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Bauer, Guntram and Schoenhofen, Franz, "Risikostrukturen und Beitragsunterschiede in der GKV," Die Ortskranken-kasse, vol. 22, November 15, 1988; pp. 649-55.

Levit, Katherine R. and Freeland, Mark S., "National Medical Spending," Health Affairs, vol. 7, Winter, 1988, pp. 124-36.

Reinhardt, Uwe E. Financing the Hospital: The Experience Abroad, Report submitted to the Department of Health and Human Services, July, 1984. Reinhardt, Uwe E., "The Compensation of Physicians: Approaches used in Foreign Countries," Quality Review Bulletin, vol. 11, December, 1985.

Reiners, Hartmut, Ordnungspolitik im Gesundheitswesen, Bonn, West Germany: Wissenschaftliches Institut der Ortskrankenkassen, WIDO-Materialien No. 30, 1987.

Sachverstaendigenrat fuer die Konzertierte Aktion im Gesundheitswesen, Medizinische und Oekonomische Orientierung Jahresgutachten 1988, BadenBaden, West Germany: Nomos Verlagsgesellschaft, 1988.

Schneider, Markus, Sommer, Juerg and Keceki, Aynur, Gesundheitssyteme im Internationalen Vergleich, Augsburg, West Germany: BASYS GmbH, 1987.

Verband der privaten Krankenversicherungen e. V., Die Krankenversicherung. Zahlenbericht 1987/1988.

Private

EUROPE'S DECENTRALIZED AND SEMI-PRIVATE

HEALTH INSURANCE

William A. Glaser

OVERVIEW

Several European countries have the health insurance arrangements most relevant for reform in the United States. Their characteristics are:

• Administration of finance by private health insurance carriers. These are mutual aid societies or mutual insurance companies. Some have existed for centuries and antedate obligatory health insurance laws. They jealously guard their independence from government.

• These carriers compete for members and for prestige.

• Many citizens—all, in some countries-have freedom of choice among carriers.

• Some citizens—many, in some countries—are free to self-insure completely.

• Government's role is limited. It does not dictate. A law of Parliament specifies the minimum benefits for subscribers. Parliament levies payroll taxes on employers and workers, since health insurance is part of the social security system. Government may subsidize the health insurance accounts from general revenue. Several Ministries set guidelines to contain costs within the fiscal capacity of the system.

• Mechanisms exist to stabilize costs.

• The working rules and fees of doctors are negotiated between the medical association and the health insurance carriers. These matters are never imposed on doctors unilaterally by government. • All big decisions are made through elaborate negotiations and through compromise. The governments themselves are ruled by coalition Cabinets, whose political parties differ in preferences about social insurance and about health care finance.

• Report prepared by William A. Glaser, Department of Health Services Management, Graduate School of Management, New School for Social Research, New York, New York, September 1989.

Germany

Like the United States and Switzerland, it has a federal system of government. General frameworks are enacted by the national Parliament and by the national Ministries, but the health insurance carriers and providers are organized distinctly in each province, producing diversity in levels of finance and in some administrative implementation.

When first enacted a century ago, the law required certain occupational groups to join health insurance funds, it levied payroll taxes on the workers and their employers, and it listed benefits that the carriers must provide. Additional occupations were added to obligatory coverage in successive amendments to the law. The payroll taxes suffice to cover both the worker and his/her family. But obligatory coverage never became universal: one-fifth of the population over an earnings threshold can opt out completely.

Once Germany had thousands of health insurance carriers of varying sizes. Most were for workers in individual factories. Some enlisted all craftsmen (such as the butchers) in a city. Others enlisted all members of an industry (such as seamen) throughout the country. In each area there has been a general fund for anyone whose occupation does not assign him automatically to one of the occupationally based carriers. Besides all these, there are "substitute" funds for persons over an earnings threshold but not yet at the level where they are exempt from obligatory coverage. The number of carriers has greatly diminished, primarily because of bankruptcies and mergers among the workplace funds.

Besides these social funds that receive and use payroll taxes, Germany has private insurance companies. If someone's income exceeds the membership ceiling, he is exempt from the social insurance coverage but

may buy his health insurance from these commercial carriers voluntarily.

The Netherlands

Until reforms scheduled for the early 1990's, Holland never had universal obligatory coverage. All persons below an earnings ceiling were required to join a social insurance carrier, financed by payroll taxes and government subsidies. Everyone above that ceiling had to seek private commercial insurance. The pensioners could choose either sector, usually were priced out of the private policies, and usually rejoined the social insurance carriers. After 1990, everyone will be covered by obligatory statutory health insurance.

In the past, Holland had hundreds of small local social insurance funds. Some were created by doctors, some by trade unions, some by employers, others by Catholic associations. Any subscriber could choose any carrier. The social insurance funds steadily merged, and now usually there is only one in each locality. All the separate federation offices have united into one national office that represents all carriers.

In addition, there are several dozen nationwide mutual insurance companies that once specialized in selling policies to the persons over the earnings ceiling. In the 1990's, when the entire population is covered by statutory health insurance, the commercial carriers will serve this market too. Therefore, social insurance will again have competing carriers.

enrollment. There are no family policies. Because employers contribute no payroll taxes, the national government makes up the shortfall by contributing grants from general revenue. The subsidies vary by the number, age, and sex of each carrier's subscribers. As a condition for receiving the grants, the carrier must follow rules about minimum benefits and maximum patient cost-sharing. The grants induce nearly every citizen to join, and they standardize the policies of the carriers. Through private and voluntary methods, Switzerland achieves the same results as those in countries with obligatory health insurance.

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Switzerland

The country has never enacted nationwide obligatory health insurance. A few cantons require coverage by persons under an earnings ceiling, but that is all. Therefore, most of the population can opt out and self-insure.

Once Switzerland had over one thousand health insurance carriers, but mergers have reduced the numbers to less than four hundred. They are nonprofit mutual insurance companies or mutual aid societies. Some are nationwide, others are regional. Anyone can choose any carrier.

Because health insurance is not part of the national government's social security system, the carrier's revenue does not consist of percentage-of-earnings payroll taxes. Each individual subscriber pays a monthly premium calculated by age and sex at time of first

CHOICE AND COMPETITION

Any widespread statutory program inevitably has many standard features. Minimum benefits are universal. The payroll tax rate is usually (not always) identical for all carriers and all subscribers. Often patient cost-sharing rules and provider balance-billing rules are universal. Since carriers use tax money and (often) public subsidies, all must accept certain rules of financial management. Usually carriers under tax-supported social insurance must be nonprofit.

Among Social Insurance Carriers

Nevertheless, the obligatory subscriber in all three of the countries can choose among the carriers for his

basic statutory coverage. And the carriers can compete for the largest numbers of the most desirable subscribers.

Where they have a choice, subscribers prefer social insurance carriers with the following characteristics:

• More benefits without asking for higher payroll taxes (in countries with variable payroll taxes, like Germany); without asking for supplementary premiums (in countries with fixed payroll taxes, like Holland); and without asking for higher premiums (in countries with a variable premium system, like Switzerland).

• Better services for patients, such as responsive information staffs, health publications, and fast processing of claims.

• Attractive public image.

A social insurance carrier in such a competitive market seeks subscribers who will yield financial surpluses: higher incomes and higher payroll tax yields in countries with payroll taxes (like Germany and Holland); and lower morbidity. They try to attract such desirable subscribers by various appeals:

• More benefits without charging higher premiums: higher allowances for private hospital rooms; more generous dental coverage; lower cost-sharing (for dentistry, drugs, etc.) if this is allowed under the law; inducing better service by doctors by offering higher fees (a method used only by the "substitute" carriers Ersatzkassen in Germany because of a loophole in the system of negotiating fees).

• Lower payroll taxes and premiums in countries where the rates are flexible (Germany and Switzerland). It is rarely done to attract subscribers in the social insurance market, since the carriers prefer to offer better benefits.

• Image and prestige. Used by the Ersatzkassen of Germany to attract the white-collar workers and managers who otherwise could choose the workplace or regional carriers traditionally identified with labor. In the past in Holland and in Belgium today, some mutual assistance funds are associated with the Catholic Church and the Socialist Party, and they appeal to Catholics and socialists. • Better services for subscribers are a very common marketing method.

While subscriber choice and carrier competition exist in the social insurance market, all-out competition is limited for several reasons. (In contrast, greater competition is possible in the private health insurance market, to be described in later paragraphs.)

• The law guarantees certain benefits for all persons. While competing carriers can add benefits, they cannot reduce them, they cannot offer policies with lower premiums for fewer benefits. Usually the law prevents them from offering policies with lower premiums in return for higher patient cost-sharing.

• Social insurance carriers need to earn money over the actuarial costs of the workers paying payroll taxes and premiums. They are obligated to accept pensioners, the poor, and the unemployed whose payments to the carrier are much lower than their costs. Therefore, social insurance financing must be redistributive. The carriers cannot compete for subscribers by price-cutting that lowers revenue.

• Some features of administration and finance lock the subscriber into one carrier and inhibit free choice and carrier competition. For example, Swiss social insurance carriers charge age-ofentry lifetime premiums that increase as the subscriber ages. Level premiums cover lifetime actuarial costs by overcharging the subscriber while he is young and undercharging him while he is old. Carriers compete by offering different rates for the same age of entry. If a subscriber wishes to change carriers, he joins the new one at the starting rate for his current age, which probably exceeds the rate he currently pays his original carrier. Consequently, he usually hesitates to change. The Swiss social insurance market therefore has much less competition and fewer transfers than one might expect. The lifetime premium system has the important advantage of protecting persons from prohibitive increases in old age.

Competing social insurance carriers would prefer to avoid attracting subscribers who will cause deficits: persons with lower incomes and lower payments (such as the pensioners and the poor); and persons with higher morbidity. However, in practice the carriers can only woo the better risks, not screen out the less healthy persons. These are social security programs designed to protect the vulnerable by redistributive financing, and the carriers are expected to fulfill their duties. They cannot reject any applicant under social insurance, no matter how poor a risk, and they can do no medical underwriting of rates. The carriers take the long view: they woo young subscribers who yield financial surpluses, they use marketing appeals to keep these subscribers during their productive work years, and they cover these subscribers' high costs in old age. The strategy assumes a steady recruitment of young new subscribers. If the carrier's portfolio ages-as in the case of funds with blue collar workers in declining industries in Ger

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