Health Care Reform

by Shiban Ganju

Health care begets health; the two are inseparable. Experience of developed countries shows that disease is recession proof while national income is not; demand grows inexorably while funding shrinks. When the resources lag to fulfill the minimum need, health becomes a mere dream.

People of the world are unhappy with their national systems, no matter which country. In a survey done by the Commonwealth Fund in six OECD countries majority wanted either fundamental changes or to rebuild the system.

Adults with health problems; Commonwealth Fund survey 2005

Percent saying:







Only minor changes needed







Fundamental changes needed







Rebuild completely







World has evolved four models of health care financing: (1) Bismarck model: where employers and employees contribute into a not for profit fund and providers are usually private as in ‘Sickness funds’ system of Germany. (2) Beveridge model: government is both the payer and provider as in the UK and Cuba. (3) Single payer: government is the sole payer from funds collected though employee contribution and taxes. The providers are both private and public. Canada, Taiwan and South Korea have adopted this system. (4) Out of pocket model: where no organized risk pools exist and individual pay as they fall sick. Most of the low income countries do not have the resources to organize national financing systems for health care.

The US has evolved a pluralistic system. Government funds 46 percent, a private commercial insurance fund 35 percent and 13 percent is out of pocket as deductibles and co-pay. Providers are mostly private. Innovations like HMO capitation and health saving account have not dented the costs.

Lessons from various countries:

In a position paper by American College of Physicians in the Annals of Internal Medicine in January 2008, the following lessons were summarized from international experience.

1: Nations can provide guarantees access, affordability and universal coverage through a funding, which can be public or in combination with private. Access to care should carry no copayments for the poor and cost sharing for those who can afford, based on income. Examples of single payer system are Canada, UK, Japan and Taiwan. The pluralistic systems are Australia, Belgium, Denmark, France, Germany, The Netherlands, New Zealand and Switzerland.

2: Global budgets can help cost control. (Canada, Germany, New Zealand, Taiwan, UK)

3: Government power to negotiate prices with providers can decrease costs (Belgium, Canada, and Japan) but also create shortages, delays, cost shifting and a competing private sector. (Japan, New Zealand, UK)

4: Countries have built incentives to encourage behavior change and take personal responsibility. (Australia, Belgium, Japan, New Zealand, the Netherlands, Switzerland, Taiwan)

5: Adequate funding of preventive and primary care yields better outcome. (Australia, Canada, Denmark, France, Netherlands, UK, New Zealand)

6: Incentive to physicians results in quality improvement and performance (Belgium, UK, Australia, and New Zealand)

7: Uniform electronic payment systems reduces costs and improves efficiency (Germany, Canada, Taiwan, UK)

Experts have suggested that the Netherlands model suits US. The Dutch have been trying to reform their system since 1904 and only recently have instituted universal care.

The Netherlands:

The Dutch system mandates everyone to buy a private insurance coverage. It has three other salient features: a central fund for risk equalization of insurance companies, incentives for competition among providers and strong regulations.

Professor Wynand van de Van of Erasmus University has written about the rise of The Netherland health care model in June 2008 issue of ‘Health Affairs’. The summary is as follows.

The current system in the Netherlands has evolved over last seven decades. The Dutch insurance industry worked without any regulation till 1940. Several hundred insurance companies that existed contracted with doctors a capitation fees for their customers. And the doctors had freedom to start their practice and set their fees.

In 1941 a mandatory health insurance was introduced for low and middle income population; it covered physician fees, maternal care, drugs and hospital expenses. By 1965 about 85% of the population had enrolled. But this well meaning insurance model created a problem. Mandatory health care cost increased the cost of labor, making the industry uncompetitive in the export driven economy. The government responded by price control and passed The Health Prices Act in 1982. The physicians were forced to forgo fee for service and the hospitals were given a single bundled payment for all services including the fees of specialists.

Lack of incentives choked the system and innovations suffered. Responding to growing discontent, government introduced a series of market based reforms to give incentives to insurance companies, consumers and providers over the years. Finally, The Health Insurance Act was passed in 2006, which makes health insurance mandatory and induces managed competition in the private sector.

The Netherlands health care system serves a population of about 16.7 million, spends about 9% of GDP, which is about 3,100 USD per capita. Of the total funding, individuals contribute 45%, employers contribute 50% and the government pays 5%. Personal and employer contributions fund the system, while government pays for children under the age of eighteen. Employers contribute an income-related percentage of their employees' salary and citizens pay about 1 to 2000, USD per year in premiums. Government also subsidizes people based on their income. About two thirds of the population got approximately 2,200 USD in 2006 per household as care allowance.

Each insurance company sets a community rated premium, which must cover a government mandated health care package and must spell the details of coverage in a contract, which lasts one year. Insurer cannot refuse an enrollee irrespective of his previous health history.

Individuals are free to choose their insurance company and can change insurer every year. They have liberty to buy a supplemental coverage. Over 90 % of the population buys supplementary insurance. Every individual has an annual deductible. Groups get discounts up to 10 % on premiums and employers, labor unions, patient associations take advantage of the discount.

In an attempt to mitigate risk selection by the insurance companies, the system uses a risk utilization fund, which is funded by the mandated contribution of employers. This fund compensates insurance companies that have high risk enrollees and the companies that have low risk enrollees have to compensate the risk equalization fund.

About 1.5% of eligible population did not buy any insurance in 2006 and defaulted. Government intends to enforce the act by actively tracking the uninsured defaulters, legally enforcing them to enroll, withholding the premium from their salaries or welfare subsidies and penalizing them by increasing the premium up to 130 %.

With all its flaws, some have called it the best health care system in the European Union.

Obama plan:

The current bill passed by the congress has some features from the Netherlands system but not all. The salient features of the bill are:

· A Health Insurance Exchange to provide information about coverage and rates

· A public health insurance option to compete with private companies

· Guaranteed coverage from insurance market.

· Limits for annual out of pocket expenditure.

· Shared responsibility between employer and the individual.

· Government to provide assistance to smaller employers.

· Improving Medicare payment system to cut costs and improve performance.

· Prevent fraud and overpayment.

· Increased funding for training primary care physicians.

· Expansion of community services for health promotion.

The bill lacks the innovative ‘risk utilization fund’ of the Dutch system. But in incorporates the Australian innovation of government owned insurance.

The US system has had two main problems to fix: coverage for 47 million uninsured people and the cost of care. The bill mandates universal coverage but whether it will be able to control hyperinflation in national health care expenditure will be apparent only after a few years.

The history of the US reforms have been mostly repair jobs done with tapes: minor repairs with scotch tape, convoluted repair by red tape and the current repair by duct tape. Hopefully, the current bill is the first step towards fundamental changes to rebuild the system as majority of the American want. Like the rest of the word, it is still work in progress.