Health insurance in the 19th century mostly occurred through mutual aid organizations, which paid out sickness benefits if their members became ill.  By 1885, about 10% of workers had joined “Friendly Societies.”  In the latter half of the 19th century, employers and unions began to create sickness funds for their workers.  Employers wanted to attract more workers; unions hoped to increase their member’s independence by reducing their reliance on employer-based schemes.  In 1891, the government not only recognized these societies, but began to offer subsidies to help finance their operations.

“Over  the next 40 years, government legislation moved steadily toward realizing the goal of universal effective health insurance coverage.  Early regulations sought to reduce the number  of societies so that they could achieve economies of scale. The government also gradually increased the number and categories of individuals who were required to  have coverage. A gap emerged between professionals with individual contracts and  manual workers with collective contracts, with the former enjoying a higher level of insurance coverage, particularly with regard to sick pay. Sweden almost enacted a universal insurance system in 1935, but the economic crisis in that period forestalled adoption.  The legislation establishing a universal system was finally passed in 1946 and implemented in 1955.”

The CIA World Factbook provides some additional facts on the Swedish healthcare system:

• Health Spending: 9.9% GDP
• Taxes: 53% of GDP.
• Health Revenue derived from county taxes: two-thirds
• Share of local budget dedicated to health: 85%
• Life Expectancy: 81.07 years
• Total Fertility Rate: 1.67

Source: William Savedoff, Tax-Based Financing for Health Systems: Options and Experiences, WHO Discussion Paper, 2004.

“The rate of preventive care use is much higher in the USA than in Taiwan, whereas the use of hospital and emergency care is about the same. Results of our decomposition analysis suggest that higher levels of education and income, along with inferior health status in the USA, are significant factors, each explaining between 7% and 15% of the gap in preventive care use.”

Today I review some additional information about the Taiwanese health care system.  This information adds to my earlier review.

• Healthcare System.  Taiwan launched the National Health Insurance (NHI) program in 1995.
• % Uninsured.  Taiwan’s NHI covers about 98% of the population (compared with only 59% who had coverage prior to 1995)
• Benefits. NHI covers inpatient care, outpatient care, laboratory tests, pharmaceuticals, dental services, TCM, day care for the mentally ill, and nursing home care. Expensive medical services, such as magnetic resonance imaging scans and organ transplantation, are covered as well.
• Physician Supply. There are 1.4 physicians for every 1,000 persons in Taiwan (versus 2.3 in the USA, 2.1 in Canada, and 2.2 in the UK)
• Waiting Times. Hsiou and Pylypchuk (2011) claim that “Taiwanese patients can readily choose their providers without experiencing the long waiting lines that exist in the Canadian and UK systems.”
• Administrative Costs. 2%.
• Spending. 6.3% of GDP (vs. 16% in the U.S., 10% in the U.K. and Canada)
• Funding. The cost of care is primarily financed through premiums, which are calculated based on individuals’ salaries and supplemented with out‐of‐pocket payments and direct government funding.
• Provider Payments.  Fee‐for‐service payment under global budgeting (which in practice operates as a prospective payment system)
• Cost Sharing. 10% for hospital stay hospitalization.  Copayments for pharmaceuticals and physician visits (usually under $10 for primary care visit)
• Physician Visits.  Hsiou and Pylypchuk (2011) state that “primary care physicians are allotted only a few minutes to spend with patients and lack incentives to provide sufficient preventive care.”

Source: Hsiou, T. R. and Pylypchuk, Y. (2011), Comparing and decomposing differences in preventive and hospital care: USA versus Taiwan. Health Economics. doi: 10.1002/hec.1743

At least for the years 2000-2008, there is mixed evidence.  U.S. healthcare spending per person grew by 3.4%.  This is slower than Spain (4.7%), the U.K. (4.6%), the Netherlands (4.3%), Belgium (4.2%), and Sweden (3.6%).  However, spending as a share of GDP grew fastest in the U.S. of any country over this time period.  The U.S. experienced a 2.6 percentage point gain in health care spending as a share of GDP.  The next closest country was Belgium with a 2.1 percentage point increase in healthcare spending as a share of GDP and the Netherlands with a 1.9 percentage point increase.

In 2008, the disparities in healthcare spending as a share of GDP were still immense.  The U.S. spent 16% of its economic production on health care.  The next closest countries are France (11.2%), Belgium (11.1%), Switzerland (10.7%), Germany (10.5%), Austria (10.5%), Canada (10.4%), and the Netherlands (9.9%).

Even if the U.S. doesn’t reduce it’s health spending level, if the current health care spending rate does not slow, this country could be bankrupt sooner rather than later.

• Source: Kaiser Family Foundation using data from the OECD.

According to the Economist:

“Created in 1989 from the merger of two state systems, one for those in formal work and the other for everyone else, it is exceptional in Latin America, which by and large continues with the two-tier public system Brazil abandoned. The 1988 constitution declared health care to be the right of the citizen and its provision the duty of the state. ICESP enshrines that promise: according to Paulo Hoff, its clinical director, its patients, both poor and better-off, get care which compares well to that of his private patients at the nearby Sírio-Libanês Hospital.”

Brazil’s Programa Saúde da Família (PSF), launched in 1994, is one step towards interdisciplinary basic health care for most Brazilians.  The PSF implements a national policy for primary care settings with the aim of substituting part of the traditional model of primary care based on medical specialists. As its name says, its main focus is on families instead of individuals, and it is organized around multidisciplinary Family Health Teams, formed by a core of professionals such as physicians, nurses, dentists, psychologists and social workers, as well as community health agents, a kind of “barefoot doctor”. Brazil has currently (August 2009) approximately 30,000 of these teams, deployed in 5,241 of its 5,656 municipalities.  By 2005 over 80% of municipalities had been reached. However, since these consisted mostly of small rural municipalities, this covered 35% of the population.

But there is a gap between the aspirations of SUS and the reality. Funding is an inadequate hotch-potch, part-state, part-federal, and varies wildly from place to place. More than two-thirds of ICESP’s (Instituto do Câncer) budget of 350m reais ($225m) comes from São Paulo’s state government. Few other states are rich enough to provide such generous top-ups. SUS’s family doctors reach only one Brazilian in two. Another quarter have private-health insurance; the remainder, mostly poor people, live in remote rural areas or violent urban slums where the service is lacking. They must either pay out of pocket or take their chances in crowded hospital emergency rooms.”

Further, basic indicators are not as good as peer countries.  Life expectancy is lower than in Mexico, Argentina, Venezuela and Chile, and the infant mortality rate is the highest among these countries.

“A recent survey of Brazilian health care published in the Lancet, an international journal, argued that SUS gets poor value for the money it spends on drugs, because too much goes on complying with court orders granted to patients who use the constitution’s lofty promises to demand expensive treatments not automatically covered by the system. And too much of the budget still goes to hospitals rather than the Family Health Programme, says Michele Gragnolati of the World Bank.”

Statistics

• Brazil GDP per person: $10,800
• SUS (Public) spending as a share of GDP: 3.1%
• Health care spending as a share of GDP: 8%
• Share of health care spending that is privately funded: 60%
• Life expectancy at birth: 72.5 years
• Infant Mortality Rate: 21.17 deaths per 1000 live births
• Number of beds per 1,000 (global average): 2.4 (4.3)
• Nurses per 1,000 (global average): 29.1 (60.3)
• Physicians per 10,000 (global average): 16.9 (23.4)
• Brazil’s Population: 203.4 million

Sources:

• CIA World Factbook: Brazil.
• GE’s Health of Nations website using data from the World Health Organization.
• “Health care in Brazil: An injection of reality” The Economist, 30 July 2011.

“In Germany, about 90% of the population is publicly insured (Colombo & Tapay, 2004). Buying public insurance is mandatory for dependent employees with a regular employment contract as long as their income does not exceed the so-called compulsory insurance threshold. The public insurance premium equals a certain percentage (nowadays about 15% that are equally shared between the employer and the employee) of gross income up to the so-called contribution ceiling, and equal to it thereafter.”

Why would someone want private insurance? Coverage is universal in the public system and the deductibles and co-payments are limited. Here’s why”

“Contributions for private health insurance are mainly based on health and age, so buying private insurance is especially attractive for young individuals. As a consequence of this, and because of the fact that private insurers are allowed to reject individuals, the risk pool of the private insurers is much better than in the public system…Privately insured individuals can buy better care, e.g. treatment by the head doctor in a hospital or a single room in a hospital, but this comes at a higher price.  Deductibles and co-payments are much more common, and many insurers offer a rebate if an individual did not use medical services in the past calendar year.”

In fact, a paper by Hullegie and Klein (2011) finds that individuals with private insurance are much less likely visit a doctor. This is likely due to adverse selection although moral hazard may also play a role since private insurance plans have higher copayments and deductibles.

• Hullegie, P. and Klein, T. J. (2010), The effect of private health insurance on medical care utilization and self-assessed health in Germany. Health Economics, 19: 1048–1062. doi: 10.1002/hec.1642

“From the theoretical model we find that higher levels of patient complexity lead GPs [General Practitioners] to choose a lower list size, whereas the effect on income is ambiguous. The effect on total utility (income and leisure) is, however, shown to be negative. Using empirical datafrom 1039 solo practices we find that patient complexity reduces both list size and income and conclude that amixed per capita and fee for service remuneration system does not fully compensate practices with more complexpatients. Differentiated per capita payment may represent a means of ensuring fair and equal income of GPs.”

Differentiated per capita payments may provide a fairer mechanism for compensating physicians for treating more complex patients. This type of reform, however, would also incentivize providers to upcode patient diagnoses in order to increase their per capita payments. Thus, this paper may provide the optimal solution in the case where providers are honest, but this same solution may not be optimal in the case where physicians are potentially dishonest.

The remainder of this post reviews how the authors arrived at the conclusions discussed below.

The Danish Healthcare System

The around 5 million inhabitants in Denmark are served by approximately 3500 GPs organised in 2200 practices. Of those a little more than 1000 GPs are organised in solo practices. The remaining GPs are organised in partnership practices. Denmark operates a public health insurance system, where general practice has the role of gatekeeper for the rest of the healthcare system. The system is tax-funded and covers the whole population. The primary healthcare sector is organised as a list system where all citizens have to be registered with a GP and must contact this GP to receive medical advice and care. Patients are entitled to medical specialist care after referral by their GP only.

All GPs are organised as self-employed private entities and are subjected to the same remuneration scheme, which is based on a mix of fee for service (approximately 70%) and per capita (approximately 30%) payment.

Theoretical Model

The author use a theoretical model in which physicians choose the number of patients to treat. Treating more patients increases income, but decreases leisure. Additionally, the average case mix severity of the GP’s patient roster affects the amount of services–and the amount of time–GPs provide to their patients.

• U_i = p^pcn_i+p^ffs (n_iα(θ)) – C + v(l_i)

The physician maximizes the utility function above by choosing the number of patients to treat (n_i).

The model’s equilibrium predictions are that: 1) list size decreases as patient complexity increases, 2) Overall GP utility decreases as patient complexity increases, and most interestingly 3) differentiated per capita payment can prevent utility loss from serving complex patients. Differentiated capitation payments are larger for sicker patients than for healthier ones.

The data set used contains information on 1039 solo practices from the year 2006. The Health Insurance Register contain data on list size, income and the age and sex of the physician are from the Health Insurance Register. Data on weekly hours of practice personnel and information about whether the practice participates in education of new GPs are from the National Practice Count Survey conducted in December 2005.

Empirical Application

The analytical framework uses two estimation equation.  The first regresses GP characteristics and average patient illness severity on the number of patients on the GP’s rolls.  The second regresses the number of patients on the GP’s rolls, the interaction of the number of patients the GP cares for and the patients’ average illness severity, and GP characteristics on GP income.  The authors measure patient illness severity using the  Danish deprivation index (the DADI index) developed by Vedsted and Sorensen (2009).  To estimate the coefficients of interest, the authors combine the two equation and used a reduced form regression framework, using bootstrapping techniques to derive the confidence intervals.

The key drawback of this paper is that it assumes that patient complexity is exogenous. The authors find that age does have significant explanatory power for predicting patient complexity, but since this variable also has explanatory power in relation to list size, it cannot be used as instrument in the list size equation.

Results

“The GPs’ utility was in the theoretical model assumed to depend on income and leisure. The effect of patient complexity on these two factors in isolation was shown to be ambiguous as both positive and negative effects appear in both cases. However, from the theoretical model we showed that the overall GP utility is always reduced when the level of patient complexity increases. In the empirical section we analysed the impact of patient complexity on income and found that the net impact was negative.  The increase in the fee for service payment, resulting from serving patients with higher complexity, is hence not adequately compensating for the per capita income loss following the reduced list size. This indicates that the remuneration scheme is not sufficiently flexible to ensure equal income across GPs serving different population groups.”

Source:

• Olsen, K. R. (2011), Patient complexity and GPS’ income under mixed remuneration. Health Economics, 20: n/a. doi: 10.1002/hec.1731

In the UK on the other hand, “Health Reform” means more privatization, not less.  As reported in the Economist,

“Last year the government produced a two-part blueprint for reforming the NHS. One part was a bid to introduce more choice and competition, by enabling private and voluntary providers to treat more NHS patients. That should not have been controversial: along with the cash it hurled at the service, Tony Blair’s government began to transform it from a publicly run monopoly to a state-funded market, in which both public and private hospitals treat NHS patients—the sort of system that exists in much of the rest of Europe. Until Gordon Brown took over and dampened reform, it was starting to have an impact: according to research by the London School of Economics into post-operative heart care, giving patients choice led to productivity increases that saved around 300 lives a year.”

These changes, however, may never come to pass.  For instance, an attempt to “…transfer more control over budgets and the commissioning of care to family doctors (GPs)” was stopped in its tracks.  The scheme is now voluntary.

Nevertheless, I can make three key observations.

• The U.S. is moving more towards government-run health care and the U.K. is moving towards private provision of health care services.
• Despite this trend, the NHS still wields significantly more control over the health care system than any American agency.
• Finally, no country is completely happy with their health care system.

This is the question the Milligan and Wise attempt to answer in their Introduction to Social Security and Retirement around the World.  The Healthcare Economist suspects the answer is the latter.  Most people consider a quadriplegic disabled and those who are fully healthy are not disabled.  Many individuals, however, have partial disability. Many workers, for instance, suffer from back pain.  Measure the severity of the back pain is typically very difficult; some workers can continue working in physically strenuous jobs, others could continue to work in less physically strenuous jobs (e.g., blogging?), and for a minority the back pain is so severe that working at all is not feasible.  Because partial disability is not only common but also difficult to verify, public programs leniency regarding disability program eligibility likely affects the number of beneficiaries more than the underlying health status of the country.

Sure enough, Milligan and Wise come to the same conclusion.  Using “natural experiments” in which a country’s disability insurance reforms were not prompted by changes in health status or by changes in the employment circumstances of older workers, the researchers find that reforms have a large effect on the labor force participation of older workers.

Source:

• Kevin S. Milligan, David A. Wise “Social Security and Retirement around the World: Historical Trends in Mortality and Health, Employment, and Disability Insurance Participation and Reforms – Introduction and Summary,” NBER Working Paper No. 16719, January 2011.

What do British health economists think of the reforms?

• Zack Cooper, a health economist at the London School of Economics, said introducing price competition “would be a hugely retro­grade step”. In ordinary markets, he said, people can see the trade-off between price and quality. “But in healthcare, it is difficult to measure quality, partly because the process is complex and partly because it may take days, weeks or even years for the outcome of treatment to become evident.” [In the U.S.], the use of fixed prices in the federally funded Medicare programme for the elderly has helped raise quality. “I’m very pro-competition in healthcare,” he said. “But price competition is not the right way to do it.”
• Anita Charlesworth, chief economist at the Nuffield Trust health think-tank, said the evidence from the 1990s, when family doctors could negotiate on price, was that a huge amount of time and money went in to pricing rather than the appropriateness or quality of care
• Nick Bosanquet, professor of health economics at Imperial College, London, argues in favour of price competition. “If you want a more flexible system it is illogical to have fixed prices, and after years of fixed prices in the NHS there is still a big variation in the quality of care.”

In my opinion, the value of price competition depends on your perception of how well patients and government can judge quality.  In a world without asymmetric information, it is clear that price competition is optimal.  The government could buy medical services by optimizing along a continuum of quality and price.  Even in the presence of asymmetric information, price competition can be a good thing especially if there are some observable–although imperfect–signals of quality.

If quality is completely unobservable, then providers would have an incentive to minimize quality and drive down price.   Unless of course, patients take price as a signal for quality.  In this case, higher priced providers could gain market share because of a false perception of quality.

In the case where the consumer would pay for medical services, one justification for fixed pricing would occur if the government is better able to measure quality than individuals.  For instance, individuals may be better at judging quality in terms of office amenities and the physician’s bedside manner, but policymakers can better judge whether providers follow best practices and have superior outcomes on average.  If society can agree that outcomes matter more than office amenities, than the government could regulate quality and counteract provider’s incentivize to drive down their costs to maximize profits.

It is not a foregone conclusion that the experts inside or outside the government can measure quality better than can patients. For instance, in the same FT article, Ms. Charlesworth, states that it “was  ’particularly worrying’ that GPs will set local prices for mental health services where quality is even harder to measure than in acute care.”  If quality is so difficult to measure, how can policymakers measure that quality has decreased after the implementation of price competition?

“An 11-country survey focusing on health care access, cost, and insurance coverage found that adults in the United States are by far the most likely to go without care because of costs, have trouble paying medical bills, encounter high medical bills even when insured, and have disputes with insurers or payments denied.”

A summary of the findings can be found here.  Thirty five percent of Americans have out-of-pocket costs of more than $1000 and 20% have a serious problem paying health insurnace bill.  The full report is available here.

• C. Schoen, R. Osborn, D. Squires, M. M. Doty, R. Pierson, and S. Applebaum, “How Health Insurance Design Affects Access to Care and Costs, by Income, in Eleven Countries,” Health Affairs Web First, Nov. 18, 2010.