The State and Healthcare: Comparing OECD Countries (Transformations of the State)

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Author: Heinz Rothgang | Mirella Cacace | Lorraine Frisina | Simone Grimmeisen | Achim Schmid | Claus Wendt

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Transformations of the State Series Editors: Achim Hurrelmann, Carleton University, Canada; Stephan Leibfried, University of Bremen,Germany; Kerstin Martens, University of Bremen, Germany; Peter Mayer, University of Bremen, Germany. Titles include: Joan DeBardeleben and Achim Hurrelmann (editors) DEMOCRATIC DILEMMAS OF MULTILEVEL GOVERNANCE Legitimacy, Representation and Accountability in the European Union Klaus Dingwerth THE NEW TRANSNATIONALISM Transnational Governance and Democratic Legitimacy Anna Holzscheiter CHILDREN’S RIGHTS IN INTERNATIONAL POLITICS The Transformative Power of Transnational Discourse Achim Hurrelmann, Steffen Schneider and Jens Steffek (editors) LEGITIMACY IN AN AGE OF GLOBAL POLITICS Achim Hurrelmann, Stephan Leibfried, Kerstin Martens and Peter Mayer (editors) TRANSFORMING THE GOLDEN-AGE NATION STATE Anja P. Jakobi INTERNATIONAL ORGANIZATIONS AND LIFELONG LEARNING From Global Agendas to Policy Diffusion Kerstin Martens, Alessandra Rusconi and Kathrin Leuze (editors) NEW ARENAS OF EDUCATION GOVERNANCE The Impact of International Organizations and Markets on Educational Policy Making Kerstin Martens, Alexander-Kenneth Nagel, Michael Windzio and Ansgar Weymann (editors) TRANSFORMATION OF EDUCATION POLICY Thomas Rixen THE POLITICAL ECONOMY OF INTERNATIONAL TAX GOVERNANCE Heinz Rothgang, Mirella Cacace, Lorraine Frisina, Simone Grimmeisen, Achim Schmid and Claus Wendt THE STATE AND HEALTHCARE Comparing OECD Countries Steffen Schneider, Achim Hurrelmann, Zuzana Krell-Laluhová, Frank Nullmeier and Achim Wiesner. DEMOCRACY’S DEEP ROOTS Why the Nation State Remains Legitimate Peter Starke RADICAL WELFARE STATE RETRENCHMENT A Comparative Analysis

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Jens Steffek, Claudia Kissling, Patrizia Nanz (editors) CIVIL SOCIETY PARTICIPATION IN EUROPEAN AND GLOBAL GOVERNANCE A Cure for the Democratic Deficit? Michael J. Warning TRANSNATIONAL PUBLIC GOVERNANCE Networks, Law and Legitimacy Hartmut Wessler, Bernhard Peters, Michael Brüggemann, Katharina Kleinen-von Königslöw, Stefanie Sifft TRANSNATIONALIZATION OF PUBLIC SPHERES Hartmut Wessler (editor) PUBLIC DELIBERATION AND PUBLIC CULTURE The Writings of Bernhard Peters, 1993–2005 Jochen Zimmerman, Jörg R. Werner, Philipp B. Volmer GLOBAL GOVERNANCE IN ACCOUNTING Public Power and Private Commitment

Transformations of the State Series Standing Order ISBN 978–1–4039–8544–6 (hardback) 978–1–4039–8545–3 (paperback) You can receive future titles in this series as they are published by placing a standing order. Please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address, the title of the series and one of the ISBNs quoted above. Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire RG21 6XS, England.

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The State and Healthcare Comparing OECD Countries Heinz Rothgang Professor of Health Economics, Centre for Social Policy Research, University of Bremen

Mirella Cacace Analyst, RAND Europe, United Kingdom

Lorraine Frisina Research Fellow, University of Bremen, Germany

Simone Grimmeisen Program Officer, Robert Bosch Stiftung GmbH, Germany

Achim Schmid Research Fellow, University of Bremen, Germany

and

Claus Wendt Professor of Sociology for Health and Healthcare Systems, University of Siegen, Germany

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© Heinz Rothgang, Mirella Cacace, Lorraine Frisina, Simone Grimmeisen, Achim Schmid and Claus Wendt 2010 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6-10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2010 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN: 978–0–230–00548–8 hardback This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalogue record for this book is available from the Library of Congress. 10 9 8 7 6 5 4 3 2 1 19 18 17 16 15 14 13 12 11 10 Printed and bound in Great Britain by CPI Antony Rowe, Chippenham and Eastbourne

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Contents

List of Illustrations

vi

List of Abbreviations

ix

Acknowledgements

xiii

Series Editors’ Preface

xiv

Notes on the Authors

xvi

Part I The Concept of the Study 1 Introduction to the Book Heinz Rothgang

3

2 Conceptual Framework of the Study Heinz Rothgang Part II

10

Cross-Sectional Analyses

3 The Changing Role of the State in Healthcare Financing Achim Schmid, Mirella Cacace and Heinz Rothgang

25

4 The Changing Role of the State in Healthcare Service Provision Achim Schmid and Claus Wendt

53

Part III Case Studies 5 The Role of the State in the British Healthcare System – Between Marketization and Statism Simone Grimmeisen and Lorraine Frisina

75

6 The Self-Regulatory German Healthcare System Between Growing Competition and State Hierarchy Heinz Rothgang, Achim Schmid and Claus Wendt

119

7 The US Healthcare System: Hierarchization With and Without the State Mirella Cacace

180

Part IV Conclusion 8 The Converging Role of the State in OECD Healthcare Systems Heinz Rothgang

237

References

248

Index

275 v

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Illustrations

Tables 2.1 2.2 2.3 2.4 3.1 3.2 3.3 4.1 4.2 4.3 5.1 6.1 6.2 6.3 6.4 6.5 6.6 7.1 7.2 7.3 7.4 8.1 8.2 8.3 8.4

Types of regulation State, societal, and private roles in a healthcare system Healthcare system types Potential transformative change in the structure of healthcare systems Structure of the analysis Coefficients of variation for different healthcare financing indicators Similarity of the funding mix The share of spending on inpatient care The public/private classification of service provision in healthcare sectors The Public Service Provision Index (in per cent) Emerging divergence patterns within the UK Major healthcare reforms in Germany since 1970 Number of statutory sickness funds Trichotomous Index of Service Provision (TIP) Number of hospitals and hospital beds in private for-profit hospital chains Healthcare coverage of German population in 2007 Changes in the regulation structure in Germany’s healthcare system Overview of the major US healthcare reforms between 1965 and today The public/private-mix in US service provision, trichotomous distinction Market shares of health plans in employer-sponsored insurance (as percentages of workers with insurance coverage) Health insurance coverage as percentages of total population Changing role of the state in healthcare financing Changing role of the state in service provision The changing regulatory structures of Britain, Germany and the United States Changes in financing, service provision and regulation

14 15 17 20 35 42 46 61 63 67 110 124 136 143 145 148 174 186 204 211 213 239 241 242 245

vi

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Illustrations vii

Figures 2.1 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 4.1 5.1 5.2 5.3 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 6.10 7.1 7.2 7.3 7.4 7.5

Conceptualization of a healthcare system Mean health expenditure in per cent of GDP and the mean public financing share in 23 OECD countries Sigma-convergence of total health expenditure Convergence in public expenditure levels Convergence in the structure of healthcare Catch-up in public expenditure in per cent of GDP (1970–2006) Catch-up in the public/private-mix (1970–2006) Mean public healthcare financing share according to financing types Coefficient of variation of the public spending share according to financing types The size of healthcare sectors in 2004 Total health care expenditure as share of GDP and per capita Public and private healthcare expenditure as share of GDP and per capita Public and private healthcare financing as percentage of total healthcare financing Total healthcare financing as a percentage of GDP and per capita Public and private healthcare financing as a percentage of GDP and per capita Public and private financing as a percentage of total health financing Public and private financing of inpatient care/hospitals Public and private financing of outpatient care Public and private financing of pharmaceuticals/pharmacies Hospital beds, health employment and physicians per 1,000 of population Percentages of resource flows in all sectors The inpatient care sector by ownership category Coverage in percentage of total population Total healthcare financing as a share of GDP and per capita Public and private healthcare financing as a share of GDP and per capita Public and private financing in percentages of total healthcare financing Public health expenditures including and excluding federal tax exemptions (in per cent of total expenditure) Public and private financing of inpatient care (Hospitals and nursing homes)

11 36 39 40 41 43 44 48 49 59 80 81 82 127 127 128 131 133 134 138 139 141 149 188 189 190 191 194

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viii

Illustrations

7.6 7.7 7.8 7.9 7.10

Public and private financing as percentages of outpatient care sectors Public and private financing as percentages of pharmaceuticals and medical goods Changes in service provision levels in percentages (Index year 2000=100 per cent) Percentages of monetary resource flows in all sectors Inpatient hospital beds according to ownership as percentages of total

194 195 200 201 202

Boxes 2.1 5.1

Objects of regulation Excurse: The effects of devolution on the British healthcare system

14 108

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Abbreviations AHA AHIP AIG ALB AMA AMG AMI AOK AUS AUT AVWG BBA BCBS BEL BfArM BKK BKn BUPA CA CDHP CHAI CH CHI CHIP CHIPRA CMS COBRA CON DCIS DDRB df DHHS DK DMP DRG DSH EBM ECJ EMTALA

American Hospital Association America’s Health Insurance Plans American International Group Arm’s Length Bodies American Medical Association Pharmaceutical Act, Arzneimittelgesetz American Medical International Regional Funds, Allgemeine Ortskrankenkassen Australia Austria Arzneimittelversorgungs-Wirtschaftlichkeitsgesetz Balanced Budget Act Blue Cross and Blue Shield health plans Belgium Bundesinstitut für Arzneimittel und Medizinprodukte Company-Based Funds, Betriebskrankenkassen Miner’s Fund, Bundesknappschaft British United Provident Association Canada consumer-driven health plans Commission for Healthcare Audit and Inspection Switzerland Commission for Health Improvement Children’s Health Insurance Program Children’s Health Insurance Program Reauthorization Act Centers of Medicare and Medicaid Services Consolidated Omnibus Budget Reconciliation Act Certificate-of-Need Democratic Constitutional Interventionist States Doctors’ and Dentists’ Review Body degrees of freedom Department of Health and Human Services Denmark Disease Management Program Diagnosis Related Group disproportionate share hospitals uniform valuation standard, einheitlicher Bewertungsmaßstab European Court of Justice Emergency Medical Treatment and Active Labor Act ix

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x

Abbreviations

ERISA EU EVS FIN FMAP FPL FRA FSA GATS GDP GdP GDR G-DRG GER GISC GKV GKV-GRG GKV-WSG GMC GMG GMS GÖA GPs GRE GRG GSG G-SOEP HCA HCFA HCPs HEDIS HIPAA HMO HRGs HTA ICE IGeL IHA IKK InBA

Employee Retirement Income Security Act European Union German income and consumer sample, Einkommens- und Verbrauchsstichprobe Finland federal medical assistance percentages federal poverty line France Financial Service Authority General Agreement on Trade in Services Gross Domestic Product General Dentist Practioner German Democratic Republic German Diagnosis Related Groups Germany General Insurance Standards Council Statutory Health Insurance, Gesetzliche Krankenversicherung Statutory Health Insurance Reform Act, GKVGesundheitsreformgesetz Statutory Health Insurance Competition Strengthening Act, GKV – Wettbewerbs-Stärkungsgesetz General Medical Council Statutory Health Insurance Modernization Act, GKV – Modernisierungsgesetz General Medical Service public fee schedule, Gebührenordnung für Ärzte General Practitioners Greece Healthcare Reform Act, Gesundheitsreformgesetz Healthcare Structure Act, Gesundheitsstrukturgesetz German Socio-Economic Panel Hospital Corporation of America Healthcare Financing Administration Health Cash Plans Health Plan Employer Data and Information Set Health Insurance Portability and Accountability Act Health Maintenance Organization Health Care Resource Groups Health Technology Assessment Iceland individual health services Independent Hospital Association Guild Funds, Innunsgkrankenkassen Institut des Bewertungsausschusses

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Abbreviations

INEK IPA IQWiG IRE ITA JCAHO JPN KBV KHG KVEG KVWG LHBs LIFT LKK LTCI LUX MDK MMA NAFTA NCQA NHS NI NICE NLD NOR NZL OBRA OECD ÖGD OMC PbR PCTs PES PFI PflegeVG PGME

xi

Institute for the Hospital Remuneration System, Institut für das Entgeltsystem im Krankenhaus independent practice association Institute for Quality and Efficiency in Healthcare, Institut für Qualität und Wirtschaftlichkeit im Gesundheitswesen Ireland Italia Joint Commission on Accreditation of Healthcare Organizations Japan federal panel association, Kassenärztliche Bundesvereinigung Hospital Financing Act, Krankenhausfinanzierungsgesetz Cost Containment Amendment Act, KostendämpfungsErgänzungsgesetz Health Insurance Development Act, KrankenversicherungsWeiterentwicklungsgesetz Local Health Boards Local Improvement Finance Trust Farmer’s Funds, Landwirtschaftliche Krankenkassen Long-Term Care Insurance Luxembourg Medical Review Board of Statutory Health Funds, Medizinischer Dienst der Krankenkassen Medicare Prescription Drug, Improvement, and Modernization Act Nord American Free Trade Area National Committee for Quality Assurance National Health Service National Insurance (Britain’s) National Institute for Health and Clinical Excellence the Netherlands Norway New Zealand Omnibus Budget Reconciliation Act Organization for Economic Co-operation and Development municipal public healthcare services, Öffentlicher Gesundheitsdienst Open Method of Coordination Payment by Results Primary Care Trusts Public Expenditure Survey Private Finance Initiative Long-Term Care Insurance Act, Pflegeversicherungsgesetz Postgraduate Medical Education and Training Board

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xii

Abbreviations

PHI PKV PMGs PMI PMS POR POS PPI PPO PPP PPS PPUs PRO PSRO RBRVS RCS SCHIP SeeKK SGB SHA SHI SIGN SPA SSA SWE THE TIP UK US WHO WTO ZVS

Private Health Insurance Association of Private Health Insurance Companies, Verband der privaten Krankenversicherung Primary Care Groups Private Medical Insurance Personal Medical Services Portugal Point of Service Public Service Provision Index Preferred Provider Organization US$-Purchasing Power Parities prospective payment system Private Patient Units Peer Review Organization Professional Standards Review Organization resource-based relative value scale Risk Structure Compensation Scheme State Children’s Health Insurance Program Sailor’s Fund, Seekrankenkasse Social Code Book, Sozialgesetzbuch System of Health Accounts Social Health Insurance Scottish Intercollegiate Guidelines Network Spain Social Security Amendments Sweden Total Healthcare Expenditure Trichotomous Index of Service Provision United Kingdom United States World Health Organization World Trade Organization Centre for Allocation of University Places, Zentralstelle für die Vergabe von Studienplätzen

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Acknowledgements This book is about the changing role of the state in healthcare systems. Investigating this major theme through cross-national analyses of OECD countries and case studies for the UK, Germany, and the US, we have drawn on various statistical sources as well as the invaluable input of experts on the respective healthcare systems, who gave us their time for extensive expert interviews. The authors would like to thank Larry Brown, George France, Richard Freeman, Thomas Gerlinger, Ted Marmor, Kieke Okma, and two anonymous reviewers for their critical feedback. We are also grateful for comments we received during four international workshops that we hosted at the University of Bremen on healthcare systems research (2004), the governance of welfare state reform (2005), healthcare reform in Germany and the Netherlands (2005), and explaining healthcare system change (2008). Finally, we would like to thank, first, our colleague Ralf Götze, who joined the research project in 2007 and proved to be an invaluable source of inspiration, help, and critical feedback to us and, second, Lisa Adler for her great assistance in all technical matters of production. The book is the result of a joint effort. It was originally conceived by Mirella Cacace, Simone Grimmeisen, Heinz Rothgang, and Claus Wendt, who at that time constituted the project team. After Simone Grimmeisen and Claus Wendt left Bremen University, their places were taken by Lorraine Frisina and Achim Schmid, who contributed as authors to this volume. The concept of the study and the structure of the chapters were developed in a common discussion process and – after the chapters had been drafted – each chapter was intensively discussed. Thus, though the authors bear final responsibility for their chapters, the whole product must be considered as a joint work. Our research is part of the ‘Collaborative Research Center Transformations of the State’, ‘TranState’ for short, funded by the German Research Foundation and drawing together expertise from political science, law, sociology, and economics. We gratefully acknowledge the excellent working conditions, helpful feedback from our colleagues at TranState, and the generous funding provided by the German Research Foundation. In particular we would like to thank the spokesperson of the TranState Center, Stephan Leibfried, for his inspiration and the ruthless pressure he put on us to finalize this book.

xiii

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Series Editors’ Preface When we think about the future of the modern state, we encounter a puzzling variety of scholarly diagnoses and prophecies. Some authors predict nothing less than the total demise of the state as a useful model for organizing society – its powers eroded by a dynamic global economy and by an increasing transference of political decision-making powers to supranational bodies. Others disagree profoundly. They point to the remarkable resilience of the state and its core institutions. For them, even in the age of global markets and politics, the state remains the ultimate guarantor of security, democracy, welfare and the rule of law. These debates raise complex questions for the social sciences: what is happening to the modern liberal nation-state of the OECD bloc? Is it an outdated model? Is it still useful? Is it in need of modest reform or far-reaching changes? The state is a complex entity, providing many different services and regulating many areas of everyday life. There can be no simple answer to these questions. The Transformations of the State series will try to disaggregate the tasks and functions of the state into four key, but manageable dimensions: ● ● ● ●

the monopolization of the means of force the rule of law as prescribed and safeguarded by the constitution the guarantee of democratic self-governance the provision of welfare and the assurance of social cohesion.

In the OECD world of the 1960s and 1970s these four institutional aspects merged as the central characteristics of the modern state, forming a synergetic whole. This series is devoted to empirical and theoretical studies exploring the transformations of this historical model and the promise it still holds today and for the future. Books in the series address research on one or several of these dimensions, in all of which crucial change is taking place. Although political science is the main disciplinary approach, many books will be interdisciplinary in nature and may also draw upon law, economics, history and sociology. We hope that taken together these volumes will provide its readers with the ‘state of the ar’ on the ‘state of the state’. This book contributes to the work of the Collaborative Research Center Transformations of the State at the University of Bremen (Germany), and is funded by the German Research Foundation (DFG). The state analyses pursued by the Centre are readily accessible through two overview volumes: Stephan Leibfried and Michael Zürn, (eds), Transformations of the State?

xiv

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Series Editors’ Preface xv

(2005); and Achim Hurrelmann, Stephan Leibfried, Kerstin Martens and Peter Mayer, (eds), Transforming the Golden-Age Nation State (2007), published in the Transformations of the State series. Further information on the Centre, can be found at www.state.uni-bremen.de. ACHIM HURRELMANN, STEPHAN LEIBFRIED, K ERSTIN MARTENS AND PETER MAYER Series Editors

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Authors Mirella Cacace, Ph.D., is an economist. Her main areas of research concern institutional economics and the international comparison of healthcare systems. She was a member of the Collaborative Research Center 597 in Bremen, Germany between 2003 and 2010. She is a 2008/2009 Commonwealth Fund Harkness Fellow at Columbia University, New York. She currently works as an analyst at RAND Europe, Health and Health Care. Lorraine Frisina, Ph.D., is a political scientist working as a research associate and lecturer at the Collaborative Research Center 597 ‘Transformations of the State’ at the University of Bremen, Germany since 2006. Her main areas of research include comparative healthcare policy, with a particular focus on national health services, developments in policy values, the effects of DRGS on the professional autonomy of physicians and the role that economic crises have on welfare states. Simone Grimmeisen is a Program Officer at the Department for Health Care and Humanitarian Aid at the Robert Bosch Foundation, Germany. Previous appointments include the German Ministry of Health and the University of Bremen, Germany where she was a member of the Collaborative Research Center 597 between 2003 and 2005. Her research interest is international and European welfare state research with a special focus on the German and British healthcare systems. Heinz Rothgang is Professor of Health Economics at the University of Bremen and Director of the Division for Health Economics, Health Policy and Outcomes Research, Centre for Social Policy Research, Bremen, Germany. His research interests are in the field of health economics, healthcare systems, long-term care insurance and welfare economics. He is currently heading the research project ‘The changing role of the state in OECD healthcare systems’ at the TranState Research Centre. Achim Schmid is a research fellow and Ph.D. student at the Collaborative Research Center 597 ‘Transformations of the State’ at the University of Bremen, Germany. He joined the project on the state and healthcare at the end of 2005. His main research interests include comparative social policy and health policy, in particular, the public–private mix of healthcare financing and health service delivery. Claus Wendt is Professor of Sociology for health and healthcare systems at Siegen University, Germany. He was a member of the Collaborative Research Center 597 in Bremen, Germany between 2003 and 2005. He is a 2008/2009 xvi

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Authors xvii

Harkness/Bosch Fellow of Health Policy and Practice at Harvard School of Public Health, and J.F. Kennedy Fellow at Harvard’s Centre for European Studies. His research interests include institutional theory, political sociology, international comparisons of welfare states and healthcare systems and the sociology of health.

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This illustration is taken from the original etching in Thomas Hobbes’ Leviathan of 1651. Palgrave Macmillan and the editors are grateful to Lucila Muñoz-Sanchez and Monika Sniegs for their help in redesigning the original to illustrate what ‘transformations of the state’ might mean. The inscription at the top of the original frontispiece reads ‘non est potestas Super Terram quae Comparetur ei’ (Job 41.33): ‘there is no power on earth which can be compared to him’. In the Bible, this refers to the sea-monster, Leviathan (Original Leviathan image reprinted courtesy of the British Library).

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Part I The Concept of the Study

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1 Introduction to the Book Heinz Rothgang

Healthcare systems in OECD countries seem to be in a state of permanent transformation.1 The economic recession following the oil price shocks of the 1970s triggered a broad range of cost containment measures in welfare state policies that would continue through four decades up to the present, where OECD healthcare systems face a new phase of economic turmoil brought on by our most recent financial crisis (see Starke 2006; 2007). This is not to suggest, however, that national governments have had an easy time curtailing public financing as well as provision in the field of welfare policy (Pierson 1994). This holds true particularly for the healthcare sector, as its legitimacy is in most countries largely based on its ability to provide a satisfactory standard of healthcare for all citizens, irrespective of their ability to pay for care. As demographic change and advancements in medical technology increase the demand for healthcare, globalization limits the amount of public funds that can go into it. As a result, the need for reforms that assure cost containment and at the same time guarantee high quality healthcare services for the population has increased. Interestingly, evidence suggests that although common challenges are experienced, the responses to various socio-economic pressures have differed considerably across healthcare system types (OECD 1994; Tuohy 1999). Starting in the 1990s, for example, we observe that in many predominantly publicly financed healthcare systems, market-oriented healthcare reforms have been implemented or proposed (Freeman and Schmid 2008; van de Ven 1996), whereas in the US, where private insurance plays a dominant role, access to healthcare and the introduction of universal health insurance have gained political salience, particularly during the presidency of Obama (Skocpol 1994; The White House 2009). In the light of these developments, how are healthcare systems in OECD countries transformed in a period of ‘permanent austerity’ (Pierson 2001a)? And how will this book contribute to describing these transformations?

3


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4 Heinz Rothgang

Theme of the book The distinct contribution we aim to make in this book has four critical aspects. First, we focus on the role of the state in healthcare. Second, we use a configurative conception of a healthcare system based on three dimensions – financing, service provision and regulation – which goes beyond mere description of, let’s say, spending patterns. Third, we not only ask whether major changes in the level of state involvement in healthcare systems have occurred over the past 30 years, but also discuss how the distinctiveness – or more technically, variance – of systems has changed in the period under scrutiny. Finally, the study follows a ‘nested design’, combining cross-sectional analysis of 23 OECD countries with three in-depth case studies. The role of the state in healthcare The last decade of comparative welfare state research has shown that advanced capitalist welfare states are facing enormous pressures in an environment of globalization and permanent austerity. While for many years the nation state was able to exercise effective control over its social policy institutions, nowadays, a range of factors is likely to reduce the capacity of the nation state to finance as well as to provide the post-war level of welfare services (Hurrelmann et al. 2007; Leibfried and Zürn 2005). As recent studies have shown, these profound changes within the political and economic environment have not only led to a massive debate on the future of the welfare state, but also to a plethora of welfare-specific retrenchment activities and ‘welfare state restructuring’ (Pierson 2001a). Apart from analyzing the tangible measures of welfare state reform, on a more general level welfare state research has also initiated a debate about the changing role of the state in welfare production (Kaufmann 1994; Leisering and Berner 2001; Majone 1994). Basically, according to the hypothesis most prevalent in the literature, we are witnessing a remarkable ‘change in the traditional role of the state in social policy’ and thus a change in the so-called welfare mix of modern welfare states (Falkner and Tálos 1996: 70; Seeleib-Kaiser 2008). This book seeks to build on these discussions by analyzing recent developments in the field of health policy. We focus on this policy field, which alongside pensions is the biggest single consumer of resources in modern welfare states, in order to give an overview of the developments in welfare states in general. Or, as Michael Moran (2000: 139) has put it: ‘making sense of what is happening to the healthcare state is critical to making sense of what is happening to modern welfare states’. Nevertheless, health policy has been suspiciously missing from most welfare state analyses. Ever since the establishment of the first social health insurance system in Bismarckian Germany dating back to 1883, the state has been an integral part of healthcare systems. In longitudinal perspective, however, its ‘gestalt’ within healthcare systems has varied and changed over time. Despite the


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Introduction to the Book

5

prominent role the state plays not only in the establishment and development but also in the day-to-day operation of healthcare systems, comparative healthcare/health policy literature has not so far provided a systematic analysis of the changing role of the state in healthcare (for partial exceptions see Alber 1989; Moran 1999). This deficit is the main starting point for our book, which addresses the question of how the role of the state in these systems has changed since the profound economic crisis of the 1970s and, in particular, how we can empirically trace and capture these changes in a comparative way. Configurative conception of healthcare systems With respect to the role of the state in healthcare, many comparative studies have exclusively concentrated on financing and expenditure (see, for example, Castles 2004; 2008; Comas-Herrera 1999; Huber 1999; Leidl 1998b; Mossialos and Dixon 2002). Following their line of argumentation, the involvement of the state in a healthcare system can be measured as the proportion of GDP that is spent on health care via the public purse, or the ratio of public to total health expenditure. Applying the idea of welfare state retrenchment to health policy would then lead to the expectation of a privatization of healthcare financing. A focus on financing alone, however, neglects the question of whether state agencies also provide healthcare, or whether these services are provided by private entities such as hospital corporations or self-employed doctors. A second role that the state can play in healthcare systems, therefore, is as a potential provider of services. As Alber (1995) has duly noted, social services are a somewhat neglected dimension of comparative welfare state analysis. This is not least due to Esping-Andersen’s conception of the ‘three worlds of welfare state capitalism’ (Esping-Andersen 1990), which is based on the analysis of cash benefits. For the last two decades this seminal work has forged a path for subsequent research which separates comparative welfare state research and healthcare system analysis.2 Within the healthcare systems literature, however, service provision has been raised as a major issue (Wendt and Kohl 2010). Starting with Field (1973), who distinguished healthcare systems according to the ownership of healthcare services and doctors’ autonomy, service provision has also been used as a category to classify healthcare system types. If we want to understand the role of the state in service provision, the share of public services is a good indicator for measuring this dimension of potential state activity. The expectation, then, is that in a period of retrenchment we will see a privatization of service provision. Even if the state neither finances nor provides services directly, there is a third role it can play: it can be more or less engaged in the regulation of the relationships between providers, financing bodies, and users – or it can leave this task to corporate self-regulation or to the market. These questions have been tackled by, for example, Rico et al. (2003), who compare


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6 Heinz Rothgang

healthcare systems in terms of the relative importance of ‘market’, ‘hierarchy’, and ‘networks’ that differ in the way they address the two governance functions of ‘coordination’ and ‘control.’ This concept is nearly identical to the components of the ‘institutional mix’ in healthcare systems (‘hierarchy,’ ‘market,’ and ‘collegiality’) as defined by Tuohy (1999), or to the ‘state-led’, ‘corporate-governed’, and ‘market-driven’ systems suggested by Giaimo and Manow (1999). While these and other influential comparative studies mainly concentrate on different modes of governance, we believe that in order to understand the (changing) role of the state in healthcare, a more sophisticated analytical framework is necessary which combines the three dimensions mentioned above and takes into account the (potential) role of the state in financing, providing and regulating healthcare. In line with Moran (2000), we argue that one dimension does not necessarily determine the other two, and that non-uniformity across dimensions can also arise: it is quite possible, for instance, for private funding to combine with public service provision and a high level of state control, as is the case of privately insured patients receiving inpatient care in a public hospital in Germany. Having in mind a similar framework for welfare state policy, Majone (1997) even argues that growing internal and external pressures will have two effects: on the one hand, prompting governments to cut direct welfare financing and service provision and on the other, leading states to engage increasingly in the regulation of social services that are financed and provided by private institutions. We therefore propose a configurative approach which simultaneously assesses the role of the state in financing, service provision and regulation. Level and corridor effects One of the possible aims of an international comparison is to look for common developments in all the systems under investigation. For a long time, the emphasis in comparative welfare state research has been on the search for common trends such as ‘retrenchment’ or ‘privatization’ (for a survey, see Starke 2006). However, even at the end of the ‘golden age’ of the welfare state (Hobsbawm 1994) in the 1970s and the beginning of what has been termed the ‘silver age’ (Taylor-Gooby 2002), there were distinct ‘worlds of welfare capitalism’ (Esping-Andersen 1990) and ‘varieties of welfare capitalism’ (Hall and Soskice 2001). How did these differences change over time? Has the corridor within which the varieties of welfare states are placed decreased or increased? There are good reasons to suppose that it is at least as important to ask to what extent distinct system patterns have survived in the age of globalization and austerity as to look for shifts in the level of welfare provision (Rothgang et al. 2006). We therefore suggest looking for ‘corridor effects’ and ‘level effects’, thereby analyzing changes in the dispersion of welfare state regimes as well as shifts in the mean values. Our analysis suggests that convergence in healthcare systems, that is, decreasing


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7

diversity among states in spending, financing, and regulation, may have been the most important pattern of healthcare system change in the last three decades – a pattern easily overlooked when looking only for common trends. Nested design Finally, we have chosen a specific approach to the art of comparing. Research on healthcare system comparisons is now well established, and there is no lack of country studies. The European Observatory on Health Systems and Policies, a co-operation between the World Health Organization, the World Bank, the London School of Economics and Political Sciences, and other partners, for example, regularly publishes country reports on healthcare systems in Europe that follow a similar pattern and are therefore comparable. There are also well-known readers (for instance OECD 1994), which contain numerous country studies in a single volume. These ‘stapled comparisons’ (Marmor et al. 2005), however, lack a systematic comparative design and are not embedded in a theoretical framework. Thematic volumes also exist that focus on specific dimensions and aspects of the healthcare system, for example, healthcare financing (such as Mossialos et al. 2002), certain instruments (such as OECD 1995), or on a particular healthcare system type (such as Saltman et al. 2004). The state of the art, therefore reflects one of the basic tensions of international comparative research: if the goal is for example a deeper understanding the regulation of a national system, the number of countries under scrutiny must be limited. Then, however, the possibility of generalization is also limited. If, in contrast, the number of countries under review increases, it is almost impossible to provide in-depth insight into these systems, and studies of this type are therefore restricted to certain aspects of the system. This trade-off cannot be solved; there can only be certain strategies to deal with it. This book addresses the trade-off between generalizability and comprehensiveness by means of a nested design, combining quantitative analyses for a larger OECD country sample with three in-depth case studies of countries that were deliberately chosen to represent a particular healthcare system type. For the quantitative analyses, generalization is therefore not an issue, while for our case studies, theory-based case selection should allow for as much generalization as possible, given the need to limit the number of cases. The broader country sample is taken from OECD countries that had already developed a high standard of democratic, constitutional and welfare institutions in the 1960s and early 1970s (for the concept of Democratic Constitutional Interventionist States see Zürn and Leibfried 2005). On the basis of this definition we include 23 of 30 current OECD members. Despite deficits with respect to democratic standards at the beginning of our observation period, Greece, Spain and Portugal are included, being founding members of the OECD. The Czech Republic,


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8 Heinz Rothgang

Hungary, Korea, Mexico, Poland and Slovakia are excluded, since they only became OECD members in the 1990s. Turkey is also excluded as it fails to meet the standards of a democratic, constitutional, welfare state. Main thesis This book therefore analyzes the changing role of the state in healthcare systems with respect to financing, healthcare service provision, and regulation within the framework of a nested design based on a particular conceptualization of a healthcare system. In doing so, we start from the hypothesis that although there are common trends, particularly privatization in financing and service provision, the reducing variability between distinct healthcare system types is the most important development over recent decades. Healthcare systems show increasing similarities, as they often include innovative policies or transfer policies developed in other healthcare systems, while preserving their inherited basic features. Healthcare systems thus develop into more hybrid system types, a development which at the same time reduces the heterogeneity of healthcare systems and produces a trend towards convergence. It is this thesis that will be proved in the chapters of this book.

Contents of the book The conceptual framework of this analysis is the topic of Chapter 2, which discusses in some detail several of the ideas mentioned above, such as healthcare systems, healthcare system types, level and corridor effects as well as convergence. The second part of the book is then devoted to crosssectional comparisons dealing with financing (Chapter 3) and service provision (Chapter 4).3 Both chapters are based on large-scale comparisons of up to 23 OECD countries. In-depth case studies of Britain, Germany and the US (Chapters 5 to 7) comprise the third part and are, we might say, the heart of the book. In these chapters, the description of changes in financing and service provision is also based on national statistics, which allows for some additional analyses along these two dimensions. Though the analysis of national data may provide further insights into changes in financing and service provision, the true contribution of these case studies lies in the area of regulation. For each country, a concise account of healthcare reforms is given, focussing on changes in regulatory competences. Combining the evidence for these case studies and the cross-sectional analyses, Chapter 8 concludes by looking at the changing role of the state in healthcare. We thereby establish our main thesis: the state is not generally on the retreat, but we see instead a blurring of ideal–typical healthcare systems leading to more hybrid systems. The systems have thus converged, in the sense that they now have more similarities and are much less distinct than they were at the beginning of our observation period in the 1970s.


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9

Notes 1. Reflecting this state of affairs, the European Observatory on Health Systems and Policies publishes a series of country reports labelled ‘Health Systems in Transition (HIT) Reports’. 2. Only recently Clare Bambra (2005) tried to bridge this gap by introducing a ‘health decommodification index’. 3. For guiding principles, values, and perceptions of healthcare systems see Frisina and Albrecht (2010).


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2 Conceptual Framework of the Study Heinz Rothgang

Introduction The discussion of the changing role of the state requires a clear concept of what a healthcare system is and what the role of the state within a healthcare system can be. Some aspects of this can be described for all OECD countries, but other more in-depth descriptions can only be provided for selected cases. Case selection, however, may determine the outcome of research and is therefore a very sensitive issue. In the present study, this problem is resolved by presenting a typology of healthcare systems from which we select one representative case from each healthcare system type for in-depth-analysis, while also using data from 23 OECD countries for quantitative comparisons. In this way, we aim to ensure both the representativeness and generalizability of our cases and their respective findings on healthcare system change. When speaking of change of any kind, it is first and foremost necessary to discuss the nature of its direction. Since healthcare systems as well as their developments over time vary between countries, the description of change for any dimension may relate to the mean value and to the question of dispersion among countries. These are what has elsewhere been referred to respectively as ‘level and corridor effects’ (Rothgang et al. 2006). In studying the changing role of the state in healthcare over time and across healthcare system types, the careful conceptualization of such terms is of great importance, particularly as they relate to the notion of convergence, which is central to the comparative focus of the present study. In what follows, we will problematize each of these concepts, but we begin with the more rudimentary questions: what is a healthcare system and what types of healthcare systems are there?

Healthcare systems Healthcare systems are fully differentiated societal subsystems, in which various actors interact with each other regularly and on a continuing basis 10


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Conceptual Framework of the Study 11

in order to fulfil certain functions (Mayntz 1990). Healthcare systems rest on a foundation of shared values and perceptions which inform the guiding principles of the system (Frisina and Albrecht 2010). As healthcare systems exist for the provision of healthcare goods and services, service provision can be regarded as the basic function of the system. In order to remunerate service providers, however, funds from different possible sources have to be collected. Financing is therefore to be regarded as the second basic function of a healthcare system. Accordingly, service providers and financing agencies are two types of actors we find in every healthcare system, regardless of type.1 Healthcare systems serve their national populations, and it is these that are also the ultimate source of funding. These (potential) beneficiaries constitute the third type of actor found in any healthcare system. The complex interplay of these three groups of actors has to be regulated. The regulation of the bilateral interactions within this triangle of funding agencies, service providers and (potential) beneficiaries thus constitutes the third fundamental function that must be fulfilled if the healthcare system is to operate properly. Healthcare systems can therefore be visualized as a house, with financing and service provision as two pillars resting on a foundation of shared values, perceptions, and guiding principles, and with the roof representing the regulation of the interactions between service providers, financing agencies, and potential beneficiaries (patients) (Figure 2.1). The role of the state in healthcare must also be conceived within this threedimensional framework. First of all, the state can – to a greater or lesser extent – finance healthcare. Second, the state can act as a provider of healthcare. Third, even if the state neither finances nor provides services directly, there is a third role it can play: it can be more or less engaged in the regulation of the other actors. Only the simultaneous analysis of all three dimensions can provide an adequate picture of the (changing) role of the state

(Potential) Beneficiaries

Regulation

Financing agencies Financing

Service providers Service provision

Guiding principles, values, perceptions Figure 2.1 Conceptualization of a healthcare system Source: Author’s own diagram, based on Rothgang et al. (2005: 189).


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12 Heinz Rothgang

in healthcare systems (Freeman and Moran 2000; Freeman and Rothgang 2010; Maarse 2006). In cases where the state does not fulfil these functions, who does? Generally speaking, either civic society or private actors may step in. We therefore distinguish for all three dimensions a state, a societal, and a private modality. Just how these modalities should be defined and how the role of the state can be measured under financing, service provision, and regulation, however, require some elaboration. Financing The financing of healthcare systems may come from any combination of three different sources: taxes, social insurance contributions, and private financing. Taxes certainly represent the most public form of financing. They are compulsory, but do not generate specific claims. Where direct taxes play an important role, tax financing of healthcare also implies an element of ex ante redistribution from the wealthier to the less wealthy portions of society (Wagstaff and van Doorslaer 2000). Like taxes, social insurance contributions are also mandatory and redistributive. Unlike taxes, however, they generate certain claims on healthcare provision. As social health insurance funds are non-governmental agencies, we regard social insurance contributions as a kind of collective, albeit non-state, form of financing. They are viewed here as a form of societal-based funding emerging somewhere between state taxation on the one hand, and private financing on the other. Since the state has no direct access to social insurance revenues, a line can clearly be drawn between taxation and this type of funding, but because social insurance is mandatory, non-profit oriented, and contains some element of ex ante redistribution, it also fails to fall under the heading of the private sector (Wendt et al. 2009). Private financing comes in two forms: private insurance premiums and out-of-pocket payments. Though both are regarded as private, the former represents a kind of pre-payment, which guarantees access to services when they are needed. Accordingly, the World Health Organization, for example, regards a sufficient amount of pre-payment as a central prerequisite for fair financing (WHO 2000). Being based on risk-related premiums, private insurance premiums lack any ex ante redistribution, which is characteristic of taxes and social insurance contributions. This is also true for outof-pocket payments including deductibles, co-payments, and any form of cost-sharing, as well as direct (over the counter) expenses on healthcare. This form of financing, however, also lacks risk pooling and the ex post redistribution between the sick and the healthy that follows from it. A high level of out-of-pocket payments therefore creates a barrier to healthcare utilization for those who cannot afford them.


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Clearly the amount of tax financing is the most accurate indicator of the role of the state in healthcare financing. Compared to this, public financing, consisting of taxes and social insurance contributions, is a somewhat cruder indicator. As data availability does not allow us to maintain our trichotomous classification of financing for an analysis of long time-series (see Chapter 3), the amount of public financing can nevertheless be used to indicate the (changing) role of the state in healthcare financing. Service provision Service provision can be characterized according to several criteria. With respect to the role of the state, however, two criteria are of particular interest: ownership and profit orientation (Field 1973; Frenk and Donabedian 1987; OECD 1987a). With respect to ownership, public and private providers can be distinguished; the latter can be divided into for-profit and non-profit providers. Public providers represent the state, whereas private non-profit providers are classified as societal, and private for-profit providers stand for the private sector (Wendt et al. 2009). Within the OECD, the greatest variety can be observed in hospital care. Alongside state hospitals, which generally provide the vast majority of all available hospital beds in OECD countries, there also exist private forprofit and private non-profit facilities. In Germany, for example, the role of non-profit organizations in hospital healthcare is deeply intertwined with welfare organizations and facilities. Historically there have also been facilities provided by social insurance agencies: both in the German health insurance system of 1883 and in the British social health insurance program established in 1911, doctors worked in part as employees of health insurance agencies. Today in Austria a limited number of non-profit health insurance facilities still exist alongside welfare agencies as societal-based pooled healthcare providers (Wendt et al. 2009). In some respects, some present-day private Health Maintenance Organizations (HMOs) in the US also follow in this tradition, as their provision is furnished partly by salaried doctors. In contrast to the European examples, however, for-profit HMOs remain rooted in the private sector (White 2007). Even if in most countries public providers are dominant in in-patient healthcare and private for-profit providers in out-patient healthcare, due to the existence of private non-profit hospitals in a number of countries the categories ‘state’, ‘societal-based’, and ‘private’ are also relevant to the healthcare provision dimension. Regulation With respect to regulation, the objects of regulation, the actors of regulation, and the modes of interaction between these actors have to be discussed.2 The objects of regulation are to be seen in the relations between the three sets of actors, that is service providers, financing bodies, and (potential)


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14 Heinz Rothgang

beneficiaries of the healthcare system. As Box 2.1 shows, there are six major relations, concerning coverage, financing, remuneration, access of providers and patients, and the benefit package. With respect to actors, a basic distinction can be made between state, societal, and private actors. The latter are primarily involved in their role as private market participants. As far as the interactions between these actors are concerned, a multiplicity of forms is discussed, particularly in the political science and economic literature on governance (Dingeldey and Rothgang 2009; Mayntz and Scharpf 1995; Williamson 1998). With regard to healthcare systems, three forms are commonly identified: (1) hierarchy, that is, a clear domination–subordination relationship; (2) collective negotiations as a form in which actors operating on equal terms enter into long-term

Box 2.1 Objects of regulation Relations between (potential) beneficiaries and financing agencies: (1) Coverage: the inclusion of (parts of) the population in public and/or private healthcare systems. (2) System of financing: the financing of healthcare by public (taxes, social insurance contributions) and/or private (private insurance contributions, out-ofpocket payments) sources. Relations between financing agencies and service providers: (3) Remuneration of service providers: the specific system of provider compensation. (4) Access of (potential) providers to healthcare markets: access to financing agencies. Relations between service providers and (potential) beneficiaries: (5) Access of patients to service providers. (6) Benefit package: the content and range of services offered to patients.

Table 2.1 Types of regulation Actors Form of interaction

Self-governing actors Market participants

State

Hierarchy

State-hierarchical regulation

–

–

Collective negotiation Competition

–

Societal selfregulation –

–

–

Private-competitive regulation

Source: Own representation.


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agreements; and (3) market transactions, in which a competitive relationship between the actors prevails.3 Cross-tabulating the actors and forms of interaction produces the combinations depicted in Table 2.1. The ‘pure’ regulatory types are located on the main diagonal. In these fields, an actor is combined with the form of interaction that normally goes together with that type of actor to form state-hierarchical regulation, societal self-regulation, and private-competitive regulation. From bottom right to top left on the main diagonal, an increasing level of state control can be observed. The pure forms identified here have strong similarities with the terminology used, for example, by Giaimo and Manow (1999). However, their conceptual ‘triad’ of ‘state-led’, ‘corporatist-governed’ and ‘market-driven’ does not distinguish between the configurations of actors and the forms of interaction. In contrast, Rico et al. (2003) refer only to the forms of coordination and make the standard distinction between ‘market’, ‘hierarchy’ and ‘networks’, but without taking account of the actors involved. The advantage of the nine-field matrix depicted in Table 2.1 is that it views actors and their interactions simultaneously, thereby capturing combinations of regulatory interactions otherwise neglected by examining the two dimensions in isolation. For example, the table highlights combinations that are not on the main diagonal, such as the hierarchical interactions between privatecompetitive actors that are characteristic of HMOs in the US. Synopsis Table 2.2 contains a synopsis of the above discussion. As the table shows, for all three dimensions of a healthcare system – financing, service provision, and regulation – a state, societal, and private form can be distinguished.4

Table 2.2 State, societal, and private roles in a healthcare system Actors Form State of interaction

Societal

Private

Financing

Taxes

Social insurance contributions

Private insurance and out-of-pocket payments

Service provision

Public providers

Private non-profit providers

Private for-profit providers

Regulation

State-hierarchical Societal self-regulation Privateregulation competitive regulation

Source: Own representation.


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16 Heinz Rothgang

This analytical framework is thus able to capture the (changing) role of the state in a healthcare system in a threefold-way.

Healthcare system types Comparisons of healthcare systems require detailed examination of institutional arrangements. As a result, they are necessarily restricted to a small number of countries. In order to draw more general conclusions, though, attempts can be made to cluster healthcare systems into healthcare system types characterized by common features and, consequently, a rather low level of internal variance. If representatives of these types are then compared with one another, the developments observed can be interpreted as indications of general trends that transcend individual cases. There are numerous typologies of healthcare systems (for a discussion, see Burau and Blank 2006; Wendt 2009; Wendt et al. 2009). These attempts have started from different angles. Concentrating on the financing dimension, scholars have distinguished Bismarckian types (with financing based on social insurance contributions) and Beveridge types (with financing based on taxes), or social insurance systems and national health services (Jönsson and Musgrove 1997; Kokko et al. 1998; Wendt 2009). Focussing on service provision, Field (1973) differentiated healthcare systems according to the ownership of healthcare services and doctors’ autonomy. Frenk and Donabedian (1987) suggested a typology of state intervention in medical care that is based on the form of state control over the production of medical care and the basis for eligibility of the population. More recently, regulation has been chosen as a basis for classification, leading to a differentiation between ‘state-led’, ‘corporatist-governed’ and ‘market-driven’ systems (Giaimo and Manow 1999); ‘the supply state’, ‘the corporatist state’ and ‘the insecure command and control state’ (Moran 2000: 147); or ‘agency’, ‘contract’ and ‘governance’ (Tuohy 2003); as well as ‘markets’, ‘hierarchy’ and ‘networks’ (Rico et al. 2003). In order to comprehend the healthcare system as a whole, however, it is necessary to analyze all three dimensions simultaneously. Respective attempts have thus far been rare (for an exception, see Chinitz et al. 1998; Hsiao 1995). Despite this shortcoming in the literature, it is nevertheless common practice in healthcare systems research to make a distinction between three types of healthcare systems: national health services, social insurance systems, and private healthcare systems, although this distinction is mostly not rooted in theory.5 This typology can be deduced systematically, though, when all three dimensions of a healthcare system – financing, service provision, regulation, with their respective modalities (see Table 2.2) – are used as a starting point (Wendt et al. 2009). Distinguishing a state, a societal, and a private modality for each of the three dimensions, we arrive at three healthcare system types, namely a national health service (NHS) with state


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financing, service provision and regulation; a social insurance system with societal financing, service provision and regulation; and a private healthcare system with private financing, service provision and regulation. In order to also cover the normative dimension, Table 2.3 additionally refers to the respective guiding principles of the system. This typology is, on the one hand, deduced from theoretical considerations of the basic functions of a healthcare system and the actors needed to fulfil these functions. On the other hand, it can also be regarded as an idealtype, which according to Max Weber (1994: 90, italics in original) ‘is formed by the one-sided accentuation of one or more points of view and by the synthesis of a great many diffuse, discrete, more or less present and occasionally absent concrete individual phenomena, which are arranged according to those one-sidedly emphasized viewpoints into a unified analytical construct [Gedankenbild]’. In other words, a typology can be derived starting from a broad description of existing healthcare systems and then idealizing their patterns to yield certain ideal-types. It is based on this typology that three countries, whose healthcare systems in the 1960s and 1970s come closest to our ideal-types, have been selected for comparison in the present study. These consist of Britain as representative for an NHS system, Germany as representative for a social

Table 2.3 Healthcare system types Regulation (dominant mechanism)

Healthcare system type

Underlying values and principles Financing

Service provision

National Health Service

Equity: equal access to services for everyone

Public: direct and indirect taxes

Public providers

State-hierarchical: comprehensive planning and tight control by the state

Social Insurance System

Solidarity: equal access to services for all members of insurance funds

Societal: social insurance contributions according to income

Societal: private non-profit providers

Collective bargaining of corporatist actors; legal framework and some state control

Private Healthcare System

Principle of equivalence: service according to ability to pay

Private: private insurance premium according to risk

Private for-profit providers

Competition of private actors; limited state regulation

Source: Own depiction based on Rothgang et al. (2005: 191).


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18 Heinz Rothgang

insurance system, and the US as representative for a private healthcare system. While the British system comes very close to its ideal-type along all three dimensions, in Germany service provision is not dominated by private non-profit providers, though they play an important role. Meanwhile, the characterization of the US as a private insurance system best suits the period up to 1965, when the public programmes of Medicare and Medicaid were introduced; the features of this example become more diverse thereafter. Accordingly, while a perfect fit between the real and ideal types used here is not possible, our cases represent the closest approximations to these ideal-types, thus allowing for some generalization within a given category of healthcare system type.

Conceptualization of change As this book is about change in and across healthcare systems, the concept of change also needs some clarification with respect to the period of observation, the direction of change, and the way in which developments in certain countries are looked at. Period of observation In order to be able to identify changes, it is necessary, first, to determine the starting situation of the time period in question. During the ‘golden age’ (Hobsbawm 1994) of welfare expansion, states pushed for the inclusion of more of the population in the healthcare system. Thus, with the notable exception of the US, by the early 1970s almost the entire population of the OECD countries had access to healthcare services. But with the oil price shocks of the 1970s, the long post-war period of continuous growth came to an end and gave way to a one of ‘permanent austerity’ (Pierson 2001a). In order to capture the policy changes resulting from this break or critical juncture, we take 1970 as the starting point for our cross-sectional analyses for both Britain and Germany. In the case of the US, however, we will start our period of observation somewhat earlier, to include the introduction of Medicare and Medicaid in 1965, as these programmes already constituted an important shift away from the private healthcare system and must therefore be included in our description. Directions of change When analyzing change, we refer to change on at least one of two axes: the public–private axis and the territorial axis (Blank and Burau 2004: 61). The former is a continuum stretching from private to public, with societal situated somewhere in between. Analyzing changes in healthcare systems along this axis allows us to measure the extent to which the state or state actors have been involved in the financing, provision, and regulation of healthcare and how this involvement has changed over time. Much of the


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literature on change in the welfare state today focusses on whether we can see a retrenchment and an increasing privatization of the welfare state (for example Gilbert 2002; Pierson 1994; 2001b; Starke 2007), since – in contrast to the 1940s and 1950s – few tendencies towards a de-privatization or socialization of responsibilities are to be observed. Thus, it will be interesting to see to what extent we see such changes in healthcare systems. The second analytical axis, the territorial axis, stretches from the subnational to the international level. Looking at the state as a whole, welfare state scholars have identified internationalization on this axis (see, for example, Keohane and Milner 1996). Moreover, even if competences remain at the national level, their use may become effectively restrained by necessities resulting from competition between systems, with some authors seeing a ‘hollowing out of the nation state’ (Jessop 2002). Against this backdrop, we explore whether the involvement of the nation state with respect to the financing, service provision, and regulation of healthcare has changed visà-vis the international and the sub-national level. Level and corridor effects As outlined in Chapter 1, we are not just interested in common trends in OECD healthcare systems, but also in the question in how far developments vary. We therefore look for level effects as well as corridor effects. Technically, when considering several states simultaneously, level effects refer to a shift in mean values, such as a decreasing share of public healthcare financing among all OECD countries. Corridor effects then refer to changes in the dispersion among countries, for example, the variance in the share of public healthcare financing. Table 2.4 shows the potential forms of change resulting from a simultaneous analysis of level and corridor effects. If, for example, healthcare systems were being privatized to the same extent in all countries such that the differences between countries remained constant – that is, the corridor of regimes neither widened nor narrowed – a simultaneous decrease in the amount of state spending would simply lead to a decrease in the level of state intervention, as in cell 8. If all countries moved towards a similar public–private mix for their healthcare systems, while the mean level of state intervention stayed the same, as in cell 6, there would be a simple convergence. But if the level of state intervention also decreases, then we have convergence with a reduced level of state activity, as in cell 9. As Table 2.4 reveals, a common trend, let’s say privatization in healthcare provision, cannot be regarded as convergence, but rather as a level effect. Convergence, on the other hand, requires some narrowing in the dispersion among states. As already stated in the introduction, in our study we find a narrowing of corridors. It is therefore also useful to discuss briefly the concept of convergence here.


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20

Heinz Rothgang

Table 2.4 Potential transformative change in the structure of healthcare systems Level of state intervention plateau (mean) For a given set of healthcare systems CORRIDOR Spread of policy regimes in healthcare systems

Widens

Rises

1 4 Divergence, Divergence on an uplifted intervention plateau

Remains 2 the same Uplift Narrows

Remains the Sinks same

5 Status quo

3 6 Convergence, Convergence on an uplifted intervention plateau

7 Divergence, on a subsided intervention plateau 8 Subsidence 9 Convergence, on a subsided intervention plateau

Convergence In recent years, the question of the possible convergence of healthcare systems has been increasingly debated by researchers in the area (ComasHerrera 1999; Field 1999; Hitiris and Nixon 2001; Leidl 2001; Nixon 2003; Saltman 1997). Generally speaking, however, the dimensions, concepts and indicators deployed in the convergence debate vary considerably, which leads to inconsistent results (Heichel et al. 2005). Consequently, it is necessary to clarify which dimensions are under review, which concepts of convergence are used, and how they are being measured (see also Chapter 3). Each of the dimensions that constitute a healthcare system – financing, service provision and regulation – can be investigated for convergent trends, as can the values that prevail in the population at large (Marmor et al. 2006), or among the political elite (Taylor-Gooby 1996). Nevertheless, many of the studies cited here are concerned solely with financing (Comas-Herrera 1999; Hitiris and Nixon 2001; Nixon 2003). With respect to the concepts of convergence, a distinction can be made between beta-, delta- and sigma-convergence, with the last of these most frequently studied (Heichel et al. 2005). Sigma-convergence refers to a reduction in the variance between different systems with regard to one parameter and in quantitative analyses is usually measured as the variance or the coefficient of variation. When applied to regulation, it is difficult to use quantitative indicators. Convergence in regulation, therefore, refers instead to a reduction in the level of dissimilarity in regulatory structures or mechanisms (Field 1999: 323; Ham and Brommels 1994). In this sense Knill (2005: 768) defines policy convergence ‘as any increase in the similarity between


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one or more characteristics of a certain policy [ ... ] across a given set of political jurisdictions [ ... ] over a given period of time’. When, for example, NHS systems introduce competition and private healthcare systems introduce elements of hierarchical regulation, it can be argued that both adopt features from the other and thus become more similar. Such a ‘blurring of regimes’ leads to a kind of hybridization, which may well be an effect of policy learning and can also be regarded as a kind of convergence. It is a kind of convergence insofar as the uniqueness of certain features disappears. While each system type itself becomes more heterogeneous, differences between systems and system types diminish. Beta-convergence is another concept in statistical analysis. It attempts to measure catch-up processes among ‘laggard’ countries and uses the ß parameter in regression models (Sala-i-Martin 1996). Consequently, it is only used in quantitative analyses. Sigma-convergence generally implies beta-convergence, while the converse is not necessarily true. High rates of adjustment may even cause the ‘laggards’ to overtake the frontrunners without any effect on variance or sigma-convergence. Delta-convergence, finally, is a measure of whether and to what extent systems are evolving relative to a reference model. Hurst (1991), for example, found delta-convergence in the ‘public contract model’ that served as his reference model. Generally speaking, convergence can thus be found in all three dimensions of healthcare systems as well as in their normative foundations. Particularly in financing and service provision, it can be analyzed using quantitative data and statistical methods. In our study we will therefore employ the concepts of sigma- and beta-convergence when analyzing the financing dimension in general and the public–private mix in particular. Due to limited data availability, we only search for sigma-convergence in the service provision dimension. With respect to regulation, qualitative description must be used instead. Convergence may then appear in the form of a blurring of ideal– typical healthcare system types, leading to more mixed types of regimes and a hybridization of system types. Based on the case studies in Part III of this book, we will substantiate our hybridization thesis and summarize our findings in a concluding chapter.

Notes 1. Of course, one corporate actor could serve both functions, in which case, financing agent and service provider would be a single corporate actor. This is precisely the case with staff-model Health Maintenance Organizations (see Chapter 7). 2. In Part III the regulatory framework resulting from the interaction of these actors is discussed for the three case studies. This chapter concentrates instead on the possible roles of the state in regulation. 3. Market and competition can be differentiated analytically: ‘competition’ can be defined in general terms as rivalry between individuals, groups or nations that occurs when more than one party seeks to obtain something that not all can


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22 Heinz Rothgang possess simultaneously (Stigler 1987: 531). Thus competition is an action principle that can occur inside as well as outside markets. The ‘market’, on the other hand, is a level at which competition can take place. In healthcare systems, ‘competition’ is used both in markets and in quasi-markets specially created for the purpose. 4. With respect to regulation, the classification may differ for the six relations identified. 5. This distinction can be traced back at least to Terris (1978) or – in the German language literature – Neubauer and Birkner (1984).


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Part II Cross-Sectional Analyses


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3 The Changing Role of the State in Healthcare Financing Achim Schmid, Mirella Cacace and Heinz Rothgang

Institutional legacies are one broad explanation for considerable and persisting differences in the ways nations finance their healthcare systems (Pierson 2004; Taylor-Gooby 1996; Wilsford 1994). Yet it is clear that although all countries throughout the world rely on their own, specific funding-mix in healthcare, this mixture is also subject to readjustment and change (Huber 1998: 63; Scott 2001: 3). Changes in the funding mix may be caused by political interventions such as the inclusion of new groups in a public health1 insurance scheme, changes in co-payment rules or the scope of the benefit package covered by the public system (Maarse 2004b). Different growth trends of healthcare sectors which are predominantly financed by rather private or public funds may also alter the funding-mix substantially (Tuohy et al. 2004). Neither the financing structure nor funding levels have therefore been static during the past decades. While the development of total health expenditure and its determinants have been analyzed extensively, the evolution of public healthcare spending and of differences in the funding-mix across countries have attracted less attention (Barros 2007; for notable exceptions see Castles 2004; Comas-Herrera 1999; Mossialos and Dixon 2002; Starke et al. 2008). In this chapter we scrutinize the role of the state as a financer versus other sources of financing since the early 1970s in 23 OECD countries (see Chapter 1). After a short account of the various public and private sources of funding that will come under scrutiny, we provide a brief overview of the findings in the literature on the role of the state in healthcare financing. The following sections examine changes in healthcare financing in the OECD world. We consider level effects, as indicated by changes in mean spending, as well as corridor effects, which are revealed by measures of dispersion, and mirror the discussion about convergence in healthcare financing (Rothgang et al. 2006). As a result, we are particularly interested in public healthcare expenditure data, which serves as a broad indicator of the role of the state in healthcare systems. In addition, we examine tax funding, social insurance funding and private funding, which reflect different levels of state-involvement in 25


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26

Achim Schmid, Mirella Cacace and Heinz Rothgang

healthcare financing. Based on this trichotomous classification, we measure the development of similarity of the funding mix since the early 1990s across a smaller sample of countries. Finally, we consider patterns of public healthcare spending within different types of financing systems as revealed by the dominant mode of healthcare financing.

Public and private sources of health financing According to our trichotomous conception of healthcare systems (see Chapter 2) we discern three major sources of funding along the public/ private-axis: tax funding, social insurance contributions and private financing. Healthcare systems make use of a mix of these financing sources, which represent different levels of state-involvement. Tax funding can be characterized as most closely related to the role of the state, as the funds accrue from general taxation directly to governments’ budgets. Earmarked taxes may be regarded as an exception, as they are levied for special purposes, like social insurance contributions (Maarse 2004b: 171). Predominantly tax-funded systems tend to guarantee equal and universal access to healthcare based on citizenship. Tax funding, whether general or earmarked, typically does not establish specific entitlements for health services. The mode of financing involves substantial distributive effects. Healthcare systems based on tax funding such as those of Denmark, the UK, or Canada are usually associated with progressive2 financing and therefore tend to disproportionally burden high-income households. This is also the case in Ireland, Italy, and Spain, where indirect taxation – in principle indicating regressive financing – plays a major role in the financing mix. In all these countries healthcare financing through indirect taxation is (over-)compensated by the progressive effect of direct taxation (Wagstaff and van Doorslaer 2000). Social insurance schemes, in contrast to taxes, guarantee individual benefits in return for contribution payments. They are generally based on a mandate. People are obliged to join social health insurance (SHI) as soon as they meet specific criteria, such as a certain employment status or wage level (Barr 2001: 24). At the same time, statutory health insurance funds are obliged to include people who meet the defined criteria. Universal coverage is often achieved through derived rights for dependents and the inclusion of the non-employed (Greve 2007). Some groups, however, may also opt out of the SHI scheme. In Germany, for example, the self-employed and employees earning less than €400 or more than about €4,000 per month do not have to join the public scheme. These population groups may choose to contribute on a voluntary basis (see Chapter 6). In the Netherlands, until the health reform of 2006, high income groups were systematically excluded from the social insurance scheme and had to purchase private insurance (Maarse and Okma 2004). Until 2008 the Belgian healthcare system provided the


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Changing Role of the State in Healthcare Financing

27

self-employed only with a limited benefit package which had to be supplemented by private insurance (Corens 2007). Premiums in SHI systems, unlike those in private insurance, are not riskdependent. They may, however, vary substantially with respect to the definition of contribution rates as well as their reference base, and therefore also involve diverse distributional effects. Typically, contributions are raised from employees, employers, or both, in proportion to wages. Modifications include the imposition of contribution ceilings, which tend to make the financing system more regressive (Wagstaff and van Doorslaer 2000). Other sources of revenue may also be drawn on to make the financing system proportional to overall income rather than wages alone. In the French healthcare system, for example, wages as well as capital incomes are liable to contributions (Sandier et al. 2004: 116). Like insurance arrangements in general, contribution-financed social insurance redistributes income from those who suffered losses to those who stayed healthy within a given time period (ex post redistribution) (Getzen 2004: 69f). In addition, ex ante redistribution from individuals with good risk structure (the healthy) to those with bad risk structure (the sick) is intrinsically linked to contribution financing. Depending on the specific social policy objectives, additional ex ante redistribution can be achieved, for example from singles to families, from high to low-income earners as well as to the unemployed, and from younger to older generations (Wille 2002: 10). Social insurance schemes may also entirely, or at least partially, rely on per capita flat-rate premiums, as in Switzerland or the Netherlands. Flat-rate premiums involve ex post and some elements of ex ante redistribution, since premiums are independent of health risk. In addition, in both empirical examples, dependent children are charged no premiums (the Netherlands) or reduced flat rates (Switzerland), which in effect means a subsidization of families with children. Since flat-rate premiums are not income-related, low-income groups are disproportionally burdened. These financing systems are, therefore, often cited as social insurance schemes with a largely private character, because they leave social redistribution to a tax-financed transfer system (Gerlinger 2009; Götze et al. 2009). Hence, while social insurance systems vary with respect to the extent to which they contain instruments of redistribution, they share a clear-cut relation between payments and entitlements, mandatory insurance, the obligation to contract and contributions that are independent from individual health risk. Social insurance contribution payments usually accrue to collective actors such as sickness funds. The health risk is spread amongst the members of one sickness fund. When competition between several sickness funds is allowed or even promoted, the risk pools become fragmented (Wagstaff 2007). In such cases social health insurers face the temptation of riskselection (cream-skimming), that is the systematic attraction of ‘good risks’ and attempts to repel ‘bad risks’ (Laske-Aldershof et al. 2004). Although


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social insurance funds are obliged to accept each applicant as long as the defined coverage criteria are met, ‘informal’ cream-skimming practices are ubiquitous (Höppner et al. 2006). Moreover, adverse selection may cause problems for systems which allow competition for insurants between sickness funds. As a result, risk-equalization schemes have been established in Belgium, Germany, the Netherlands, and in Switzerland (van de Ven et al. 2007: ; see also Chapter 6). Risk-equalization schemes shift premium incomes from health insurers with favourable risk structure to those with higher health risks, thereby levelling out the different risk structures. Private funding subsumes private insurance financing and out-of-pocket payments. Both sources imply risk-equivalence, but while private insurance implies a pooling of risks, there is no such provision in the case of out-of-pocket payments. Private insurance is not mandatory in the US and also used to be voluntary in Switzerland, before social insurance was introduced in 1996. This means that for several reasons (for example budget constraints, free-riding behaviour in face of minimal security provision) single individuals or groups might withdraw from the purchase of insurance. As mentioned above, a feature common to all social and private insurance schemes, is (ex post) redistribution from those members of the risk pool who remain healthy to those who suffer losses (WHO 2000: 97f.). The scope and degree of further redistributive elements depend on the specific mode of premium calculation (Enthoven and Fuchs 2006; Scott 2001: 19). In the US case, until this system came under pressure in the 1970s, premium calculation in private insurance used to be based on regional averages (community rated), thereby cross-subsidizing individuals with higher health risks. Today, in most cases, (mainly) for-profit private insurers calculate experience-rated premiums based on actuarial risk (see Chapter 7). Differentiating between social and private insurance, therefore, can be difficult, particularly if private insurance is mandatory, as in the case of the German private long-term care insurance system. However, private insurance schemes are distinct, as they claim risk-equivalent premiums and therefore limit solidarity among insured people. Only a few healthcare systems within the OECD world cover significant parts of the population using private insurance as the primary form of coverage. Within our sample, the US is the only country where the majority of the population holds private, employment-based health insurance. Conventionally, primary, supplementary, complementary, and duplicate private insurance schemes are distinguished (OECD 2009). Primary private insurance represents ‘full’ coverage through a private scheme due to the absence of public coverage, as for a major part of the US population. In addition, primary private insurance may be chosen as a substitute to the public system and is therefore also known as ‘substitutive’ insurance. Complementary private schemes which cover the costs associated with co-payments in the public system are common in France or Belgium.


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Supplementary schemes are widespread and tend to cover benefits that are not part of the public scheme, while duplicate private insurance provides for higher quality services, for example through private providers or the bypassing of waiting lists. The latter insurance schemes are quite frequent in NHS systems, but in Canada such duplication is prohibited by law (Cacace and Schmid 2008). No risk-pooling is associated with out-of-pocket payments, so there is no element of redistribution, whether ex ante or ex post. Out-of-pocket payments incorporate cost-sharing requirements as well as the expenses borne completely by the individual (such as over-the-counter medicines, alternative treatments not covered by any insurance and the like). Thus on the one hand, out-of-pocket payments can reflect the willingness to pay for ‘luxury’ healthcare services or for higher quality services (Maarse 2004b: 178). Extrabilling from the providers’ side may also be included in this category. On the other hand, they are a strictly regressive means of financing healthcare, drawing on private households. Either way, the income position of individuals and households directly determines their access to healthcare services and reproduces economic inequalities. Tax exemptions are the last element to be considered in our brief account of public and private financing sources. Since tax exemptions entail public funds going directly to private entities (insurers or individuals), they are an element of the public/private-mix in healthcare funding that is often neglected (Hacker 2002). However, the role of public funding in healthcare is not comprehensively captured when considering gross spending alone. Apart from direct public spending, the provision of tax exemptions is an alternative and more indirect way of channelling public money towards healthcare (Hacker 2002; Immergut 2001; Sheils and Haught 2004). OECD health data neglects tax expenditure and therefore tends to underestimate the tax spending share in favour of private or social health insurance expenditures which can be offset against tax. Generally, public tax policy seems most important in healthcare systems with strong private insurance components and least important in tax-funded systems (Adema and Ladaique 2005). Public healthcare spending is therefore somewhat underestimated by the use of gross expenditure data. By the same token, gross spending overstates country differences with respect to the public/private funding-mix. Since net spending data is only available for individual years, we will have to ground our analysis on gross health spending. We consider the provision of tax benefits explicitly in the case studies of the US and German healthcare systems, health-related tax benefits being negligible in the UK (see case studies in Part III). In summary, we argue that we can distinguish private funding, social insurance funding, and tax funding, which reflect different degrees of state-involvement. Private funding as represented by out-of-pocket payments and private insurance premiums is based on the logic of markets and


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voluntary contracts between individuals or groups and providers or private insurance, respectively. Therefore, private funding is by and large free from state involvement. The state may control for the fairness and sustainability of contracts but is less concerned to shape contractual arrangements to include elements of solidarity. By contrast, the state looms large with respect to social insurance. The mandate to insure, the requirement to accept insurants irrespective of individual health risk, and elements of redistribution are enforced and sustained by state regulation. However, within this framework, the state gives leeway to social insurance funds, providers and the insured to implement contributions, entitlements, and the organization of healthcare. Moreover, contributions collected by social insurance are not at the disposal of the state. Finally, with respect to tax funding, state influence is most pronounced. The state’s financing responsibility implies hierarchical interventions into the benefit catalogue and the remuneration of providers, which involves favourable opportunities for the state to hierarchically control spending. As a result we consider public financing which subsumes taxes and social insurance as a broad indicator of the role of the state. Nevertheless, the trichotomous classification serves as a more precise yardstick for estimating the changing role of the state in healthcare financing. Before we give an account of the development of financing patterns across 23 OECD countries since 1970, we start by reviewing the findings in the literature.

The role of the state in healthcare financing: Findings in the literature The persistent growth of healthcare expenditure, cross-national variation in healthcare spending and, last but not least, the availability of international comparative expenditure data have given rise to an extensive literature related to healthcare financing. In our brief review, we focus on quantitatively oriented, comparative studies concerned with the development of healthcare financing in the OECD world and which refer to the role of the state. This involves analyses of aggregate spending data rooted in welfare state and healthcare systems research, though we do not consider the multitude of detailed single country studies on healthcare financing systems (for example, European Observatory on Health Systems and Policies 2009). Moreover, there is a long line of economic studies concerned with the evolution of health expenditure and its determinants. Economic studies have identified economic wealth and progress in medical technology as major determinants of health expenditure. These studies are mostly concerned with total levels of healthcare spending per capita and spending growth (Docteur and Oxley 2003; Gerdtham and Jönsson 2000). The role of the state is conceptualized as an independent variable alongside other potential socio-economic or institutional determinants of healthcare


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spending. The effects of variables related to the role of the state on total spending are mixed. Such variables include the share of public financing or classifications of health systems as public integrated systems or NHS systems. Leu (1986) argued that public financing and public provision would increase demand for health services and total health spending, due to the lack of consumer prices and bureaucratic budget maximizing. Subsequent studies have not confirmed an expansive effect of state involvement, but instead highlight the active role of public financing agents which try to curb healthcare costs and institutional features of the healthcare system that provide incentives for cost containment such as global budgets (Gerdtham and Jönsson 2000). Whether high levels of state engagement shift the level of spending seems therefore to depend on other context variables, such as whether the government is pursuing active austerity policies. Besides this analysis of spending levels, changes in the dispersion of healthcare expenditure and healthcare expenditure growth across countries have been observed. The examination of growth patterns has revealed an inverse relationship between health expenditure growth and initial levels of expenditure, which indicates convergence among countries (Barros 1998; Hitiris and Nixon 2001; Okunade et al. 2004). As explained in greater detail below, the negative correlation of growth rates with initial levels is conventionally termed beta-convergence (Sala-i-Martin 1996). As a result, several studies have also found decreasing variance of total healthcare spending over time, which is labelled sigma-convergence according to the mathematical symbol for variance ( ) (Alber 1988; 1989; Barros 1998; Leidl 1998a; 2001). Barros (1998) suggests that the cross-national diffusion of medical knowledge, new drugs and medical equipment may cause a tendency towards similar per capita spending levels. Leidl (1998a; 2001) and Hitiris and Nixon (2001), who study beta-convergence, highlight the European Union as a driver of convergence in health expenditure. The harmonization of income and wealth fostered by the EU may stimulate economic catch-up processes and thereby also promote convergence in total healthcare expenditure levels per capita and per GDP. However, the EU effect may be questioned, since non-EU countries show similar convergence trends (Nixon 2003). It seems that the role of the state in healthcare also affects these convergence patterns: Hitiris and Nixon (2001) find that among 15 EU countries, the tax-financed NHS systems tend to converge on lower levels of spending compared to SHI systems. In NHS systems stronger centralization and controllability of the financing system – a ‘stronger state’ – seems to provide better mechanisms for the containment of healthcare costs. Furthermore, tax-based NHS systems are directly exposed to tax resistance and therefore are forced to cut spending, while the link between contributions and benefits in insurance-based systems may help to legitimize increasing funding. Earlier, Alber (1988) argued that state-involvement shapes spending dynamics. Examining the variance of 21 OECD countries from 1960–82, Alber

j


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found that convergence of spending is especially strong in times of prosperity, while conditions of austerity lead to divergence. The effect of ‘state control’ seems strongest in times of economic strain. While the literature cited above examines total health expenditure, we now turn to research that focuses on public healthcare spending, thereby referring more specifically to the state as a financing agent. Analyses of aggregate spending data rooted in welfare state and healthcare systems research have shed light on the development of public healthcare spending. This literature is concerned with the consequences of the changing political and economic environment in the aftermath of the 1970s oil crises, which marked the end of the ‘golden age’ of welfare states. Moreover, assumptions about a ‘race to the bottom’ due to the globalization of trade and capital markets, postulating downward convergence of public spending as well as more general ideas of convergence among countries, have motivated these studies (Castles 2004; Starke et al. 2008). Castles (1999) suggests that whereas until the 1970s variation in public healthcare spending across OECD countries was influenced by political variables (such as right- or left-wing incumbency or union density), since the 1980s, bureaucratic cost-containment policies have tended to dominate, thereby shifting influence towards the availability of resources rather than politics. As persistent health expenditure growth aggravates financing problems, the fiscal self-interest of the state tends to prevail over provider interests in the expansion of healthcare and favours the implementation of cost-containment policies (Wilsford 1995). This would imply a limit to the growth of public spending and probably convergence towards an upper limit. In fact, Castles (2004) finds (sigma-)convergence of public healthcare spending as a percentage of GDP between 21 OECD countries between 1980 and 1998. Starke et al. (2008) corroborate an upward convergence trend for a similar sample of countries between 1980 and 2003, albeit with respect to ‘social health spending’, which includes public spending and governmentsubsidized private spending components. Analogous to examinations of total health spending, some studies have focused on convergence of public healthcare spending between EU-countries, since similar economic conditions and benchmarks, as well as the diffusion of policy ideas within the EU, might foster convergence (Comas-Herrera 1999). Leidl (2001) supports the assumption of convergence: the dispersion of public per capita expenditure among 15 EU-countries declines between 1970 and 1995. Castles (2004) also observes convergence between 1980 and 1998 with respect to public healthcare spending per GDP, but disagrees with the idea of an EU-induced model of public healthcare financing because of even more pronounced declines of variance observed outside the EU. By contrast, Comas-Herrera (1999) rejects the convergence hypothesis, basing her conclusion on the observation of 12 EU-countries over the period 1960 to 1992. Her analysis only confirms a common convergence trend between


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tax-based systems, while there is no evidence for convergence in the case of insurance-based healthcare systems and across the complete EU sample (Comas-Herrera 1999: 210f.). Although results may vary due to different observation periods and country samples, Comas-Herrera’s findings deviate because she uses a different convergence indicator. While the studies we have examined so far rely upon the concepts of sigma- and beta- convergence, Comas-Herrera (1999) uses structural time series analysis.3 Further insights into the role of the state are given by examining the public share of financing as a percentage of total financing or the public/ private financing mix (Rothgang et al. 2008). Yet few quantitatively oriented studies have focused on these structural variables. Moreover, there seems to be a lack of comparative analyses of changes in the funding mix going beyond the straight public/private split (Barros 2007). Alber observed, as early as 1988, that the public expenditure share increased in all countries but rose much more quickly in healthcare systems that used to rely primarily on private healthcare financing (Alber 1988). This observation is in line with catch-up processes denoted by beta-convergence. A younger branch of healthcare literature has highlighted privatization trends across all countries and healthcare sectors, possibly pointing to a weaker role of the state in financing (Hacker 2004; Huber 1999; Poullier 2004). Instead, Gerdtham (2000) suggests a common need for a certain share of public financing responsible for a solidarity component in healthcare systems. Wasem (1995) even hypothesizes that there is a ‘middle way’ between public and private healthcare financing, which all countries tend to achieve. However, the idea of a trend towards a single common financing model symbolized by the term delta-convergence (Knill 2005) strongly contradicts the ideas put forward in the institutionalist literature on healthcare systems (Pierson 2004; Saltman 1997; Tuohy 1999). According to these authors, the deeply rooted ‘social embeddedness’ of healthcare systems has led to path-dependency, which in turn would preclude such a middle way in healthcare financing. A first step towards examining the funding mix in more detail, considering government spending as well as social insurance, private insurance, and out-of-pocket spending has been taken by Barros (2007). The analysis suggests that the funding mix has only changed slowly within the OECD world (16 countries from 1990 to 2005), though there is some evidence for convergence, as the sum of distances of funding shares across countries has declined. The impact of this finding on different funding agents remains an open question. Summing up, the literature reviewed reveals that it is necessary to study changes in levels of spending as well as changes in the dispersion across countries, since the studies point to corridor effects and trends of convergence in healthcare financing. Moreover, to capture the changing role of the state, structural variables such as the public financing share will have to be observed. While previous studies highlight a catching-up on the part


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of low public spenders, recent studies point to privatization trends, denoting a weakening of the state. Concerning the funding mix, assumptions about path dependence and ‘social embeddedness’ can be observed alongside assumptions that financing systems will converge to a single (optimal) financing model. The literature also suggests that convergence patterns differ with respect to types of healthcare systems and time periods. Since most studies that refer to convergence in public healthcare financing and the financing mix end in the mid-1990s and therefore do not consider recent developments, we aim to contribute a descriptive account of the changing role of the state in healthcare financing and related convergence trends. Therefore we also examine changes with respect to the trichotomous classification of financing sources which follows the logic of healthcare systems classification that can be found in Chapter 2 of this book.

Patterns of healthcare financing The approach we suggest now systematically addresses the questions about changes in healthcare financing within OECD countries from 1970 to today. The core question is how the role of the state in healthcare financing has changed since the end of the ‘golden age’ of the welfare state. The role of the state in healthcare financing is reflected in the three basic financing categories: tax funding, social insurance contributions and private financing. However, financing data is not provided in a consistent form according to this trichotomous concept for the whole sample and observation period. We therefore use the category public funding, which subsumes tax and social insurance financing, as a broad indicator of state-involvement (OECD 2004). Information on public financing is provided more consistently by OECD health data.4 However, we have found adequate data on the trichotomous funding-mix since the early 1990s for 18 countries out of our OECD sample. This allows us to examine recent changes in the funding mix in more detail, though for a limited group of countries and a much shorter observation period. In order to provide a comprehensive picture of financing patterns, we look at mean levels of healthcare financing (level effects) as well as the dispersion of healthcare financing (corridor effects). Therefore, we use data on total, public and private spending on health (level variables) as well as the public financing share which indicates the structure of healthcare financing (structural variables). Table 3.1 illustrates this approach. As a first step, we survey level effects as indicated by the changes in mean total, public and private spending, measured in percentages of GDP. Both level indicators and structural variables are necessary to evaluate the role of the state, its absolute involvement in health financing and its relative position with respect to private alternatives. A comprehensive picture therefore requires an examination of public spending vis-à-vis private healthcare funding. For this purpose we use the public financing share measured as a


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Table 3.1 Structure of the analysis Type of variable Focus on Level variables

Structural variables

Level effects

Changes in mean total, Changes in mean public financing public and private healthcare share as per cent of total health financing as per cent of GDP spending

Corridor effects (Convergence)

Dispersion of total and public healthcare spending across OECD countries

Dispersion of public financing share and the funding-mix across OECD countries

percentage of total healthcare spending. As a result, we are able to identify phases of relative expansion of the state, that is, when the state is increasing its financing share in relation to private spending while public financing as a percentage of GDP remains constant. An absolute expansion of the role of the state is indicated if the public financing share and public spending per GDP are growing. By the same token, we can distinguish the absolute and relative retreat of the state. A second step leads us to corridor effects, that is, to the question of whether there is convergence in healthcare funding. We understand convergence as a reduction in variance, as measured, for example, by the coefficient of variation and denoted by sigma-convergence. Analogous to the analysis of level effects, we start with total health expenditure and continue with public spending and the public/private-mix. In addition, beta-convergence is considered in order to illustrate catch-up processes and the contribution of single countries to convergence. Subsequently, we scrutinize changes of the funding mix since the early 1990s in more detail. For a sub-sample of 18 countries the trichotomous concept of financing, which discriminates between tax financing, social insurance financing and private funds, is applied. Here we suggest an index of similarity of the funding mix, based on the absolute differences of each country’s funding shares from all other countries and evaluate changes between 1992 and 2006. Finally, we use the trichotomous concept to assign all countries under consideration to different types of healthcare financing according to their dominant funding source in the 1970s. Juxtaposing convergence trends within financing systems and the phenomena observed across all countries, we attempt to explore the relation between funding systems and convergence. Level effects: Changes in total, public and private healthcare financing To start with the question of whether the state is on an expansion path or on the retreat in healthcare financing, as suggested in the recent literature on


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Achim Schmid, Mirella Cacace and Heinz Rothgang 78

Health expenditure in % of GDP (OECD-23-mean)

14 Public financing in % of total health expenditure (right y-axis)

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Total health expenditure in % of GDP (left y-axis)

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70

6 Public health expenditure in % of GDP (left y-axis)

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Public health expenditure in % of total health expenditure (OECD-23-mean)

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Private health expenditure in % of GDP (left y-axis) 0 1970

64 1975

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Figure 3.1 Mean health expenditure in per cent of GDP and the mean public financing share in 23 OECD countries Source: OECD (2009). In public expenditure, Belgium is included only from 1995 on.

the privatization of healthcare systems, we begin by comparing total, public and private healthcare expenditure as percentages of GDP (see Figure 3.1). In order to capture general trends, we consider the average spending level (total, public, and private expenditures) of all 23 OECD countries under investigation. Figure 3.1 also includes information on the development of the mean public financing share (dotted line). Over the whole period, and on average over all 23 OECD countries, healthcare consumed an ever-increasing share of overall economic resources. The total expenditure level almost doubled from an average of 5.2 per cent in 1970 to 9.5 per cent of GDP in 2006. Average public spending on health increased markedly in the early 1970s from 3.7 per cent in 1970 to 4.8 per cent in 1975. By 2006, average public spending accounted for 7.0 per cent of GDP. Economic shocks such as the first oil crisis of 1973 and the economic downturns of the early 1990s and early 2000s are related to an expansion of public healthcare spending as a proportion of GDP. The increases in those periods do not necessarily indicate excessive spending but rather the decline in the growth of the denominator, GDP (not shown). The years following the economic shocks show slowed growth or even a decline of public healthcare spending as a proportion of GDP in some years, indicating attempts to curb public spending. Private financing, over the whole period, grew quite steadily from 1.5 per cent in 1970 to 2.5 per cent in 2006. Thus, in absolute terms, the role of the state in healthcare financing has not declined. Public healthcare spending as a share of GDP is at the present time much


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37

higher than in 1970. Yet what about the relative position of the state? This can be exemplified by the public share of total healthcare spending, as depicted by the dotted line in Figure 3.1, by which we relate public and private spending. First of all, on average public sources cover nearly three quarters of health expenditure, which highlights the important role of the state in health financing. When measured over the whole period, we also find an expansion of the state’s role in health financing. The average public spending share has grown from 70.4 per cent in 1970 to 74.8 per cent in 2006. However, within these 36 years we can distinguish different periods. Between 1970 and 1980, the public financing share increased considerably from about 70 to more than 76 per cent. From then on, the state retreated from healthcare funding relative to private funding sources. In the 1980s and 1990s the public financing share decreased to 73 per cent. Since 2000 we again observe higher public spending shares. As a first result, we therefore find that the state is not on the retreat. On average public spending as a share of GDP has increased throughout the observation period. A relative retreat of the state and relative privatization of health financing is only observed in the 1980s and 1990s. Quite remarkably, from 2000 to 2006 we once again find an increased role of the state in healthcare funding: public spending grows as a percentage of GDP as well as in relation to private financing responsibilities. However, mean spending levels are ambiguous indicators. On the one hand they clarify general trends, but on the other they conceal distinct developments in the countries observed. While almost all countries have followed the privatization trends of the 1980s and 1990s, some countries document a continuous increase in public involvement in healthcare financing from levels that had been, in some cases, relatively low. In Japan the public share increases from 70 to 81 per cent, in Switzerland from 47 to 59 per cent, and in the US from 37 to 45 per cent. Portugal’s public financing share is more volatile until the mid-1980s and then rises from roughly 50 to 72 per cent (OECD 2009). Recently the trend towards privatization has ended or paused in most countries, while in countries such as those named above, the public share kept growing. As a result the average public spending share is rising again. In the following section we will examine corridor effects and consider again the patterns of public healthcare spending of OECD countries when we take a look at beta-convergence and changes in the funding mix. Corridor effects: Convergence in (public) healthcare financing It has been shown that on average the state is still responsible for a fundamental share of healthcare financing. While the 1980s and 1990s saw a relative retreat of the state from healthcare financing, state responsibility for financing has recently increased. In the following sections we scrutinize corridor effects and particularly the idea of convergence. Do OECD healthcare systems resemble each other more closely over time (convergence) or


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38


do they become more distinct in their funding levels and structures (divergence)? Convergence assumes a narrowing of corridors or decreasing variance. Considering per capita health spending levels, convergence may arise from the cross-national diffusion of medical knowledge (Barros 1998) or as a result of economic convergence (Hitiris and Nixon 2001). One may also assume ‘growth to limits’ if health spending in relation to economic wealth is considered (Flora 1986). Regarding the funding mix and the public financing share, convergence may be related to a limited scope for sources of spending as well as cross-national diffusion of ideas about beneficial financing schemes (Holzinger and Knill 2005). We use different but related concepts of convergence. Sigma-convergence refers to decreasing variance of health spending over time. This is measured by the coefficient of variation which gives the relative standard deviation to the mean. Since the coefficient of variation is mean standardized, it controls for increasing averages over time and can be directly compared across different variables (Leidl 1998a). Beta-convergence considers the mobility of countries. It is defined as a negative correlation between the position of the individual countries at the beginning of an observation period and the changes or growth rates, respectively, over this period. It therefore assumes that growth from a low base is faster than growth from higher levels (Sala-i-Martin 1996). Both concepts are related, since sigma-convergence implies beta-convergence. However, beta-convergence does not necessarily lead to sigma-convergence. For example, former low spending countries with high growth rates may overtake high spending countries. The countries may thus change position without any effect on the distribution of spending patterns between the countries. For the dichotomous conceptualization it suffices to concentrate on public healthcare finance and measure mean and variance, leaving private financing as the residual. This no longer works if financing is conceptualized trichotomously. In order to capture corridor effects of the trichotomous funding-mix we therefore suggest an index of similarity of the funding-mix used, for example, by Barros (2007). For each country we measure the absolute distances of the three funding shares to the corresponding funding shares in all peer countries. The absolute distances are added up to an index of similarity (city-block metric). A decline of this index over time points to convergence. Sigma-convergence We start by examining two indicators for total expenditure levels: total healthcare spending as a share of GDP and per capita expenses in US$purchasing power parities (PPP). In both cases, the variance measured by the coefficient of variation diminishes over time (see Figure 3.2). The coefficient of variation decreases from 40.7 to 28.5 per cent when total healthcare expenditures (THE) per capita are taken as an indicator, and from 25.6 to 18.0 if expenditure level is measured as a share of GDP. However, almost all of the effect took place in the early 1970s. Here, convergence coincides with


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Coefficient of variation: Relative standard deviation of total health expenditure in %


39

45.0 40.0

Total health expenditure in US$-PPP, per capita

35.0 30.0 25.0

Total health expenditure in % of GDP

20.0 15.0 10.0 5.0 0.0 1970

1975

1980

1985

1990

1995

2000

2005

Figure 3.2 Sigma-convergence of total health expenditure Source: OECD (2009). Levene’s test statistic: Total health expenditure in US$PPP per capita, df(1, 42) p=0.04; Total health expenditure as a percentage of GDP, df(1, 44) p=0.12.

times of prosperity and rapid growth in spending on welfare and healthcare. From the late 1970s onwards, the variance of total spending levels decreased only slightly and even increased temporarily, depending on which of the two indicators is observed. In order to test whether there is a significant shift of variance between 1970 and 2006 we use the Levene’s test, which is less sensitive to the assumption that the data is drawn from a Gaussian distribution. The data is mean standardized analogous to the coefficient of variation. Then we test a shift of variance between two groups (years 1970 and 2006) each consisting of 20 to 22 countries (due to missing public spending data for Belgium and per capita spending data in purchasing power parities – $PPP – for Luxemburg). Degrees of freedom (df) are defined as the number of groups minus one and the total number of cases in both groups minus two. Conventionally, the null hypothesis of equal variances is rejected for p

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