracting arrangements
in Germany is in part a response to the need to contain costs, although it will
be interesting to see the effects of the current trend towards increasing competition between funds. Between 1995 and 1999 (since the introduction of
competition), the visible administration costs of the funds as a percentage of
all expenditure have increased from 5.24 to 5.76 per cent (Bundesministerium
für Gesundheit 2000). To a certain extent, this results from employers shifting
costs to the funds in company-based funds.
Because resources are never sufficient to satisfy all demands, some form of
rationing or priority-setting is inevitable. A shift from tax financing to
social health insurance does not change this. However, it may change who is
responsible for choosing which services are provided and may shift blame for
constraints (at least in part) away from governments.
Social health insurance systems tend to be associated with high levels of
satisfaction in the population. The sources of this satisfaction are interesting,
including a combination of solidarity (although less than with general revenue funding) and transparency (a clear advantage of social health insurance
systems). To some extent, social health insurance may make every patient a
private patient. Social health insurance systems have certainly been associated
with attitudes to patients that treat them as valued customers and not simply
a nuisance, as suggested by the high responsiveness ratings in The World
Health Report 2000 (WHO 2000).9
76
Funding health care: options for Europe
Conclusions
Learning from the experiences of others is positive but should not lead to
copying systems originating in different settings. Social health insurance in
western Europe has been very successful at meeting particular goals, especially
in providing near-universal access to care. It provides services that are acceptable to the public and that have some solidarity. The details of the organization of funds and provision of care have often arisen as a result of slow
evolution and adaptation of institutions to meet new challenges. There are
many clear advantages. The problems are mainly in the risk of cost escalation,
excessive reliance on too narrow a contributions base, and the potentially
high costs of management and transactions in contracting and purchasing.
Countries that are considering developing social health insurance need to
be aware of the trade-offs between costs and the range of services available,
between costs and the extent of diversity and choice, and between competition and the objectives of equity and containing management costs. History
and tradition have played very important roles in determining exactly how
social health insurance operates. Germany’s system appears to be very diverse
and pluralistic but is also a uniform system, since contracting between all
funds and all providers is collective. It has developed into a system of cooperation with important elements of diversity. As reforms are increasing competition, it will be interesting to see whether the (often very important) traditions
and unwritten rules can withstand the changes. The recent reforms in France
and the Netherlands have been grappling with the different objectives of
universality, containing the costs of services and of administration (and increasing the income of the funds), while retaining the features of the systems
that users value.
Social health insurance has many variants, and the performance of social
health insurance systems may depend significantly on how contributions are
collected, pooled and allocated to sickness funds as purchasers of care. However, the main argument in favour of social health insurance systems is that
they are proportional and thus a way of collecting revenue that is relatively
more equitable than private health insurance. Income ceilings limit the extent
of progressivity, especially compared with general tax funding. The financial
flows are more transparent, thus making (high) contributions by the public
acceptable. The combination of employer and employee contributions mobilizes
additional revenue but may adversely affect job mobility and economic competitiveness. Pooling funds under the control of independent bodies increases
the autonomy of decision-making from the political process. The insurance
relationship persists in the explicitness and transparency of benefits and the
handling of patients as customers.
However, social health insurance risks becoming too dependent on the payroll
for contributions at a time when the proportion of people with permanent
jobs in large organizations is declining. Developing social health insurance is
easier when the pattern of employment includes large firms and formal employment as the norm. Social health insurance can be emphasized as the organizational form for pooling funds and purchasing services, while general taxation
(or a mix of general and payroll taxation) can be the main source of funds.
Social health insurance financing 77
The fact that social health insurance systems have evolved and survived
suggests that this model of quasi-independent funds can offer a sustainable
model that can adapt to different conditions. Most systems are significantly
regulated by government, and systems vary from being close to hypothecated
taxes to those where government loosely supervises the independent funds.
Many systems have some tax-financed components (not all of which are
visible and fully acknowledged), while others have government guarantees for
debt. Social health insurance countries typically spend more on health than
those that use tax financing. One reason is that the financial flows are more
transparent and funding for health care is more acceptable. Serious consideration has been given recently to developing competition in collecting and
managing the funds. It remains to be seen whether market forces can play a
useful role in forcing costs down while avoiding the potential problems of
inequity and high transaction costs.
Notes
1 We thank Jan Bultman and Fons Berten for providing background material on social
health insurance in the Netherlands and Anne-Pierre Pickaert for information on
France.
2 The usual attribution of other characteristics to social health insurance systems, such
as contracts between funds and providers or the relatively unrestricted access of
patients to providers, are outside the scope of this chapter. These relationships and
financing flows are therefore shown as dotted lines in Figure 3.1.
3 Self-employed people are excluded from social health insurance unless they have
been a member previously (except those who fall under mandatory social health
insurance coverage like farmers), and active and retired permanent public employees
such as teachers, university professors, employees in ministries, and so on, are excluded de facto as they are reimbursed by the government for most of their private
health care bills (most of them receive private insurance to cover the remainder).
4 Since compulsory health insurance was introduced in 1996, Switzerland has had a
system of community-rated health insurance premiums. These differ between insurers
but are community rated for all people insured by each insurer in a certain region
(usually the canton).
5 This rule has exceptions. The largest group treated differently were pensioners (until
30 June 1997), since their contributions were based uniformly on the average contribution rate of all funds. For that purpose, the average rate on 1 January each year was
applied 6 months retrospectively and 6 months prospectively (from 1 July of the
previous year until 30 June of the same year). Since 1999, workers who earn less than
a322 per month have been required to pay a uniform rate of 10 per cent, and this
group was not mandatorily insured before. Students pay a uniform premium per
person.
6 The only exemption being the ceiling for miners (mandatorily insured in the miners’
fund), which is one-third higher than normal.
7 The Federal Insurance Office is charged with supervising sickness funds operating
country-wide and with the risk-structure compensation mechanism between all sickness funds. Before 1994–95, Germany had a mixed system: expenditure for pensioners
was covered jointly by all funds (as in Luxembourg), whereas contributions and
expenditure for all other insurees were not reallocated at all (as in Austria).
78
Funding health care: options for Europe
8 The top 12 countries in the world in fairness in financing include Austria, Belgium,
Germany and Luxembourg, as well as Denmark, Finland, Ireland, Norway and the
United Kingdom (whereas France, the Netherlands and especially Switzerland rank
lower).
9 Switzerland, Luxembourg, Germany and the Netherlands rank second, third, fifth and
ninth in the world in terms of responsiveness, whereas of the tax-financed systems in
western Europe, only Denmark achieves a comparable position (fourth).
References
Altenstetter, C. (1999) From solidarity to market competition? Values, structure and
strategy in German health policy 1883–1997, in F.D. Powell and A.F. Wessem (eds)
Health Care Systems in Transition. Thousand Oaks, CA: Sage Publications.
Andersen, H.A. and Schwarze, J. (1998) GKV ‘97: Kommt Bewegung in die Landschaft?
Eine empirische Analyse der Kassenwahlentscheidungen [Statutory health insurance
1997: is there movement in the landscape? An empirical analysis of decisions to
change sickness funds], Arbeit und Sozialpolitik, 52(9/10): 11–23.
Bouget, D. (1998) The Juppé plan and the future of the French social welfare system,
Journal of European Social Policy, 8(2): 155–72.
Bundesministerium für Gesundheit (Federal Ministry of Health) (2000) Statistisches
Taschenbuch Gesundheit 2000 [Statistical Report Health 2000]. Bonn: Bundesministerium
für Gesundheit.
Busse, R. (2000) Health Care Systems in Transition: Germany. Copenhagen: European
Observatory on Health Care Systems.
Busse, R. (2001) Risk structure compensation in Germany’s statutory health insurance,
European Journal of Public Health, 11(2): 174 –7.
Cichon, M., Newbrander, W., Yamabana, H. et al. (1999) Modelling in Health Care
Finance: A Compendium of Quantitative Techniques for Health Care Financing. Geneva:
International Labour Organization.
Crainich, D. and Closon, M-C. (1999) Cost containment and health care reform in
Belgium, in E. Mossialos and J. Le Grand (eds) Health Care and Cost Containment in
the European Union. Aldershot: Ashgate.
European Commission (2000) MISSOC (Mutual Information System on Social Protection
in the European Union): Comparative Tables. Brussels: Directorate-General for Employment and Social Affairs, European Commission. http://europa.eu.int/comm/
employment_social/soc-prot/missoc99/english/f_tab.htm (accessed 25 February 2001).
Ferrera, M. (1993) EC Citizens and Social Protection: Main Results of a Collaborative Survey.
Brussels: European Commission.
Kerr, E. (1999) Health Care Systems in Transition: Luxembourg. Copenhagen: European
Observatory on Health Care Systems.
Lancry, P-J. and Sandier, S. (1999) Twenty years of cures for the French health care
system, in E. Mossialos and J. Le Grand (eds) Health Care and Cost Containment in the
European Union. Aldershot: Ashgate.
Malin, E-M. and Schmidt, E.M. (1996) Beitragsrückzahlung: keine Auswirkungen auf die
Leistungsinanspruchnahme [Contribution repayment: no effect on service demand],
Die Betriebskrankenkasse, 84(8): 379–83.
Minder, A., Schoenholzer, H. and Amiet, M. (2000) Health Care Systems in Transition:
Switzerland. Copenhagen: European Observatory on Health Care Systems.
Mossialos, E. (1998) Citizens and Health Systems: Main Results from a Eurobarometer Survey.
Brussels: Directorate-General for Employment, Industrial Relations and Social Affairs,
European Commission.
Social health insurance financing 79
Müller, J. and Schneider, W. (1999) Entwicklung der Mitgliederzahlen, Beitragssätze,
Versichertenstrukturen und RSA-Transfers in Zeiten des Kassenwettbewerbs –
empirische Befunde im dritten Jahr der Kassenwahlrechte [Trends in membership
levels, contribution rates, types of insurees and risk adjustment transfers during the
period of insurer competition – empirical findings in the third year of fund choice],
Arbeit und Sozialpolitik, 53(3/4): 20–39.
Nonneman, W. and van Doorslaer, E. (1994) The role of the sickness funds in the
Belgian health care market, Social Science and Medicine, 39(19): 1483–95.
Normand, C. and Weber, A. (1994) Social Health Insurance: A Guidebook for Planning,
Document WHO/SHS/NHP/94.3. Geneva: World Health Organization.
Okma, K. and Poelert, J. (2001) Implementing prospective budgeting for Dutch sickness
funds, European Journal of Public Health, 11(2): 178–81.
Raad voor de Volksgezondheid en Zorg (Council for Public Health and Healthcare)
(2000) Europe and Healthcare. Zoetermeer: Raad voor de Volksgezondheid en Zorg.
http://www.rvz.net/Samenvat/Werk99/europe.htm (accessed 25 February 2001).
Roemer, M. (1969) The Organization of Medical Care under Social Security. Geneva: International Labour Office.
Ron, A., Abel-Smith, B. and Tamburi, G. (1990) Health Insurance in Developing Countries:
The Social Security Approach. Geneva: International Labour Organization.
Schut, F.T. and van Doorslaer, E.K.A. (1999) Towards a reinforced agency role of health
insurers in Belgium and the Netherlands, Health Policy, 48(1): 47–67.
Sheldon, T. (2000) EU law makes Netherlands reconsider its health system, British Medical
Journal, 320(7229): 206.
Shiveli, A. and Chinitz, D. (2001) Risk-adjusted capitation: the Israeli experience, European Journal of Public Health, 11(2): 182–4.
Street, A., Carr-Hill, R. and Posnett, J. (1999) Is hospital performance related to expenditure
on management?, Journal of Health Services Research and Policy, 4(1): 16–23.
van Doorslaer, E., Wagstaff, A. and Rutten F. (1993) Equity in the Finance and Delivery of
Health Care: An International Perspective. Oxford: Oxford University Press.
Wagstaff, A., van Doorslaer, E., van der Burg, H. et al. (1999) Equity in the finance of
health care: some further international comparisons, Journal of Health Economics,
18(3): 263–90.
WHO (2000) The World Health Report 2000. Health Systems: Improving Performance. Geneva:
World Health Organization.