1、Social health insurance in GermanyIn 1881,the first Chancellor of modern Germany,Otto von Bismarck,introduced a popular new national policy:universal sickness insurance.His idea was based on centuries-old practices of Prussian miners,who belonged to mutual aid societies or“sickness funds”called Knap
2、pschaftskasse.The passage of Bismarcks 1883 insurance bill is considered a foundational moment in the history of the welfare state.The government eventually extended health insurance coverage to the entire population.The spread of social health insuranceqIn 1958,Japan passed the National Health Insu
3、rance Law,which universally guaranteed health insurance to Japanese citizens.qOther East Asian nations like South Korea and Taiwan followed Japans lead in the late 20th century.qMany health care systems in continental Europe,such as those in France,Switzerland,and the Netherlands,evolved in similar
4、waysKey traits of Bismarck health care systems Universal insuranceCommunity ratingRegulated,private health care provisionKey traits of Bismarck health care systems Universal insurance:All or nearly all of the population has health insurance coverage,either through a plan sponsored by an employer or
5、through the government.No one is denied access to insurance based on inability to pay or poor health status.Community ratingRegulated,private health care provisionKey traits of Bismarck health care systems Universal insuranceCommunity ratingInsurance is financed through taxes(based on income),not pr
6、emiums(based on health status)This means the rich and healthy subsidize the poor and sickThe insurance system operates under managed competition to be discussed laterRegulated,private health care provisionKey traits of Bismarck health care systems Universal insurance Community ratingRegulated,privat
7、e health care provisionMany hospitals are privatePhysicians operate privately,not public employeesBut,prices are set by the government in negotiation with providersPrivate providers do not have the option of offering services at higher(or lower)pricesBismarck:balancing solidarity and libertySolidari
8、ty/equity:the poorest and sickest members of society are supported by the system,which grants subsidized health insurance to those least able to afford it.This subsidy is borne by the wealthiest and healthiest,who pay high taxes and actuarially-unfair premiums to keep the system afloat.Liberty:patie
9、nts and doctors are at liberty to make fundamental economic choices,like which hospital to visit,which insurance contract to take,or where to open a new clinic or hospital.Ch 17|The Bismarck model:Social health insuranceA BRIEF TOUR OF THE BISMARCK WORLDGermanyGerman patients have the option of choo
10、sing among all available health insurance plans,including plans run by other companies or faraway states.These plans are nominally private entities,they are extensively regulated(managed competition).Premiums to finance insurance are collected as payroll taxes,and vary only with income,not health.Pa
11、tients and insurers are free to choose their health care providers,who can compete to attract them.Remember,providers must compete based on quality rather than priceSwitzerlandSwitzerlands system closely resembles Germanys:insurers are heavily regulated and compete to attract customers,who are requi
12、red to purchase coverage.Switzerland is also notable for pioneering managed care plans,like HMOs.Switzerland faces several health policy challenges:In recent years,subsidies have failed to keep up with rising insurance premiums,and vast disparities in premiums between cantons have appeared.The Nethe
13、rlands and IsraelThe NetherlandsThe Netherlands system resembles Germanys managed-competition model.Unlike in Germany,insurance is financed jointly by payroll contributions and additional premiums.IsraelA 1995 Israeli law established the current system,with four sickness funds,and defined a universa
14、l standard basket of services.The Israeli system features a managed-competition model similar to the European systems.JapanUnlike most Bismarckian health systems,Japans system is not based on a managed competition model whereby patients choose their insurers.Instead,the system emphasizes employer-ba
15、sed financing of health care,whereby the type of company one works for determines the insurance society to which one belongs.However,patients can choose their providers,who are constrained by strict price controls,much like other Bismarck nations.FranceFrance is a little different,but is still best
16、categorized as Bismarckian:Health insurance in France has been universal since the 1970s.French workers do not have a choice between plans,but all plans are more or less identical.There is a large degree of choice,though,when it comes to selecting a doctor.France is notable for its modest coverage o
17、f ambulatory services(there are supplementary insurance plans to fill the gap).Ch 17|The Bismarck model:Social health insuranceHEALTH INSURANCE MARKETS IN THE BISMARCK MODELIn Beveridge nations,where everyone is automatically insured in the same pool,adverse selection does not exist.But Bismarck sys
18、tems are not immune to adverse selection.The compulsory nature of insurance enrollment prevents the worst of adverse selection.People are prevented from leaving the pool completely when they are healthy.This guarantees that there are always healthy people paying into the system to subsidize care for
19、 the sick.But if people can choose among several insurance plans within a Bismarck system,adverse selection can appear.Adverse selectionManaged competitionHealth insurance markets in Bismarck nations follow a“managed competition”model.Insurance is not run by the government but instead multiple priva
20、te,non-profit entities called sickness funds.There are four major rules in managed competition markets.Rules of managed competition1.Minimum standards:each insurance contract is required to meet a minimal standard of care;There are also limits on copayments and deductibles.2.Open enrollment:insurers
21、 may not reject any eligible customers,even if they are unhealthy.3.Compulsory participation:customers are mandated to have and pay for insurance coverage at all times.4.Community rating:insurers can not set premiums using risk rating;instead they must be community rated.Risk rating munity ratingRis
22、k rating:charging different premiums to different customers based on their personal risk of needing health care.The alternative is community rating,which entails charging everyone in an insurance pool the same premium.Risk selectionAdverse selection refers to the behavior of insurance customers,whil
23、e risk selection refers to the behavior of insurance providers.Risk selection occurs when insurers seek to enroll low-risk customers and seek to avoid high-risk customers.Not only does risk selection put sick customers in a disadvantaged position,it is also wasteful from a social perspective.The ext
24、ent of risk selection in practice is unknown,as it is almost impossible to observe directly.Tactics for risk selectionAdvertise specifically to certain groupsClose offices in high-cost regionsReward agents who find sick customers and convince them to switch to other plansIgnore calls from sick custo
25、mers who want to sign upProvide deficient care to the sickly in hopes of chasing them awayHold sign-up sessions in buildings that are not accessible to the disabledSome or all of these tactics may be outlawed by governments trying to limit risk selection.Tactics for risk selectionEliminating risk se
26、lectionOption 1:Ex-post cost-based compensationSickness funds with sicker customers and higher expenditures are reimbursed with transfers from funds that had healthier customers and lower expenditures.This erases risk selection,but it also removes any incentive for insurance funds to treat their pat
27、ients efficiently.Option 2:Risk adjustmentTransfers are based on ex ante risk assessments and not actual cost outcomes.Thus,insurance funds that draw unhealthy customers are reimbursed based on how expensive their customers are expected to be,not on how expensive they actually are.This reduces incen
28、tives for cream-skimming,while maintaining efficiency.How does risk adjustment work?Example:A 52-year-old diabetic man signs up for a German sickness fund.At the end of the year,a central German agency calculates the average health expenditures of all 52-year-old diabetic men across Germany.Suppose
29、the average cost for this population is 12,000,but the average cost nationwide is 5,000Then,the sickness fund gets a check for 7,000Meanwhile,funds with unusually healthy customers have to pay into the central fundAdverse selection in compulsory insurance markets Adverse selection may arise in Bisma
30、rck systems if frail customers disproportionately enroll in certain funds that provide the most generous coverage.This could result in a separating equilibrium or even an adverse selection death spiral Adverse selection can also become extremely destabilizing if firms are not allowed to adjust their
31、 premiums(as is the case in Israel).In the face of adverse selection and fixed premiums,insurers simply have no incentive to provide quality care for the sick(van de Ven et al.2007).Adverse selection in compulsory insurance markets Two main options for combating adverse selection in Bismarck systems
32、:Option 1:Deny customers the right to choose their insurers in the first place.Example:JapanOption 2:Restrict product differentiation.If insurance funds cannot distinguish themselves significantly from competitors,then there will be little to motivate adverse selection in the first place,and less in
33、equality if a separating equilibrium does emerge.Example:GermanyCh 17|The Bismarck model:Social health insuranceCONTAINING COSTS WITH PRICE CONTROLSWhy price controls?We have already discussed the major problem of oligopoly power in hospital and physician marketsPrice controls are prices negotiated
34、between providers and purchasersEssentially,a price control negotiation allows the purchasers of health care(sickness funds)to band together and exercise monopsony powerThis can counterbalance oligopoly power and lower prices,but prices set by a central agency can distort medical decision makingNego
35、tiated fee schedulesNegotiating fee schedules is one policy employed by Bismarck countries to control health care spending.Setting health care prices is complicated since the range of possible activities is so broad and varied.Price schedules must adjudge the relative value of seeing a patient for a
36、 routine check-upperforming heart bypass surgeryIs the latter worth one thousand times as much as the former?One million times?Negotiated fee schedulesBoth private and public providers are bound by these price negotiations,and must charge these pricesno more and no less.Fee schedules gives policymak
37、ers the power to influence the behavior of health care providers.Manipulation of the fee schedule serves as one of the primary mechanisms by which governments regulate the supply of medical services,the use of care,and the level of aggregate health care spending.Clinical distortionsThe process for s
38、etting prices would ideally result in a price for each activity equal to its marginal costs of production.However,for governments this is an impossible task,given limited information,political pressures,and limited health care budgets.Inevitably,the process of government price-setting produces some
39、prices that do not match the actual marginal costs and benefits of care.Such price mismatches can introduce distortions in the way that doctors elect to treat their patients.Clinical distortionsExample 1:Prices are set too highIn Japan,official prices for most pharmaceuticals are deliberately set hi
40、gher than the price charged by drug companies.Consequently,Japanese physicians often opt to sell higher-priced drugs,to the point where Japanese pharmaceutical expenditures constituted nearly 30%of all health care spending in 1993.2 By contrast,this figure was only 11%that same year in the United St
41、ates.Clinical distortionsExample 2:Prices are set too lowWhen Cochlear implant technology was first developed,the U.S.Medicare and Medicaid systems priced reimbursement for the procedure at very low levels.Any doctor performing a cochlear implantation would have to buy an expensive implant and perfo
42、rm the difficult surgery,only to be reimbursed at a rate less than the cost of the device itself.As a result,only a limited number of deaf people had cochlear implants placed in the U.S.,while the device proliferated in Japan(where reimbursement rates were set higher).Limiting access to specialistsI
43、n order to limit health care expenditures,many Bismarck countries have initiated gatekeeping reforms.Example:Both France and Germany have imposed gatekeeping reforms.Unlike in the U.K.,both the French and German gatekeeping systems are voluntary for patients.Since patients can avoid gatekeepers and
44、go straight to specialists if they pay a small fine,the reforms are called“soft gatekeeping”.1 1 Or et al.(2010)Limiting access to new technologies In recent years,many Bismarck countries have also moved to incorporate HTA into their health care systems in order to limit the use of wasteful technolo
45、gies.Despite the lack of formal HTA agencies in many of these countries,CEA of new technologies conducted elsewhere are an important input into both price negotiations and technology adoption decisions by insurance societies.The introduction of formal HTA has proved a controversial addition to the B
46、ismarck Model,and not every country has adopted it.ConclusionHow do Beveridge and Bismarck models compare?Beveridge systems emphasize equity and equal access to care,while Bismarck systems emphasize patient choice and provider competition.Countries that have adopted a Bismarckian health care system
47、tend to have higher national health care expenditures compared to the Beveridge countries.But tradeoffs are unavoidable,so it is little surprise to learn that Beveridge countries are also slightly less healthy than Bismarck countries,at least by some common measures.ConclusionBut we must remember th
48、at no country perfectly embodies either model in its policiesevery country has adopted some elements of both.Recent reforms in Beveridge countries have focused on increasing choice for patients and competition between providers.Meanwhile,recent reforms in Bismarck countries have introduced gatekeeping and managed care tactics that restrict patient choice in certain ways.In short,the Beveridge and Bismarck models seem to be converging,and may one day be hard to distinguish.
