WORKING PAPER SERIES NO. 2005-4 36394
Human Development Sector Unit
East Asia and the Pacific Region
The World Bank
Reforming Health Social Security
Proceedings of an
International Seminar
Elizabeth King
Lynnette de la Cruz Perez
Mario Taguiwalo
with Yolanda Quitero
June 2005
The World Bank
1818 H Street, NW
Washington, DC 20433
USA
Telephone: 202-473-1000
Facsimile: 202-477-6391
East Asia and Pacific Region
Human Development Sector Unit
http://www.worldbank.org
REFORMING HEALTH SOCIAL SECURITY
PROCEEDINGS OFAN INTERNATIONAL SEMINAR
Sponsored by the Global Security Institute, Keio University, and the World Bank
June 27-29, 2005
Tokyo, Japan
Table of Contents
Preface i
Chapter 1: Choosing to Cover Comprehensive or Basic Medical
Services under Universal Social Health Insurance
Should Providers Be Allowed to Extra-bill for Uncovered Services? 1
Naoki Ikegami
The Billing of Medical Services and the Financial Burden
on Patients in Korea 13
Soonman Kwon
Summary of the Discussion 24
William Hsiao
Chapter 2: Financing Long-Term Care
Financing Long-term Care: Lessons from 19 OECD Countries 27
Manfred Huber
Long-term Care in Germany 59
Heinz Rothgang
Sustaining Long-term Care Insurance in Japan and Beyond 85
John C. Campbell
Summary of the Discussion 98
Kotaro Tanaka
Chapter 3: Increasing Public Expenditures on Health Care
Increasing Investment in the UK-NHS: Some Policy Challenges 100
Alan Maynard
Re-casting Canadian Federalism: Health Care Financing in the New Century 112
Joseph Wong
Summary of the Discussion 136
Joseph White
Chapter 4: Social Security in Rapidly Industrializing Nations
Health System Issues, Challenges, and Options: Reflections on
China, India, and Kerala 147
Kottilil Mohandas
Summary of the Discussion 164
Peter Berman
Chapter 5: Summary and Interactions of the Key Points
Practical Issues in Priority Setting in Health Care 166
Wendy Edgar
Summary of the Discussion 172
Michael R. Reich
APPENDICES
Appendix 1 � Program 174
Appendix 2 � Biographies of Participants 181
Appendix 3 � Addresses of Participants 188
LIST OF WORKING PAPER SERIES, 2004-2006 192
Preface
Reforming Health Social Security: The Proceedings of an International Seminar
Sponsored by the Global Security Institute, Keio University, and the World Bank,
June 27-29, 2005
Naoki Ikegami
Keio University School of Medicine
How important is health, and the most visible organized. About twenty experts from ten
means to maintain it, health care, important for countries, Canada, China, Germany, India,
the security of the society? When Japan Japan, Korea, Malaysia, New Zealand, the
legislated its first social insurance program for United Kingdom and the United States, plus
manual workers in 1922, it was clearly stated representatives from the World Bank and the
that the program had two purposes: to increase OECD, attended the closed seminar. The
the wealth of the nation by maintaining the participants were a mix of academics,
health of the workers; and to serve as a bureaucrats and one politician, but all
stabilizing force to prevent a socialist revolution. participants had practical experiences in making
This rationale was identical to that proposed by health policy. Their discipline included
Bismarck in nineteenth century Germany. After economics, political science and medicine. The
its introduction, the concept of solidarity within seminar consisted of six sessions over a three
each social insurance pool, whether by day period. All the sessions except for the last
workplace or community, and the financial risk were closed to the public. In the first four
protection they provided, turned out to be sessions, the two papers (except for the second
popular with the voters which resulted in the session which also included a short summary
eventual achievement of universal coverage in from the OECD reports) for each session had
1961. been circulated in advance. Each presenter was
asked to use their limited time on the major
However, the original arguments for establishing points that he or she would like to emphasize.
health care as a social security benefit are now This allowed for two of the three hours in each
less compelling. The threat of a socialist session to be spent on questions and answers,
revolution has vanished. The externalities and on in-depth exchange. These exchanges
arising from treating communicable diseases are were skillfully handled by the chairs who had
insignificant compared with the amount spent on been asked to prepare the main discussion points
health care. Most diseases now result from life in advance.
style, which are more the responsibility of
individuals than of society, and their presence is The first session focused on the crux of the
less likely than acute illnesses to cause agenda for this seminar. Should the government
productivity losses. With the aging of society, be responsible for only a "basic package" of
solidarity may also be eroding, as under a pay- health care, leaving the rest to the market for
as-you-go system, a significant proportion of the providers to deliver and patients to purchase?
premiums or of taxes goes towards paying for The first paper from Japan described how this
the care of those who have retired, and not proposal was vigorously promoted by
towards the care of those contributing. At the economists and business leaders who opposed
same time, advances in medical technology have the regulations prohibiting extra billing for
greatly increased the availability and use of uncovered services and balance billing by
expensive procedures, leading to cost specialists. However, a political decision was
escalations. Thus, the future of health social made to not to go down this path, due in part to
security is threatened. the opposition raised by the Health Ministry and
organized medicine. In contrast, as described in
It was in this context that this international the second paper, Korea did not have these
seminar on reforming health social security was regulations from the time the social insurance
Reforming Health Social Security:
The Proceedings of an International Seminar Sponsored by the Global Security Institute,
Keio University, and the World Bank, June 27-29, 2005
was implemented. The survey results appeared were thus perceived to be providing inferior care
to show that this had no effect on access to when compared to neighboring countries,
providers but there were no data on health continental Europe in the case of the UK, and
outcomes. Although it could be argued that the the United States in the case of Canada. Second,
services to be covered by the public insurance their expanding economies allowed them to
should be based on cost-effective analysis, what increase funding for health care. Third, the
actually becomes covered tend to be mostly political configurations that acted as a catalyst to
determined by fiscal reasons, as has been the this decision. The main difference between the
case in Korea, and by political consideration. two countries lay in the extent to which the
Thus, because of the lack of objective evidence, central government had control over how the
providers could explain to patients that better extra resources are being used. In the UK,
outcomes could result if they were to purchase although the funds are allocated proportionally
services not covered. However, this would to local purchasers, there are significant central
result in serious equity problems and the risk of directions in the form of requirements to target
impoverishment for those who decide to on particular service areas, such as waiting lists,
purchase out-of-pocket. and in the form of specific contract provisions
for providers. In contrast, in Canada, the way in
The second session focused on long-term care which the funds were to be spent was left almost
(LTC), in particular, the projected and actual entirely to the provinces, without even common
costs of LTC in the two countries that have standards to measure any progress in the areas
recently made it a new pillar of social security, that had been prioritized such as waiting lists.
Germany and Japan. Aging of society was the However, both countries have singled out
common rationale in both countries but this was waiting lists as an area for improvement because
not enough to explain why a new program was they are more visible and of greater concern to
introduced in the midst of economic stagnation. the general public than improvements in health
Pressure on the local government's public outcomes, which have the further disadvantage
assistance program in Germany and the local of having a time-lag between the time of
government's inadequacy in dealing with the investment and the time of improvement. As a
rapid increase in the national government's consequence, politicians tend to favor popular
funding of LTC in Japan were part of the reason. concern, but objective measures of health
This difference may be why the benefit package outcomes should also be considered when
is more stringent in Germany, with strict fiscal allocating resources.
control built into the system, and more generous
in Japan, where expenditures were planned to The fourth session was on China and India. One
expand. As a result, the future sustainability of reason why social security is being reexamined
the LTC programs will rise from contrasting in developed countries is the competition from
trends that are occurring in each country: these huge two countries that have both shifted
eroding benefit levels in Germany, and rising from a planned to a market economy. While this
expenditures in Japan. However, despite these shift led to rapid advances in the economy, it has
caveats, establishing an independent LTC also resulted in the gradual abandoning of a
program should lead to a more efficient health care system that had been owned and
distribution of social security benefits since LTC operated by the state. This shift has been more
needs would not have to be delivered based on abrupt in China, where the government initially
the egalitarian standards of the health care succeeded in delivering services that achieved
system. substantial and widespread health improvements
for the population. However, since the
The third session was devoted to the two dismantling of the public system, health
countries, -- the UK and Canada --, that have expenditures as a percentage of the GDP have
made an explicit policy decision to increase their increased more but with little improvement in
health expenditures. The two countries came to health outcomes. In India, the shift has been less
this conclusion for the same following reasons. abrupt because health care has been defined as a
First, their health sectors were under-funded and regional, rather than a national responsibility.
ii
Reforming Health Social Security:
The Proceedings of an International Seminar Sponsored by the Global Security Institute,
Keio University, and the World Bank, June 27-29, 2005
However, even in Kerala, which historically had insurance and charges to patients to finance
a strong state commitment and had experienced health care. After which, a digest of one paper
many early gains in health, economic pressures from each of the four closed sessions was
have led to an increasing share of the private presented: Professor Kwon on extra-billing and
sector, largely financed by out-of-pocket balance billing in Korea, Professor Rothgang on
spending. Nevertheless, government leaders in Germany's LTC insurance, Professor Wong on
both countries have become aware of the need federalism and increased funding in Canada and
for a greater government involvement in health Professor Wang on the inequity in the financing
care. A social insurance based system for urban and delivery of health care in urban China.
areas and a community pre-payment based After which, I presented a summary of the other
system for rural areas might be a solution for papers and of the discussion that had taken place
China. The situation in India is likely to be in the closed sessions. Finally, there was a
more difficult, partly because of the lower base- question and answer time for the approximately
line, and partly because the government has less three hundred people who attended the
power. symposium.
The fifth session began with a short presentation This publication is organized in the following
on the abandonment in New Zealand of attempts order. The papers for each of the five closed
to remove specific services from the publicly session are in the order that they were presented
financed system, and the subsequent move in the seminar. This is followed by the summary
towards establishing clinical guidelines. This of the subsequent discussion written by the
example was provided as a reminder that all chairs of each session. After this, the
policy decisions must ultimately lead to changes biographical sketches, followed by the
in physician behavior at the clinical level. After addresses, of all of the participants in the closed
the chairs of the four sessions presented the session are placed. Since the public symposium
major lessons in each, the discussion then covered the material already presented in the
explored two major themes that emerged from closed sessions, we have not included its
the seminar: first, the role of values in health summary. The power point presentations given
system reform; and second, the challenges in the closed sessions have also been excluded
involved in the use of technical analysis in because most were in color and would have been
policy debates. Values drive all policy difficult to read in a hard copy version.
decisions, including health care. When specific However, they are available on the web, as are
ideas become the conventional wisdom, it is the papers in this volume, with the exclusion of
hard for individuals to swim against the tide to that of Professor Wang's. The website is listed
advocate a different approach, because any below: http://www-
inconvenient evidence that they may produce is wds.worldbank.org/WBSITE/EXTERNAL/EXT
frequently ignored or misinterpreted. This trend WDS/0,,menuPK:64187552~pagePK:64187825
raises the question of whether health service ~piPK:64187925~searchMenuPK:64258546~the
research has actually any effect in the policy SitePK:523679,00.html
debate. However, international comparisons and
lessons from other countries are the one way to I would like to conclude by first thanking
predict both the intended and unforeseeable Professor Hsiao for graciously serving as the co-
consequences of policy options. Therein lies the investigator for this project to whom I owe
objective of holding this seminar. immensely. My thanks also go to the authors of
papers who responded patiently to my requests
The sixth and last session was a public for more details and/or clarifications on the
symposium, co-chaired by the Honorable drafts, the chairs of each session who undertook
Takemi and Professor Campbell, to present to the difficult role of summarizing the heated and
the informed public the main findings of this complicated discussion, and the participants who
seminar. Professor Hsiao began by emphasizing contributed to the discussion. I am also grateful
the risk of individual financial impoverishment to the Global Security Research Institute, Keio
if reliance were to be placed on private University, and the World Bank Tokyo Office,
iii
Reforming Health Social Security:
The Proceedings of an International Seminar Sponsored by the Global Security Institute,
Keio University, and the World Bank, June 27-29, 2005
which generously sponsored this seminar, and to of the Global Security Research Institute, and
the Asahi Newspaper, the Japan Medical my staff of Ms Naoko Tomita, Mr Naonori
Association and the National Federation of Kodate and Dr Tomoko Shinoda-Tagawa for
Health Insurance Societies for supporting the their tireless efforts.
open symposium. Finally, my thanks to the staff
iv
Chapter 1: Choosing to Cover Comprehensive or Basic Medical Services
under Universal Social Health Insurance
Should Providers Be Allowed to Extra-bill for Uncovered Services?Debate, Resolution
and the Future in Japan
Naoki Ikegami
Keio University School of Medicine
Background expenditures of the elderly.1 As a result of these
mechanisms, all Japanese are covered for the
Japan has an established universal, compulsory same medical benefits by contributing about the
social health insurance (SHI) system for virtually same ratio of their income as premiums, despite
all residents, to ensure that all of its citizens have the differences in the income level and age
equitable access to necessary health care and are composition of the participants in the various
protected from impoverishment due to medical plans.2
expenses. Under SHI, employees and their
dependents are covered by their employers' A key feature of Japan's SHI is its payment
plans, while the self-employed and seniors are system. All health insurance plans pay physician
covered by municipal plans. and hospital services and drugs according to the
same fee schedule. As Figure 1 shows, the fee
These plans can be grouped into three categories schedule serves as the single "pipe" that controls
according to the level of subsidies that they the flow of money from all insurance plans to all
receive from the government. Each category has providers, with the exception of the subsidies
enrolled about one-third of the population. The that the government gives directly to public
first category, which includes the Mutual Aid sector hospitals. For patients, the fee schedule
Association (MAA), which is the plan for defines their benefits package. For providers,
employees of government agencies, and the the fee schedule specifies the fees and the
Society Managed Health Insurance (SMHI), conditions under which they will be paid.
which is for employees of large companies,
receives no subsidy from the government. The Biennial political negotiations between the
second category is a single plan managed by the government (MHLW) and the Japan Medical
Ministry of Health, Labor, and Welfare Association (JMA) revise the fee schedule.
(MHLW), the Government Managed Health First, they negotiate the overall revised price
Insurance (GMHI), which covers those rate. By doing so, they implicitly set a global
employed in small- to medium-sized companies budget for health expenditures since the volume
and which receives a subsidy equivalent to 14
percent of its expenditures. The third category
consists of the plans established by the 1
municipalities, which are collectively called the Each plan contributes an amount that they would
Citizens' Health Insurance (CHI) and which pay if the ratio of elderly people enrolled in the plan
cover seniors and the self-employed. They were the same as the national mean. For example, a
plan in which the elderly consist of 3 percent of those
receive a subsidy equivalent to on average half enrolled with expenditures amounting to $2 million
of their expenditures. In addition to these must contribute five times this amount, $10 million,
subsidies, all plans must contribute equally to a because the ratio of elderly people in the entire
central fund that finances the medical population is 15 percent.
2 Plans in the first tier tend to have more benefits in
The author would like to thank Professor William areas other than direct medical care, such as more
Hsiao of Harvard University and Professor John C. elaborate health screening and some reimbursement
Campbell of the University of Michigan for their of any co-insurance that is not covered by the
helpful comments and edits. catastrophic program.
Should Providers Be Allowed to Extra-bill for Uncovered Services?
Debate, Resolution and the Future in Japan
Figure 1: The Flow of Money in the Japanese Health Care System
Employers Employees Non-employees
Premiums Taxes
Co-pays
Government
SMHI CHI
MAA GMHI
Fee schedule
Private
physicians'
offices Public sector
Private- hospitals
sector
hospitals
Note: SMHI Society Managed Health Insurance, MAA Mutual Aid Association, GMHI Government
Managed Health Insurance, and CHI Citizens' Health Insurance.
Source: Campbell and Ikegami, 1998
of services and drugs will remain essentially the growth slowed precipitously beginning in the
same. Second, they revise each service fee and early 1990s, household incomes became
drug price so that the volume-weighted net effect relatively flat, and corporate profits and
of these changes will be equal to the overall government revenue declined. As a result, the
revised rate. The general rule has been that fees ratio of health expenditures to GDP increased
for services that have sharply increased in from 4.6 percent in 1990 to 6.6 percent in 2002.4
volume, such as MRIs (magnetic resonance Even the moderate growth in health expenditures
imaging), should be reduced, while fees for became a financial strain, engendering a sense of
those services that the government wants to impending crisis.
encourage providers to provide more of, such as
home care, should be increased. This micro- To meet this challenge, the government and the
management of the fee schedule has helped to JMA have kept price increases to a minimum in
contain costs and to favor primary care services the biennial revision of the fee schedule. In
over high-tech care to the advantage of both the 2002, they actually reduced the aggregated fee
MHLW and the JMA (Campbell and Ikegami, schedule by 2.7 percent, which resulted in a
1998).3 decrease in total health expenditures for the first
time in history (Ikegami and Campbell, 2004).
This negotiated fee schedule caused health At the same time, patients also had to pay more.
expenditures to grow at a constant, moderate rate The co-insurance rate for employees was
that kept pace with the growth of the economy increased from 10 to 20 percent in 1998 and
during the 1980s. However, when economic
4 These health expenditure figures are estimates made
by the MHLW (Kokumin Iryouhi) and do not include
3 The executive members of the Japan Medical capital outlays by the public sector. They are about 20
Association tend to be solo practitioners who are percent below the OECD's figures for Japan's total
mainly concerned with increasing fees in the primary health expenditures but are more relevant for fiscal
care field. purposes.
2
Should Providers Be Allowed to Extra-bill for Uncovered Services?
Debate, Resolution and the Future in Japan
from 20 to 30 percent in 2002,5 and the co- equitable access to all necessary medical care
insurance rate for the elderly rose from a modest, rather than a cash benefit to partially defray the
flat amount to a fixed rate of 10 percent (20 costs of such care as in an indemnity type of
percent for those with high incomes) in 2002.6 insurance. Consequently, providers are in
The government has promised that there will be principle prohibited from billing patients for
no further increases in the co-insurance rate, and, uncovered services and drugs that are not listed
in any case, any such increases would not be in the fee schedule (in other words, that are not
politically feasible. part of the benefit package) or for conditions that
are not specified such as off-label prescribing.
However, these measures were insufficient to Providers are also strictly prohibited from
prevent the premium rate from increasing; the balance billing (in other words, charging
rate for the GMHI had to be raised from 7.2 additional fees over and above those set by the
percent to 8.2 percent in 2002.7 Employers fee schedule). When providers charge the
strongly oppose any further increases in this and patient more than the prescribed co-insurance
other employment-based plans as they must pay amount, the patient must pay the entire cost of
at least half of the premiums. They have the medical treatment out-of-pocket, not just the
complained that increases in health insurance uncovered or balance-billed services.
and pension contributions have already made
labor costs in Japan less competitive than in However, Japan established a list of exceptional
China and other rapidly industrializing countries. services for which providers may charge
The option of increasing subsidies from the patients. These uncovered services are called the
present level of about one-third of total health "specified medical costs" (SMC) or Tokutei-
expenditures is also not viable because of the Ryoyouhi. The Tokyo District Court ruled on
huge government deficit that has accumulated to January 23 1989 that, although there are no
nearly 1.5 times GDP. This public debt has formal statutes that prohibit providers from
become a serious economic burden and is billing for uncovered services, this SMC
arguably retarding economic growth. With no provision implies that providers are prohibited
other way to meet future increases in from the uncovered services not specified in the
expenditures, the Finance Ministry finds the SMC. The SMC list divides these services into
notion of limiting benefit coverage and making two categories: high tech services that are still
patients pay more for services outside of the being developed and services chosen by the
social insurance system very attractive. patient.
Current Regulations Concerning the Billing High-tech Services Still Being Developed
of Services
Extra-billing is permitted for a list of specified
Japan's SHI system had been based on the high-tech services that are currently being
principle of providing a service benefit to ensure developed in 128 designated hospitals. These
are mostly university hospitals. In order for a
5Thirty percent has been the rate for those enrolled in service to be included on this list, the provider
the CHI so this increase had the effect of equalizing must submit a request to start providing this new
the co-insurance rate, albeit by increasing the rate technical service. After the request has been
paid by employees. approved, the hospitals are required to provide
6 These co-insurance rates are applicable up to the data on the effectiveness of the service. Once its
catastrophic ceiling, which is about $700 per month effectiveness has been established, it will be
for those with an average income. Those with low listed in the fee schedule and become available
incomes and the elderly pay less, and those with high for general use. So far, 165 requests to initiate
incomes pay more. new high-tech services have been approved, of
7The basis for levying premiums was changed from which 58 were proved to be effective and were
the person's standard monthly wage to all of his or listed in the fee schedule and 10 were
her income, including any bonuses. The new rate of discontinued, leaving 97 currently active. The
8.2 percent of all income would be the equivalent of total cost of these services was 500 million yen
9.5 percent of monthly wages under the former (US$5 million) in 2001 (Takeda, 2003).
method of calculation.
3
Should Providers Be Allowed to Extra-bill for Uncovered Services?
Debate, Resolution and the Future in Japan
Since 2002, in the case of repeat visits, the SMC
Services Chosen by the Patient is restricted to situations where the attending
physician offers to refer the patient back to a
Extra-billing services were limited to extra- clinic but the patient refuses and wishes to
charge rooms when the SMC was created in continue to visit the hospital. Thus, very few
1984, but the scope has since been gradually patients pay the SMC for repeat visits.
expanded. The items below are now classified as
extra-billing services with the year in which the Clinical Trials of Drugs (1996) and Devices
service was listed in the SMC is noted in (2002). The cost of the trial is not covered but is
parenthesis: paid by the manufacturer. Thus, this measure
does not affect the patient and only formalizes
Extra-charge Rooms (1984). The room must what had been the actual practice.
meet amenity standards set by the government.
As legislated, charges may only be levied if the Surcharge co-payment amounting to 15 percent
patient requests an extra-charge room; hospitals of bed and board charges when the length of stay
are not permitted to charge if the patient is exceeds 180 days (2002). This measure was
admitted to an extra-charge room because a introduced to discourage patients from staying in
regular room was not available or because hospitals for non-medical reasons. The
isolation was necessary due to infection, for surcharge is waived if the patient has a diagnosis
example. These limitations are not necessarily of, for example, a neurological disease or a
strictly observed because most patients are not spinal accident that would justify a prolonged
aware of their rights or are not willing to be hospitalization on medical grounds.
assertive. However, the number of extra-charge
beds constitutes only 16 percent of all hospital Drugs That Have Been Approved but Not Yet
beds, of which a majority (53 percent) have per Listed (2002). This measure was introduced to
diem charges of less than 4,000 yen (MHLW, cover the time lag of several months from when
2005). a drug has been approved for use but has not yet
Special Consultations with Appointments (1992). been listed in the fee schedule.
Special consultation fees can be levied that allow
patients to be seen by physicians with no waiting So it is clear that, by 2002, the SMC list had
time. However, since the hospital must maintain remained very restrictive. However, the general
an alternate ambulatory service of the same public was not aware of the impact of these
specialty without extra fees, only 97 hospitals restrictions or of the rule that, if the provider
provide this SMC service. were to extra-bill them for any services outside
of the SMC list, the patients would have to pay
Consultation Fees in Hospitals with 200 or More the entire amount out-of-pocket. Physicians
Beds. These measures were introduced to knew of the restrictions and resented the rigid
encourage patients to visit clinics instead of large way in which they are implemented. However,
hospitals for ambulatory care. Since 1996, they could sometimes circumvent the
consultation fees are no longer covered for initial prohibitions. For example, in the case of the
visits and are extra-billed for an amount set by prohibition on off-label prescribing, which was
the hospital if the patient visits the hospital the restriction most often faced by physicians,
without a referral. However, there is little they may add a secondary diagnosis of
difference between the extra-billed amount paid "suspicion of" in the claims form, making the
by the patient and the co-insurance paid by diagnosis not off-label. Alternatively, hospitals
patients coming with referrals in most hospitals.8 sometimes would only bill for the amount that
was within the limits set by the directive on
usage. Thus, although the restrictions were a
source of annoyance, most physicians did not
8 In order to make a functional differentiation consider them to be a fatal defect of the system.
between clinics and hospitals, physicians in clinics
receive fees for writing letters of referral and those in
hospitals for replying. The co-insurance for these is levied in most hospitals on patients who come to be
fees is about the same amount as the SMC charge that treated without a referral.
4
Should Providers Be Allowed to Extra-bill for Uncovered Services?
Debate, Resolution and the Future in Japan
The exception to this may have been hospital become more limited. Instead, they adopted the
specialists treating cancer and other serious strategy of focusing on the negative outcomes
diseases. From their perspective, it seemed that resulted from restricting non-covered
unfair that new drugs that had produced dramatic services to those listed in the SMC. They drew
results in patients with these conditions were the attention of the public on the following
only available to patients who were able and conditions under which patients are currently
willing to pay the costs of the entire treatment required to pay for the entire costs of their
until the drugs had been tested and approved in treatment:
Japan. However, their grievances and those of
their patients were ignored by both society and � If a drug or a use for a drug that has not yet
the media. been approved in Japan is provided. This
becomes particularly contentious when the drug
Offensive by Deregulation Proponents or drug use has already been approved in other
countries but not in Japan, due to delays in
In 2001, the Japanese government established performing clinical trials and acquiring
the Economic and Fiscal Council and the government approval. The proponents of
Regulation Reform Council to restructure its deregulation summoned cancer patients to the
economy. The Economic and Fiscal Council is Regulation Reform Council's open forum to
Japan's top policymaking body, consisting of testify about the burden of having to pay the full
key cabinet members and economists, and is costs of their treatment.
chaired by the Prime Minister. The Regulation
Reform Council was given a broad mandate to � If more than the prescribed number of
put forward proposals for deregulation in all treatment courses is provided. The example
sectors of the economy, including transport, cited was for the eradication of Helicobacter
agriculture, education, and health with the goal pylori to prevent gastric cancer in which the
of making the Japanese economy more number of courses is limited to two (if a third
competitive. The chair of the Regulation was provided, then the patient must pay for all
Reform Council, Yoshihiko Miyauchi, is the three courses).
CEO of an aggressively expanding insurance
company. Both councils were concerned about � If silicon implants for breast reconstruction
the growing fiscal deficit and looked at ways to are used in conjunction with mastectomy for
contain public expenditures. Their primary patients with breast cancer. Silicon implants
targets were the ministries that acted in collusion have not been approved for listing in the fee
with trade organizations to maintain the status schedule.
quo by preventing market competition. In the
health sector, they proposed that health services � If a preventative health measure, such as
be provided through a combination of SHI vaccination for influenza, is provided during the
benefits and private payments under the banner course of hospital inpatient treatment. Prevention
of deregulating Kongou Shinryou. is not covered by health insurance.
The Regulation Reform Council's seems to have � If interpreters are hired for patients who do
as its the long-term goal the restricting the not speak Japanese.
benefits package of the SHI to the "basic health
services." This would be a major change from By emphasizing the above examples, the council
the current principle of providing equal access to pushed for deregulation that would allow
"all medically necessary services" for all patients to select the services that they want after
Japanese. The councils reasoned that this they have evaluated the extra costs and benefits
change would not only contain public they will receive, based on the information
expenditures but would also encourage an provided by the physician.
infusion of private funding that would better
meet the diverse needs of patients. In order to They reasoned that providers would support this
achieve this objective, the Regulation Reform proposed reform because it would allow them to
Council did not mount a frontal attack on the extra-bill patients for any service not covered by
SHI system by proposing that its benefits should the SHI system, whereas currently they can only
5
Should Providers Be Allowed to Extra-bill for Uncovered Services?
Debate, Resolution and the Future in Japan
extra-bill for exceptional services as defined in The government has been withholding approval
the SMC. Those who oppose deregulation are for drugs not because of cost considerations but
the MHLW officials, who are afraid of losing for three other reasons - the postponement of
their power, and the JMA, which mainly clinical trials by pharmaceutical companies
represents solo practitioners who fear the when they have other competing drugs (Li,
emergence of innovative and aggressive 2005), difficulties in conducting clinical trials,
competitors. Of course, their self-interest does and the long time required by the government for
not preclude opposition on principle as well. processing the approval requests. Also, clinical
trials have become more difficult because the
Critique of the Deregulation Argument patient's written approval is now required. One
way to shorten the approval time might be to
Proponents of the proposed extra-billing reform charge pharmaceutical companies user fees, as is
claim that its aim is to remedy problems that done by the Food and Drug Administration
currently exist in the SHI system, but it also (FDA) in the US, but this may also have some
raises a serious equity problem that is not likely adverse effects. It should also be noted that at
to be acceptable to the Japanese public. Public least some of the restrictions are based on sound
opinion polls have shown that an overwhelming evidence. In the case of limiting the number of
majority of the public is opposed in principle to treatments for eradicating Helicobacter pylori to
a system in which a patient's ability to pay two, increasing the number of treatments to three
determines the quantity and quality of services is no more effective in preventing gastric cancer
that he or she receives, even if it may result in a and actually increases the risk of lung cancer
net increase in social welfare (Tamura, 2003). (Nagahara et al, 2002).10
The egalitarian principle in health care, as
opposed to the utilitarian principle, appears be Second, it is too optimistic to assume that
deeply and universally ingrained. As a result, physicians will provide impartial information to
the proponents of the market ideology tend to be patients concerning the marginal costs and
limited to the political elite (Schlesinger, 2002). benefits of the uncovered services, especially if
they are in a position to gain financially from
Aside from these equity concerns, the providing such services. Moreover, the patient is
proponents' argument is based on two not likely to decline a service if the physician
assumptions. The first assumption is that recommends it. Even in the United States,
patients have sufficient knowledge to decide informed consent tends to be more of a formality
what medical services they need. The second than a substantive process (Halpern, 2004), and
assumption is that medical care can be purchased this is likely to be even more prevalent in Japan
in the same way as a consumer chooses options, since Japanese patients are apt to defer to their
such as a CD player, when buying an physicians. It is also inconsistent for the council
automobile, whereas the two kinds of purchases to trust physicians to provide impartial
differ in many obvious ways. information to patients when offering uncovered
services while simultaneously criticizing the fee-
Thereafter, several arguments can be made for-service form of payment in the SHI system
against the deregulation proposal. First, the because it allows physicians to inflate costs. If
safety and effectiveness of drugs cannot be uncovered services were to become available in
ensured by relying entirely on the approval principle, there is no guarantee that patients
process in other countries because of the would be able to choose based on their own
possibility of that drugs may have different evaluation of the cost-effectiveness of the
outcomes if tested on different ethnic groups.9 service. The evidence needed for monitoring
this would also become more difficult to obtain
9 For example, the drug for treating lung cancer, since providers would no longer be obligated to
Iressa, was first approved in Japan and had some submit such data, as they are now required to do
dramatic successes. However, international data have
confirmed that it is not effective elsewhere, though 10As one of the three combination drugs used for
perhaps this is not the case for patients in East Asian eradication, metronidazole, increases the risk of lung
countries (Asahi, 1.21.05) The reverse situation is cancer, a third treatment might cause more harm than
equally likely to occur. good.
6
Should Providers Be Allowed to Extra-bill for Uncovered Services?
Debate, Resolution and the Future in Japan
for the SMC high-tech services currently being opponents' accusations struck home with the
developed. public and made them feel uneasy about any
change. What was also confusing to the public
Third, patients with private insurance would not was that the proponents of extra-billing
have to pay the extra costs of the uncovered maintained that the reform would decrease costs
services so they would not be taking costs into to the patient, while opponents said it would
consideration when deciding among services. increase costs. In reality, the former is true in
Although virtually all private health insurance is the short term, since patients would have to pay
currently limited to cash benefits,11 it is very only for the uncovered service instead of having
likely that such private insurance products would to pay for the entire treatment. However, the
quickly be developed if uncovered services were latter is true in the long term, because people
to become widely available, because people are would end up having to pay premiums for both
generally risk-averse and would prefer to pay SHI and private insurance.
premiums when they are healthy rather than
paying when ill. Moreover, the premiums for the In the end, the following compromise was
"gap" insurance could be set at low levels since reached on December 15, 2004 by the two
they would only apply to the uncovered services ministers concerned, Hidehisa Otsuji, the
and the insurance providers would not insure Minister of Health, Labor and Welfare, and
those who were a bad risk. Consequently, the Seiichiro Murakami, the Minister in Charge of
inequity that would stem from allowing Regulation Reform:
uncovered services to be provided would be
likely to take the indirect form of people not 1. A special committee would be formed to
being able to purchase private insurance rather decide within three months whether requests for
than the more direct form of patients not being drugs that had not been approved or were
able to afford the services. currently off-label should be covered. Drugs and
drug uses that have been approved in other
The Political Compromise countries would automatically be subject to
deliberation. Since one reason why some drug
The inconsistencies in the proponents' arguments uses remained off-label was that pharmaceutical
for opening up services for extra-billing were not companies had been unwilling to incur the costs
presented to the general public in any coherent of performing new clinical trials, physician
way. Rather, their opponents fueled fears that groups were encouraged to undertake such trials
extra-billing would lead to the de facto on their own initiative. Approval for listing
dismantling of the SHI system in Japan and would be decided within 60 days of the
transform it into a system like that in the United completion of the trial, and during this period,
States. The JMA took the lead in defending the the drug could be extra-billed as an uncovered
present system, partly on behalf of the public service.
and partly because allowing extra-billing would
divide physicians into those who would be able 2. For new high-tech services that were not yet
to charge extra fees and those who would not. listed, the current limitation applying to
designated hospitals would be abolished. The list
Not surprisingly, the public was confused by the would also be broadened to include another 100
debate and so were the media. On the one hand, new procedures that are not high-tech (such as
the proponents' publicity campaign raised endoscopic resection of small bowel tumor).
awareness of the illogical and rigid aspects of the However, instead of an across-the-board
present system. On the other hand, some of the deregulation and evaluation after the provision
of the service, as proposed by the proponents,
11Because this would increase moral hazard, private there would be specific criteria for each
insurance plans are not allowed to cover the co- procedure that hospitals must meet prior to
insurance of the SHI system. Consequently, their being permitted to provide the service in order to
benefits usually take the form of a per diem cash ensure quality. In total, about 2,000 hospitals
benefit for inpatient care. However, these restrictions would be permitted to deliver one or more of
would not apply to uncovered services since they will these services. Hospitals meeting the criteria
not be part of the SHI benefit package. would be allowed to submit their proposal and,
7
Should Providers Be Allowed to Extra-bill for Uncovered Services?
Debate, Resolution and the Future in Japan
except in special cases, such as genetic only as an exception and not as a general rule.
engineering, which would require more time,
would be apprised of the decision within three Implications of the Compromise and Future
months. Once approval was given, hospitals Scenarios
would be required to indicate clearly to the
public that the provision of the service was Although the proponents of deregulation did not
subject to the patient's consent and to report their succeed in making the billing of uncovered
performance to the government. services a general rule, they were able to draw
public's attention to the problems inherent in
3. For the provision of more than the restricting billing to the services listed in the
designated courses of treatment listed in the SMC. The resulting compromise reform will
directives such as the third course to eradicate broaden both the scope of the uncovered services
Helicobacter pylori, extra-billing as an and the number of hospitals that will be allowed
uncovered service would be permitted if patients to provide such services. The process for
wished for it and gave their consent. allowing facilities to provide uncovered services
will also become more efficient and transparent,
4. It would be clearly specified that preventive which should ultimately lead to more rapid
measures, such as influenza vaccination and the coverage of new services by the SHI system and
use of interpreters for non-Japanese speakers, consequent increases in expenditures.
would not be part of the covered services but
would be available to patients as extra-billed What is more important, but is a question that
services. has been left unanswered, is the fundamental
issue of how to finance even moderate increases
5. The SMC would be abolished and replaced in health care expenditures, which are largely
by "Medical services under investigation for due to the rapidly aging population, at a time
coverage" and "Medical services agreed and when the prospects for significant economic
selected by the patient" in a revision of the growth remain doubtful.
Health Insurance Act that was expected to be
passed by 2006. Some services, such as clinical Since the situation has basically not changed, the
trials, that had been on the list of "Services Regulation Reform Council will continue to
chosen by the patient" would now be assigned to press for deregulation and may add a demand to
the former category. allow balance billing. Regardless of whether or
not they decide to take the latter step, it will be
This was a political compromise that did not go difficult to prohibit balance billing once
into the details of how this would work in providers are allowed to bill for uncovered
practice, which were left to be worked out later. services in principle. Balance billing has the
Regarding the encouragement of clinical trials potential to raise much more revenue than just
under the initiative of physician groups under the providing uncovered services. One reason why
first provision, it is unclear how funding and it has not become an issue in Japan thus far is
logistical support will be provided. It will also probably because, unlike in the UK or Germany,
be difficult to speed up the approval process there are no professionally recognized elite
without increasing staffing in the government groups of physicians;12 quality is associated with
agency concerned. Regarding the second hospitals rather than individual physicians. The
provision, specialist societies will have to problem for balance billing purposes is that these
establish the specific criteria that hospitals must high-quality hospitals tend to be in the public
meet for each of the procedures that are not
currently listed in the fee schedule, which will be 12This is because hospital vacancies tend to be filled
a cumbersome process. However, the important by physicians sent by university clinical departments
fact is that it has been possible to eliminate some over which hospitals have little control. Although an
of the worst anomalies in the system without organization of the 22 specialties was established in
wholesale reform. In this compromise, the 1981 and two-thirds of all physicians now have
proponents of deregulation did not achieve any qualifications as specialists, only half have undergone
major breakthroughs since the billing of formal training programs. The rest have been
uncovered services will continue to be allowed grandfathered in.
8
Should Providers Be Allowed to Extra-bill for Uncovered Services?
Debate, Resolution and the Future in Japan
sector, which is subsidized to offset the low fees increasing competition and providing alternative
charged for services. Because these hospitals are examples of operations and management. In its
subsidized by tax money, the public would campaign for deregulation, so far the Council
protest if better services were to be provided to has won only a token concession. In 2003, the
those patients who were able and willing to pay government decided to allow new investor-
for them.13 Because of this, the affluent have owned hospitals only if they confined their
generally satisfied their health care quality activities to high-tech services and if their
demands by giving gifts to renowned physicians patients paid for the entire costs of their
in prestigious hospitals. Since these eminent treatment out-of-pocket. Not surprisingly, no
physicians do not declare such gifts to the tax one has applied to open an investor-owned
office, they might well prefer this traditional, if hospital under these circumstances. However,
somewhat illegal, custom over formalized should the Council succeed in both of its goals �
balance billing.14 allowing extra-billing as a general rule and
opening the sector to investor-owned hospitals �
However, this situation may change. Some the door will be wide open to substantial
public-sector hospitals are currently being privatization, including the expansion of "gap"
privatized as the national and local governments insurance to cover balance billing.16 In order to
have become increasingly reluctant to provide avoid this scenario, there are four possible
subsidies. Once subsidies are eliminated, some options.
of these former public sector hospitals may
welcome balance billing as a way to survive The first option would be to make the system
financially. more efficient and less rigid by introducing an
inclusive form of payment. The reason that rigid
Another possibility is that the Regulation rules, such as the across-the-board restrictions on
Reform Council may yet succeed in achieving its the off-label prescribing of drugs and on the
other goal in which investor-owned hospitals number of treatment courses, have been
play a leading role in the health sector. Since necessary is that providers are basically paid on
1948, only the government, non-profit a fee-for-service basis. One possible solution
organizations, physician-owned organizations, would be to introduce a prospective case-mix
and physicians have been permitted to open based on method of payment, which would give
hospitals in Japan.15 Members of the Regulation providers more flexibility in choosing an
Reform Council, which became the Regulation approach to treatment, while having the cost
Reform and Opening to Private Sector Council fixed prospectively would tend to discourage and
in 2003, believe that allowing the creation of decrease unnecessary expenses in treatment.17
investor-owned hospitals would increase the
efficiency of the delivery of health care by Off-label prescribing of drugs could be allowed
in cases in which any additional costs could be
13 In national and local government hospitals, even
for extra-charge rooms that are allowed in the SMC, 16An independent type of insurance is unlikely to
the ratio of these services to all services provided is emerge in Japan. Unlike the UK, there are no waiting
less than 10 percent. lists; patients are seen on the same day and are
14It is not clear whether physicians who accept gifts referred to affiliated hospitals should they need to be
provide better care since their case mixes are likely to admitted. Unlike Germany, opting out of the SHI
vary. Renowned physicians may yield poor outcomes system is prohibited in Japan. Social insurance
because they attract the most difficult cases. This premiums are paid on incomes of up to $100,000 so
uncertainty may mitigate equity concerns but it also those with high income would be likely to opt of the
raises the issue of whether a fair transaction has been SHI system, which would make its fiscal status
made. worse.
15 Although hospitals that were established by 17 Inclusive payments with no case-mix grouping
companies for their employees prior to 1948 were have already proved to be a failure. A flat rate of
allowed to continue to operate, their number has payment for ambulatory care was introduced in 1994
steadily decreased. This demonstrates that investor- but was abandoned in 2002 because physicians billed
ownership does not in itself lead to more efficient light care patients at the inclusive rate and billed
management. heavy care patients at the fee-for-service rate.
9
Should Providers Be Allowed to Extra-bill for Uncovered Services?
Debate, Resolution and the Future in Japan
compensated for by savings in other services and in technology will occur, albeit mitigated by the
in which the prescribed use would lead to better micromanagement of the fee schedule.
outcomes. However, in order to introduce
prospective case payment, there would have to The third option would be to increase both the
be reliable diagnoses, accurate medical records, fees and the co-insurance rate for those hospitals
and standardization of practices. All of these that have been evaluated to be of high quality.
conditions have yet to be met in Japan, which is For example, fees for services (but not for drugs)
one reason why the introduction of this payment could be set 10 percent higher than the current
method was limited to the 82 tertiary care fee schedule rate, and the co-insurance rate for
hospitals in 2003.18 Thus, it is likely to take a that hospital could be increased from 30 to 40
long time before prospective case-mix based percent. Although the government has promised
payment becomes the norm in inpatient care and that there will be no further increases in the co-
an even longer time before it becomes the norm insurance rate, the number of hospitals affected
in ambulatory care because of the wider would be relatively small so it is likely that this
variation in practice patterns at that level.19 The idea would be palatable to the public. There is
JMA would also have to change its position and some precedent for this as the initial consultation
stop steadfastly insisting that fee-for-service is fees for hospitals with 200 or more beds are not
the only way to maintain doctors' professional part of the covered services and are listed in the
autonomy. SMC as uncovered services. The threshold for
catastrophic coverage could be lowered for those
The second option would be to continue cutting with low incomes. Hospitals would have an
the fee schedule. In the 2002 revision of the fee incentive to improve quality but with the caveat
schedule, overall prices were cut by 2.7 percent, that higher prices might not necessarily lead to
which led to a 0.7 percent decline in health more revenue since volume might decline. This
expenditures. Another cut in prices could be idea has yet to be proposed, but it might be a
made to further decrease health expenditures. realistic alternative.
However, in the 2004 revision, as a result of
intensive lobbying by the JMA, a compromise The fourth and last option would be to raise
was struck that set the overall revision rate at 0 premiums. Although I dismissed this option as
percent. The effect of this compromise on untenable at the beginning of this paper, it
expenditures is still not clear but, since should be pointed out that premium levels in
expenditures have been increasing at an annual Japan are well below those in Germany, even
rate of 1.8 percent as a result of aging and when the subsidies from taxes are taken into
increases in population, they are likely to rise consideration. Employers should note that, if
slightly. It would be unrealistic to aim for a coverage by the public insurance comes to be
continuous round of cuts that would make it perceived as inadequate, they will be forced to
possible to keep expenditures at the present level take out private insurance on behalf of their
since, even though population growth is slowing, employees if they wish to attract high-quality
the population is aging quite rapidly. Moreover, personnel. The combined burden of public and
increases in expenditures as a result of advances private insurance premiums might turn out to be
more than their current level of contributions as
18 the situation in the United States clearly
Even for these hospitals, there was a two-fold
difference in the average length of stay so the case- illustrates.
mix based payment had to be set on a per diem basis
and with hospital-specific adjustments rather than on Conclusion
an across-the-board per hospital stay basis. Of all
hospitals in Japan, only 18 percent use ICD coding The decline in Japan's economic growth has
(MHLW Survey, 2004). prompted some experts to propose deregulation
19 The task would be particularly difficult in Japan as a way to decrease public expenditures and
because only 41 percent of all clinics claim internal improve efficiency in many sectors. In their
medicine or pediatrics as their main specialty, the rest view, the responsibility of the government
being in the specialized areas of, for example, should be limited to providing basic services,
orthopedics, surgery, ENT, psychiatry, and obstetrics while individual patients should be left to decide
and gynecology (MHLW Survey, 2004). where to acquire other services based on their
10
Should Providers Be Allowed to Extra-bill for Uncovered Services?
Debate, Resolution and the Future in Japan
own evaluation of their marginal costs and in economic growth in Japan. If ensuring
benefits. The proponents of deregulation tried to equitable access to all necessary health care
apply these rules to health care, and, as a continues to be the government's primary goal,
strategy, they drew the attention of the public to then efforts should be made to increase the
areas where the rigidity of the current efficiency of the health care system and to raise
prohibition on the billing of uncovered services premium levels.
appeared to be unfair and ridiculous.
The debate in Japan illustrates that, because the
Although they did not succeed in their goal of general public favors egalitarian principles in
establishing the extra-billing of uncovered health care, pro-market reform is likely to be
services as a general rule, the debate did result in presented as an attempt to increase the number
a clarification of the services that are to be of choices available to the public and scale back
covered and of the process for expanding government control of the health sector rather
coverage to new procedures and drugs. This than with the explicit aim of linking the quantity
increase in transparency is likely to aggravate and quality of care to patients' ability and
the conflict between finite resources and infinite willingness to pay. Whether or not this strategy
demand, which is already strained by the decline succeeds will determine the future of health care
in Japan and in other countries.
11
Should Providers Be Allowed to Extra-bill for Uncovered Services?
Debate, Resolution and the Future in Japan
References
Asahi, 1.21.05. See footnote 9.
Nagahara A., et al [spell out other authors],
Campbell, J. C. and N. Ikegami, 1998. The Art 2002. "Strategy for the Retreatment of
of Balance in Health Policy � Maintaining Therapeutic Failure of the Eradication of
Japan's Low Cost Egalitarian System. Helicobacter Pylori Infection." Journal of
Cambridge University Press. Gastroenterology and Hepatology, 115: 613-618
(in Japanese)
Halpern, S. A., 2004. "Medical Authority and
the Culture of Rights" Journal of Health Schlesinger, M., 2002. "On Values and
Politics, Policy, and Law 29 (4, 5): 835-852. Democratic Policymaking: The Deceptively
Fragile Consensus around Market-oriented
Ikegami, N. and N. Campbell, 2004. "Japan's Medical Care." Journal of Health Politics,
Health Care System: Containing Costs and Policy, and Law 27: 889-925.
Attempting Reform." Health Affairs 23(3): 26-
36. Takeda, T., 2003. "The State of Specified
Medical Costs and the Future." Byoin (Hospital)
Li K., 2005. "Sabotage by Corporations." 62(7): 534-539 (in Japanese)
Shukan Iggakai Shinbun 2619: 3-4 (in Japanese) Tamura, M., 2003. "Why does the General
Public Oppose the Introduction of Multi-tiered
MHLW, 2005. See p. 4 Health Care? Evidence from Survey Results."
Shakai Hoken Jynpou 2192: 6-15 (in Japanese)
MHLW Survey, 2004. See footnotes 18 and 19.
12
The Billing of Medical Services and the Financial Burden on Patients in Korea
Soonman Kwon
Seoul National University
Health Care System and Policy in Korea20 personal health care expenditure, 37 percent, is
borne by households through out-of-pocket
Health Care Financing payments (see Table 1).21
Korea has had social health insurance with Health Care Delivery
universal coverage since 1989. Before the
introduction in 2000 of Korea's financing reform In Korea, physician clinics include inpatient
(which merged all insurance societies), there facilities, mostly in surgery and obstetrics.
were three types of health insurance schemes: (i) (Most graduates of medical schools get training
health insurance for industrial workers and their as specialists, but most of those specialists
dependents, (ii) health insurance for government practice as office-based physicians rather than
employees, teachers, and their dependents, and specialists in hospitals). Those clinics compete
(iii) health insurance for the self-employed. with hospitals, which have not only inpatient
There was no difference in the statutory benefit facilities but also large outpatient clinics.
package among the three different types of Making a clear distinction between the role of
insurance societies. Before the merger, health physician clinics and that of hospitals will be a
insurance schemes consisted of more than 350 critical step in increasing the efficiency of health
non-profit insurance societies, which were care delivery in Korea. Hospitals in Korea are
quasi-public agencies and subject to strict divided into three categories � hospitals, which
regulation by the Ministry of Health and have more than 30 beds, general hospitals,
Welfare. Each insurance society covered a well- which have more than 100 beds in total and a
defined population group, and beneficiaries were given minimum number of specialties, and
assigned to insurance societies based on their tertiary hospitals. Most health care in Korea is
employment (employees) or residential area currently delivered through private hospitals that
(self-employed). There was no competition are, in most cases, owned and managed by
among insurance societies to attract the insured physicians. Less than 10 percent of all hospitals
and no selective contracting with providers. In are in the public sector. The expansion in
the case of industrial workers, employees and demand for medical care that followed the
employers share the premium contribution establishment of the NHI has been met by the
equally. In the case of the self-employed, the growth in private providers. Any health care
government provides a subsidy. system that is dominated by the private sector
will put a very strong emphasis on profits and
In addition to co-payment for insured medical the Korean system is no exception. Therefore,
services, the patient pays in full for uninsured any attempt by the government to impose
services; this amount is substantial due to the policies or regulations is met by resistance from
stringent benefit coverage. As a result, despite these private health care providers.
the existence of the national health insurance
program (NHI), the role of public financing in Payment Mechanisms for Providers
health care is still limited in Korea. The social
insurance programs related to health care The NHI in Korea reimburses providers via the
account for only 44 percent of total personal
health care expenditure. The majority of
21 Private insurance in Table 1 represents medical
expenses paid by automobile insurance. Private
The author gratefully acknowledges research health insurance is sold as part of life of liability
assistance from Jong-chan Chung. insurance, which pays a fixed amount based on
20 See Kwon (2002, 2003a and 2005) for detailed diagnosis (for example, cancer) or per diem. As a
descriptions of the health care system and policy in result, there are no reliable data on medical
Korea. expenditures reimbursed by private health insurance.
13
The Billing of Medical Services and the Financial Burden on Patients in Korea
regulated fee-for-service system. The fact that Health Care Reforms in 2000
medical services have different profit margins
means that physicians may choose to provide Merger of Health Insurance Societies
more services with higher margins, thus
distorting the appropriate mix of medical care In 2000, all (social) health insurance societies
given to patients. Any distortion in the relative were merged into one single national health
price of medical services affects the relative insurer. The major driving forces behind the
supply of medical specialties in the long run. reform were inequity in health care financing
The high fees charged in some specialties such and the financial difficulties that were being
as ophthalmology and dermatology mean that experienced by many health insurance societies
for the self-employed (Kwon, 2003c). Before
these specialties attract a far greater number of the merger, social health insurance societies had
applicants for residency training than those that different methods for setting contributions. The
are paid lower fees. Since 1997, a pilot program contributions from the self-employed depended
has been operating in various health care on their income, property, and household size,
institutions that volunteered to participate in whereas income was the only basis for
which a DRG (Diagnosis-Related Group)-based contributions from employees. These
prospective payment is applied to a given differences among insurance societies in the
number of disease categories. This DRG-based method of setting contributions resulted in
payment system has proved to be effective in horizontal inequity, in other words, people with
reducing lengths of stay, medical expenses, the the same earnings received similar benefits but
average number of tests, and the use of paid different social insurance contributions
antibiotics with no negative effect on quality as depending on the insurance society in which
measured by complications and the need for they were required to enroll. This raised
further surgery (Kwon, 2003b). concerns about the unfair burden of social health
insurance.
Health Expenditure
The contribution as a proportion of their income
Korea spent 6.0 percent of its GDP on health was a bigger financial burden for members of
care in 2002. Although this expenditure is low the insurance societies for the self-employed in
compared with other OECD countries, it is poor areas than for those in wealthy areas.
partly due to the rapid growth of Korea's GDP in Many regional health insurance societies in rural
recent years. Since GDP growth in the future areas got into serious financial difficulties. The
will not be as high as in the past, the proportion revenue-sharing mechanism among insurance
of GDP spent on health care is expected to societies did not rescue these rural health
increase. An aging population, no incentives for insurance societies from financial insolvency
physicians to provide cost-effective care under because the problem was structural in that the
the fee-for-service system, and the increasing population of rural areas is always decreasing
demand for health care will also contribute to and in poor health and the proportion of elderly
inflating health care costs. Increased life people in the local population is increasing.
expectancy along with the low fertility rate (1.17 Before the merger, many health insurance
percent in 2002) will lead to a rapidly aging societies had too few enrollees to be able to pool
Korean population. Fiscal stability is a big and the financial risks of their members efficiently
imminent concern for the NHI system in Korea. and thus they were unable to take advantage of
The NHI as a whole has been in deficit since any economies of scale in management.
1997, but the accumulated surplus delayed the
fiscal crisis until 2001. The government's Consequently, the merging of all health
decision to allocate tobacco tax revenues to the insurance societies has made it possible to pool
health insurance fund has improved the fiscal risk on a national scale, thus reducing the
situation of the NHI system, but fundamental administrative costs of each insurer. However,
reform is needed to ensure the long-term in future, it will be necessary to assess
sustainability of health care financing in Korea accurately the income of the self-employed to
(Kwon, 2006). increase equity in health care financing across
14
The Billing of Medical Services and the Financial Burden on Patients in Korea
Table 1: Public-Private Mix in National Health Expenditures
(Unit: %)
1989 1991 1993 1995 1997 1999 2000 2001
Government 8.4 7.9 8.1 9.7 10.5 11.6 11.1 10.9
Soc. Insurance 24.7 26.2 27.0 28.4 32.9 34.2 36.5 43.5
Public Total 33.0 34.1 35.1 38.1 43.4 45.9 47.6 54.4
Household 58.3 57.7 55.7 52.2 47.4 44.6 43.0 37.3
Priv. Insurance 2.9 2.8 2.9 2.6 2.5 2.7 2.9 2.2
Others 5.7 5.4 6.3 7.1 6.6 6.8 6.5 6.1
Private Total 67.0 65.9 64.9 61.9 56.6 54.1 52.4 45.6
Source: OECD Health Data 2004
the entire population. The financial solvency has meant that these substantial profits from
and efficiency of the unified health insurance pharmaceuticals are no longer available to
system hinges on its capability and willingness physicians and hospitals.
to use its (monopsonistic) bargaining power over
providers as well as its managerial efficiency Facing strong opposition from physicians and
and responsiveness to consumer needs. pharmacists, civic groups consisting mainly of
progressive academics and those who used to be
The Separation of Drug Prescribing and active in the democratic movements during the
Dispensing former military regime played a pivotal role in
formulating the pharmaceutical reform. They
Before the pharmaceutical reform in 2000, there made the reform a major social issue and pushed
was no separation of drug prescribing and the presidents of the Korean Medical
dispensing in Korea. This meant that physicians Association and Korean Pharmaceutical
and pharmacists could both prescribe and Association to agree on major reform issues
dispense drugs with little system of checks and after several public hearings. However, there
balances in place to monitor prescriptions. This were three nationwide physician strikes before
created financial incentives for both physicians the reform was implemented, which pushed the
and pharmacists to over-prescribe drugs in ways government into modifying some critical
that might not necessarily be in the best interests elements of the reform package including
of patients. In addition, because no prescription eliminating the principle of generic
slip was given to the patients, they had no prescriptions. More importantly, the physician
information about the type and amount of strikes pushed the government to raise the fee
medication that they were taking (Kwon, for physicians' services by more than 40 percent
2003d). Since the fees for medical services were as a compensation for physicians' income losses.
strictly regulated, dispensing drugs was more Physicians also forced the government to defer
profitable for physicians than providing their implementing the DRG pilot program in all
own medical services. Physicians purchased health care institutions. The role of civic groups
drugs at low costs and were reimbursed by in promoting policy changes and the veto power
insurers at a much higher rate. This induced of physicians is a very significant change in the
physicians to prescribe and dispense more drugs health policy process, which had previously
in order to increase their profits. The mandatory been dominated by bureaucrats and vested
separation of drug prescribing and dispensing in interest groups (Kwon and Reich, 2005).
the reform of 2000
15
The Billing of Medical Services and the Financial Burden on Patients in Korea
The Billing of Services much more than $2,500 in total before reaching
the ceiling. Different socioeconomic groups
Social health insurance was first introduced for probably have different patterns of using
employees in large corporations in 1977. uncovered services because these services are
Coverage was incrementally extended until essentially private commodities, the
universal coverage was achieved in 1989. consumption of which is affected by the ability
However, this rapid extension of coverage was of consumers to pay for them. Some physicians
achieved at the cost of providing low benefits may choose to differentiate their fees for the
for a low contribution, which was 4.3 percent of uncovered services that they provide by taking
employees' salaries in 2005. For services into account their patients' ability to pay,
covered by the NHI, the co-insurance rate is although there is no empirical evidence on this.
uniformly 20 percent for inpatient care. The co- In theory, the patient can choose among
insurance rate is 40-50 percent for outpatient different types of covered or uncovered services.
care in hospitals depending on what type of However, there is asymmetry of information
hospital is concerned. Patients pay $3 per visit between patients and physicians, and the
to physician clinics when the total expense is patients' lack of information is a critical barrier
under $15, but when the total expense is over to their ability to make a rational choice,
$15 per visit, the patient pays 30 percent especially as the private market for uninsured
coinsurance. People over 65 years old and those services is dominated by physicians. The fact
who need long-term treatment due to chronic or that physicians rely on these uncovered services
catastrophic conditions (such as chronic renal
failure, hemophilia, leukemia, and cancer in has been exacerbated by financial incentives
those under 18 years old) pay discounted under the fee-for-service arrangements and the
copayments for outpatient care. The dominant role that providers play in medical
coinsurance rate is uniform across different decision-making. As long as there is a big
income groups, except for those poor people private market for medical care (in other words,
covered by the Medical Aid program. The fee uncovered services) and the practice of extra
level is highest for tertiary care in hospitals and billing, government policy has a limited impact
lowest for care in physician clinics because because health care providers can easily
differential amounts are added to the uniform fee substitute uncovered services for covered ones.
schedule depending on what kind of health care
institution is involved. Since 2004, there has The government has extended the coverage of
been a ceiling of $2,500 within any given six the benefits of the NHI over time. However, this
months on out-of-pocket payments for insured extension of benefit coverage has been
services. accompanied by the rapid introduction by
providers of new services that are not covered
The NHI has allowed physicians to extra bill by the NHI. Health care providers prefer
patients for uncovered services as a providing uncovered services because they can
compensation for their fees being regulated. charge (monopolistic) prices for them and avoid
Physicians can also extra bill patients for
uncovered drugs, which tend to be expensive but having their fees regulated by the government.
whose effectiveness is uncertain (from the Therefore, providers have always been opposed
insurer's perspective). Patients also pay in full to the extension of benefit coverage because it
for drugs that are used more than the specified means that more services are subject to fee
number of times (set by the insurer) or for off- regulation. Physicians can easily persuade
label use. The NHI is a public monopsony consumers to use more uncovered services by
(monopoly purchaser) but there is a huge private giving them distorted information on the cost-
market in which providers can charge their own effectiveness of different treatment and drug
(unregulated) price. The aforementioned ceiling options. The rapid introduction of new services
on out-of-pocket payments applies only to the has led to extensive use of those uncovered
copayment for covered services. Since the full services. As a result, patients have to pay
cost paid for uncovered services is not taken into copayments for NHI-covered services and full
account in the ceiling, a patient may have to pay payment for uncovered services within the same
16
The Billing of Medical Services and the Financial Burden on Patients in Korea
medical episode. Patients are also required to is the largest database of its kind in Korea. Since
pay a 100 percent copayment for a very limited the data were reported directly by health care
number of covered services for budgetary institutions, it was necessary to check the
reasons. reliability of the data. A sample of 1,922
patients, who were randomly selected from
Typical payments required for uninsured among all discharged patients, was interviewed
services are for meals, extra charges for rooms by phone. In the case of 94.8 percent of those
with fewer than six people, for uncovered high- patients, there was no difference between their
technology care (for example, ultrasounds)22, actual out-of-pocket payments and the amount
and for specialist care. Many patients, reported in the survey.
especially in tertiary care or teaching hospitals,
are forced to pay extra charges for rooms Out-of-pocket Payments by Type of Health Care
because standard rooms with six patients are Institution
short of supply. Patients should pay specialist
charge to specialists in hospitals who have more A patient's average23 out-of-pocket (direct)
than 10 years of clinical experience after the payment as a percentage of his or her total
certification of specialist board. Hospitals can medical expenses per case is 43.6 percent, which
charge a specialist fee of up to 55 percent of consists of a copayment for covered services
their consultation fee, 50 percent of their test (22.3 percent), full payment for uncovered
fee, 100 percent of their anesthesiology fee, and services (20.2 percent), and full payment for
100 percent of their surgery fee. In theory, covered services (1.1 percent) � see Table 2.
patients have a choice of doctors. However, The direct payment percentage is lower in
patients in tertiary care hospitals usually end up medical care institutions than in dental care
paying a significant amount of specialist charge institutions and in traditional medical
because most physicians in those hospitals are institutions because the major expenditures in
eligible for the specialist fee. those cases (for example, prosthodontics and
traditional drugs) are not covered by health
Empirical Evidence on Out-of-pocket insurance. In medical care, the larger the health
Payments by Patients care institution, the higher the percentage of a
patient's total medical expenses that consists of
Data the out-of-pocket payment. In tertiary care
The National Health Insurance Corporation hospitals, patients pay 56 percent of their total
recently collected data on out-of-pocket medical expenses out of their own pockets.
payments made by patients in Korea (Kim and Since physician clinics do not charge specialist
Chung, 2005). In theory, insurance claims made fees and rely less on high-technology services
by health care institutions include information than hospitals do, the share of patients'
on the total medical expenses associated with payments that applies to uncovered services is
each treatment episode. However, the much smaller in physician clinics than in
information on the patient's out-of-pocket hospitals.
payments for uncovered services in the claim
data is not reliable. So a separate survey was The average direct payment percentage is
needed to estimate the amount that patients pay slightly higher in the case of inpatient care (45.1
in out-of-pocket payments. From data on all percent) than of outpatient care (43.1 percent).
patient cases (both inpatient and outpatient) However, focusing specifically on medical care
during March 2004, a national representative (excluding dental and traditional medical care),
sample of 357 health care institutions was the out-of-pocket percentage is higher in
selected using stratified sampling. This yielded outpatient care than in inpatient care. The
data on 1,214,823 cases from 173 health care composition of the direct payment differs
institutions (response rate 48.5 percent), which
23 This is a weighted average, adjusted for medical
22 MRIs have been covered since 2005. expenditures of different types of health institutions.
17
The Billing of Medical Services and the Financial Burden on Patients in Korea
Table 2: Out-of-pocket Payments by Type of Health Care Institution (Unit: %)
Out-of-pocket Payment by the Patient
Type of Health Paid by the Full
Care Institution Insurer Copayment Payment for
Subtotal for Covered Uncovered Copayment
Services Services for Covered
Services
AVERAGE 56.4 43.6 22.3 20.2 1.1
Tertiary Care
Hospital 43.8 56.2 20.8 32.7 2.7
General Hospital 51.7 48.3 22.6 23.9 1.8
Hospital 51.6 48.4 22.8 24.0 1.6
All Clinic 67.5 32.5 24.3 8.1 0.1
Dental Hospital 22.2 77.8 16.9 60.9 0.0
Dental Clinic 38.3 61.7 15.6 45.8 0.3
Trad Med Hosp 20.6 79.4 9.4 69.7 0.3
Trad Med Clinic 66.4 33.6 19.5 14.1 0.0
AVERAGE 54.9 45.1 16.3 26.5 2.3
Tertiary Care
Hospital 48.0 52.0 14.0 34.7 3.3
General Hospital 57.0 43.0 17.5 23.4 2.1
Inpatient
Hospital 54.3 45.7 18.8 25.3 1.6
Clinic 72.1 27.9 17.8 9.6 0.5
Trad Med Hosp 31.4 68.6 11.4 57.2 0.0
AVERAGE 56.9 43.1 26.0 16.7 0.4
Tertiary Care
Hospital 36.0 64.0 33.5 28.9 1.6
General Hospital 40.1 59.9 33.6 25.0 1.3
Hospital 48.7 51.3 27.2 22.6 1.5
Outpatient Clinic 66.4 33.6 25.9 7.7 0.0
Dental Hospital 22.2 77.8 16.9 60.9 0.0
Dental Clinic 38.3 61.7 15.6 45.8 0.3
Trad Med Hosp 14.2 85.8 8.1 77.3 0.4
Trad Med Clinic 66.4 33.6 19.5 14.1 0.0
Source: Kim and Chung, 2005.
18
The Billing of Medical Services and the Financial Burden on Patients in Korea
between inpatient and outpatient care. In of their consumption expenditure on health care,
inpatient care, the direct payment for uncovered and 10 percent [6 percent] of the households
services is much bigger than the copayment for spend more than 10 percent [15 percent]. The
covered services (with the exception of charges concentration index of headcounts is negative
in physician clinics), while in outpatient care, (in other words, occurs among the poor) when
the former is slightly lower than the latter. The the threshold level is 5 percent, but it turns
huge payments for uncovered services in positive (in other words, occurs among the rich)
inpatient care are partly the result of extra room when the thresholds are 10 percent and 15
charges and charges for meals. percent. This implies that having high
expenditure on health care as a proportion of
total consumption expenditure may not
Break-down of the Payment for Uncovered necessarily have a catastrophic financial impact
Services on households. Since food expenditure is
essential for survival, the above analysis was
In the case of inpatient care, more than 55 also performed for consumption expenditures
percent of the patient's total payment for excluding food. This analysis showed that 28
uncovered care consists of extra charges for percent of the households spend more than 5
rooms with fewer than six people (23.5 percent), percent of their consumption expenditure on
payments for meals (20.7 percent), and charges health care and that 16 percent [10 percent] of
for specialist care (13.1 percent) � see Table 3. the households spend more than 10 percent [15
In tertiary care hospitals, charges for non- percent]. Moreover, the concentration index of
standard rooms and extra charges for specialist headcounts is negative for all three threshold
care are the major elements of the patient's levels (5, 10, and 15 percent), which implies that
direct payment for uncovered services. In having high expenditures on health care as a
general hospitals and in hospitals, payments for proportion of total consumption expenditure
meals and extra charges for rooms account for (excluding food expenditure) may indeed have a
half of the patient's payment for uncovered catastrophic impact on poor households.
services. In the case of outpatient care, the
largest slice of patients' direct payments for Similar conclusions can be derived from the
same researchers' analysis of the impact on
uncovered services consists of charges for poverty of health care expenditure. When the
medical technology (ultrasounds and MRIs) � poverty line is set at one-third of average daily
see Table 4. Payments for tests also account for expenses (the relative poverty line), 5.1 percent
a significant share of patients' direct payments of the households are below the poverty line
for uncovered services. Patients' payments for even before spending on health care. This
outpatient care in tertiary care hospitals are increases to 5.2 percent after medical care
heavily affected by charges for specialist care spending, which implies that medical
because most doctors in those hospitals are expenditure does not impoverish households.
eligible for the charge. However, this particular poverty line may be
unreasonably low. When the poverty line is set
Effects on Equity at the level of the minimum expenses of living
(the national poverty line), the proportion of
Financial Risk Protection households below the poverty line increases
from 10.8 percent to 12.5 percent after spending
Due to high out-of-pocket payments for medical on medical care, implying that household
care, the NHI in Korea may not be providing full expenditure on health care impoverishes some
financial risk protection for the insured. Lee et al households to some extent. Heavy out-of-pocket
(2003) analyzed the catastrophic impact of payments at the point of service contribute to the
medical expenditure on households and its potential catastrophic financial impact of
impact on poverty using data from the Urban medical care on households.
Household Expenditure Survey fielded in 2000.
The researchers found that 21 percent of the The reasons why medical care expenditures do
households surveyed spend more than 5 percent not lead to widespread impoverishment despite
19
The Billing of Medical Services and the Financial Burden on Patients in Korea
Table 3: Payments for Uncovered Services in Inpatient Care (Unit: %)
Extra
Ultra Specialist
Charge Meals Injection Surgery Test MRI Materials Other Total
sound Charge
Rooms
AVERAGE 23.5 20.7 6.7 3.6 5.2 5.4 11.0 5.1 13.1 5.8 100.0
Tertiary
28.8 9.9 6.2 2.3 5.6 6.4 5.4 6.0 25.4 3.8 100.0
Care Hosp
General
23.4 27.3 8.0 3.1 3.5 5.9 5.3 6.9 10.2 6.5 100.0
Hospital
Hospital 22.3 33.8 6.6 8.2 7.2 6.2 2.2 3.1 0.0 10.3 100.0
Clinic 9.2 19.5 4.9 3.0 5.9 0.0 54.9 0.5 0.0 2.1 100.0
Trad Med
17.1 23.7 1.0 3.5 0.6 0.7 0.1 0.2 6.8 46.4 100.0
Hospital
Source: Kim and Chung, 2005.
Table 4: Payments for Uncovered Services in Outpatient Care (Unit: %)
Medi Ultra Specialist
Injection Test Radiology CT MRI Materials Others Total
cation sound Charge
AVERAGE 5.1 10.3 18.8 3.3 3.7 5.6 24.4 9.3 3.2 16.3 100.0
Tertiary
0.9 4.5 11.1 1.6 0.3 18.3 25.1 5.9 23.3 9. 100.0
Care Hosp
General
1.0 3.5 11.7 1.4 1.9 27.1 34.3 5.3 4.3 9.6 100.0
Hospital
Hospital 0.3 13.2 21.3 2.0 1.8 18.3 20.4 0.9 5.3 16.4 100.0
Clinic 1.6 15.6 27.4 5.1 5.9 0.0 30.6 0.9 0.0 12.8 100.0
Dental
0.0 0.0 0.0 0.1 0.0 0.0 0.0 76.6 0.0 23.2 100.0
Hospital
Dental
0.0 0.0 0.0 0.0 0.0 0.0 0.0 84.5 0.0 15.4 100.0
Clinic
Trad Med
62.8 0.0 1.8 0.0 0.0 0.0 0.4 0.0 3.8 31.0 100.0
Hospital
Trad Med
43.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10.9 100.0
Clinic
Source: Kim and Chung, 2005.
20
The Billing of Medical Services and the Financial Burden on Patients in Korea
the existence of high out-of-pocket payments expenditures in favor of the rich (positive values
need to be explored in the future. Although the of HIwv in the case of medical care expenditure
percentage of out-of-pocket payments in total in Table 5). This is the result of the high out-of-
household expenditure is high, this may not be a pocket payments for the many services that are
great financial burden on patients in absolute not covered by health insurance. It is likely that
terms thanks to the regulation of fees (for different socioeconomic groups utilize different
insured services) by the government. Social "types" of medical care. For example, the
protection for the poor may also reduce the relatively poor use more insured services
extent to which medical expenditures have the whereas the relatively rich use more uninsured
potential to impoverish households. Poor services, resulting in the greater health care
people (3-4 percent of population) do not pay expenditure by the rich despite the fact that the
any contributions. Half of them pay no poor use more visits or patient days of medical
copayments for insured services, and the other care. More research is needed into how the use
half pay discounted copayments. Although the of different types of medical care affects health
poor have to pay in full for uncovered services, outcomes.
physicians are unlikely to provide many of these
uncovered services to thepoor. Policy Implications
Equity in Health Care Utilization Extra billing for uncovered services has
contributed to the rapid introduction and use of
High out-of-pocket payments can also prevent new medical services in Korea. The expansion
some people from accessing medical care. in the provision of uncovered services that has
Kwon et al (2003) analyzed equity in the use of been the result of extra billing and limited
medical services using a Health and Nutrition benefit coverage has put a serious financial
Survey fielded in 1998. Following van burden on patients. Although the problems of
Doorslaer et al (2000), they measured equity in
the use of medical care as the difference extra billing are manifold, it does not seem
between the concentration of the use of medical politically feasible to limit the extra billing of
care and the concentration of medical care needs uncovered services. When so many services
among different socioeconomic groups. This is remain uncovered, banning extra billing would
known as the HIwv index, measuring equity in limit consumers' access to necessary care.
terms of equal treatment for equal need. They Consequently, public debate has focused on
concluded that the use of outpatient care in extending the coverage of social insurance
Korea seems to be equitable (in other words, rather than on limiting extra billing. The NHI
favorable to the poor even after taking into needs to increase its contributions and extend its
account medical care needs and health status, benefit coverage to cover all medically
meaning that the value of HIwv is negative), or necessary services. Alternatively, the NHI
at least less inequitable than in other OECD could restructure its benefit package and reduce
countries (see Table 5). Health care use in terms cost-sharing for minor cases and increase cost-
of the number of inpatient days is equitable for sharing for catastrophic cases.
the poor too. The finding that health care use
benefits the poor disproportionately after The government needs to take policy measures
controlling for medical care needs was a bit to reduce the financial burden on patients
unexpected given that out-of-pocket payments caused by the requirement to make full payment
at the point of service is rather high in Korea. for uncovered services. For example, it could
increase the basic consultation fee for physician
However, it is necessary to examine health care service in return for the elimination of the
expenditures to find out if there are any specialist charge. It could also upgrade the
variations in the quality or intensity of medical specifications of a "standard" hospital room (for
care use between different socioeconomic example, to accommodate only four instead of
groups. Despite the fact that the poor use more six patients) and increase the fee for using the
medical care than the better-off, the rich spend standard room based on this new specification.
more on medical care, resulting in an Introducing case-based payments (such as the
inequitable distribution of medical care
21
The Billing of Medical Services and the Financial Burden on Patients in Korea
DRG), inclusive of more services covered, system) in return for a ban on extra billing
might extend benefit coverage and put a limit on except for meals, sonograms, extra room
extra billing. In the pilot program of the DRG charges, and specialist charges.
payment system, the level of compensation to
providers has been increased (compared to the
current level of fees under the fee-for-service
Table 5: Equity in Use of Health Care Services
HIwv standardized for age, sex, and
Unstandardized Cm
Self-assessed Chronic Diseases and
Health Self-assessed Health
Number of -0.011 -0.002
Outpatient Visits -0.106 (Cn: -0.096) (Cn: -0.104)
Number of -0.168 -0.162
Inpatient Days -0.187 (Cn: -0.019) (Cn: -0.025)
Medical Care 0.058 0.064
Expenditure 0.016 (Cn: -0.042) (Cn:-0.048)
Notes: Cm = concentration of medical needs,Cn = concentration of medical care utilization,
Positive/ negative HIwv means the rich use or spend more/ less than the poor.
22
The Billing of Medical Services and the Financial Burden on Patients in Korea
References the Asia Pacific, Buckingham, UK: Open
University Press, 48-68.
Kim, J. and J.-C. Chung, 2005. "Out-of-pocket
Payment by Patients in Health Insurance," Kwon, S., 2006. "Fiscal Crisis of the National
Health Insurance Forum 4:1, National Health Health Insurance of Korea: In Search of a New
Insurance Corporation, 74-88 (in Korean). Paradigm," Social Policy and Administration,
40(2), forthcoming.
Kwon, S., 2002. "Achieving Health Insurance Kwon, S. and M. Reich, 2005. "The Changing
for All: Lessons from the Republic of Korea" Process and Politics of Health Policy in Korea,"
ESS (Extension of Social Security) Paper 1, Journal of Health Politics, Policy and Law,
ILO (International Labour Office), Geneva. 30(6), forthcoming.
Kwon, S., 2003a. "Quality of Life associated Kwon, S., B. Yang, T. Lee, et al., 2003. "Equity
with Health and Health Care in Korea," Social in Health Care Utilization in Korea," Korean
Indicators Research, 62-63, 171-186. Health Economic Review, 9(2): 13-24 (in
Korean).
Kwon, S., 2003b. "Payment System Reform for
Health Care Providers in Korea," Health Policy Lee, T., B. Yang, S. Kwon, et al., 2003. "Equity
and Planning, 18(1): 84-92. in Expenditure on Health Care in Korea,"
Korean Health Economic Review, 9(2): 25-33
Kwon, S., 2003c. "Health Care Financing (in Korean).
Reform and the New Single Payer System in
Korea: Social Solidarity or Efficiency?" Lu, R., G. Leung, S. Kwon, K. Tin, E. van
International Social Security Review, 56(1): 75- Doorslaer, and O. O'Donnel, 2005. "Horizontal
94. Equity in Health Care Utilization � Evidence
from Three High-income Asian Economies."
Kwon, S., 2003d. "Pharmaceutical Reform and Under review.
Physician Strikes in Korea: Separation of Drug
Prescribing and Dispensing," Social Science van Doorslaer, E., A. Wagstaff, et al., 2000.
and Medicine, 57(3): 529-538. "Equity in the Delivery of Health Care in
Europe and the US," Journal of Health
Kwon, S., 2005. "Health Policy in South Economics 19, 553-58.
Korea," in Robin Gould edit, Health Policy in
23
Summary of the Discussion
William Hsiao
Harvard University
Summary of the Two Papers services not covered by SI, and those who could
afford it would purchase such private insurance.
Naoki Ikegami's paper addressed a fundamental The Council seems to believe that market
issue that is relevant to any developed economy competition works fairly well in health sectors
with a social insurance (SI) system: what would and that providers would compete with each
be the consequences if Japan shifts from other to provide the highest quality services at
providing comprehensive SI coverage to minimum cost to the benefit of the consumer.
covering only basic health services? Japan
currently has a universal social insurance Ikegami argued against the Council's
program with a fairly comprehensive benefit recommendation on four grounds: it would
package and a high co-insurance rate. Ikegami reduce the equity of Japanese health system;
argued that, under the SI as currently structured, more Japanese people would be impoverished
the Japanese people have reasonably equal by their medical expenses since the risk
access to health services, the cost burden is protection would be reduced; it would reduce the
equitably distributed, and health care cost safety and efficacy of medical treatments and
inflation has been contained. drugs because many of them would be provided
as part of the uncovered services that would not
However, Japan has suffered from economic be regulated; and patients may not be
stagnation while health care costs have been sufficiently well-informed to be prudent buyers
rising because the population is aging and more of services and drugs, particularly if doctors do
expensive new medical technology is available not give them objective information.
and widely used in the health care system. As a
result, health care costs are taking up a growing Soonman Kwon presented the second paper on
share of Japan's GDP. The government has South Korea, which has a similar social health
taken significant measures to hold down medical insurance system as Japan and also has high co-
prices, and further reductions may not be insurance. However, South Korean's benefit
possible. If not, then the SI premium rates may package is less comprehensive than Japan's.
have to be raised to maintain the financial Moreover, South Korea allows extra billing and
soundness of the current SI system. The balance billing. Kwon's study examined the
Regulation Reform Council has recommended equity of the South Korean SI system using a
that the government should reform its SI to medical care concentration curve that measured
cover only basic health services. Doctors and the differences in the use of medical services
hospitals would be allowed to bill for any among different income groups. He found that
services that are not covered in the basic benefit utilization rates are quite equal after controlling
package (called extra billing) and the price and for health care "need." However, Kwon was
quality of the uncovered services would be left unable to establish definitively whether extra
to the marketplace (largely unregulated). and balance billing in South Korea had resulted
Furthermore, doctors and hospitals would be in an increase in the number of South Koreans
allowed to bill patients above and beyond what living in poverty.
the SI pays them for those services (called
balance billing). In fact, the Council's Discussion
recommendation would shift health service
delivery from a regulated SI system to a largely The discussion centered on several topics: the
unregulated market system. It would shift the effects of reducing the benefit coverage of SI
health care costs to the patients and use prices to with extra and balance billing, how to decide on
ration health services (through extra billing and what should be included in a basic benefit
balance billing). Private insurance schemes package, and the politics involved in reforming
could emerge to offer insurance to cover the SI.
24
Summary of Session 1: Choosing to Cover Comprehensive
or Basic Medical Services under Universal Social Health Insurance
Peter Berman highlighted the direct connection payments for health services would reduce the
between Ikegami and Kwon's papers. Ikegami demand for "unnecessary" health services (in
argued on equity grounds against changing other words, the traditional moral hazard
Japan's SI program to cover only basic health argument). Keizo Takemi diplomatically put
services and allowing extra and balancing forward an argument that reducing the SI benefit
billing. But Kwon's analysis of South Korea's package would remove the need to increase
SI showed that the extra and balance billing had premium rates and relieve a difficult political
no measurable impact on equity among problem for the Japanese government. Another
difference income groups. Berman asked the argument in favor of the shift was made from the
question: if we assume the findings from neo-classic economic perspective. Reducing the
Kwon's study were correct and that they can be benefit coverage of a compulsory SI system
generalized to Japan, then what would be the would give people more choice in that they
objection to Japan reducing the benefit coverage could either buy private insurance or pay for
of SI and shifting to more private financing of medical expenses out-of-pocket. This argument
health services? was further extended by the proposition that the
promotion of private insurance and unregulated
In the debate, several points were made against a medical care and drugs may also enhance
shift. Participants pointed out that Kwon studied economic development, particularly in
the equal utilization rates of health services but encouraging the development of drugs and
not health effects. Naoki Ikegami argued that medical technology. Other participants,
basic benefit package could exclude clinically however, questioned whether industrial
effective services and negatively affected health development should be a goal of a national
status and he pointed out that Kwon's study did health system.
not examine the health status issue.
Furthermore, the excluded medically efficacious Alan Maynard argued that there has to be
services would be rationed by price. Patients rational process to decide what health services
who could afford them would receive these would be covered in a basic benefit package and
services while others would not. Such a system that a boundary should be drawn based on the
would not be equitable. Another participant purpose of the national health system in
argued that allowing for extra and balance question. The method used to decide what to
billing would reduce the risk protection offered include in the package should be cost-effective
by SI, and more Japanese would be analysis. This assertion stimulated a lively
impoverished. William Hsiao pointed out that debate. One participant questioned what should
Japan's single-payer system had held down the be the criterion for the cost-effectiveness studies.
health cost inflation rate. Legitimizing extra and Maynard and others argued that the purpose of a
balance billing would create a multi-payer national health system is to produce health gains
system and lead to greater cost inflation. The so these should constitute the effectiveness
experience of the United States is an indication criterion. However, many participants
of what could happen in Japan. Peter Berman disagreed. They argued that a national health
pointed out that Kwon's paper did not assess system has several purposes and that health
how changing SI into a basic benefit package gains are only one dimension. For example,
with extra billing and balance billing would people value risk protection as much as health
affect both the allocative and the technical gains. Current cost-effectiveness studies,
efficiency of health services. It is possible that however, do not incorporate risk protection as an
this kind of change would increase the inflation effectiveness criterion. Moreover, we do not
rate of total national health expenditures. The have a method for ascertaining the trade-off
United States has a so-called market system and between health gains and risk protection.
is spending the largest share of GDP on health of
any developed country but this expenditure has Another shortcoming of the cost-effectiveness is
not yielded commensurate benefits. that the benefit package that lawmakers choose
to be covered by SI has to be politically
In the debate, various participants offered acceptable. Yet cost-effectiveness analysis
several arguments in favor of a shift. One usually ignores political factors including public
argument was that increasing patients' direct satisfaction. Michael Reich and Joseph White
25
Summary of Session 1: Choosing to Cover Comprehensive
or Basic Medical Services under Universal Social Health Insurance
succinctly summed up the dilemma inherent in government withdrew its proposal in December
the cost-effectiveness method: "You can be 2004 and accepted a compromise that involved
happy but unhealthy, or you can be healthy but making only several modest changes to the
unhappy." In other words, how useful can cost- existing SI.
effectiveness be in determining the basic benefit
package of SI? Soonman Kwon observed that in Themes Connecting the Four Sessions of the
South Korea the services included in the basic Seminar
benefit package were mostly determined by
fiscal criteria rather than by some technical Some participants thought that this seminar
method such as cost-effectiveness. covered disparate topics. However, William
Hsiao pointed that there are overlapping themes
The discussion then turned to the politics of and issues among all sessions. He argued that
social insurance reform. Michael Reich Sessions 1 and 2 (on long-term care) addressed
suggested that the process of shaping the benefit two common issues: risk pooling and the role of
package was likely to be dynamic rather than government in subsidizing the poor. Sessions 1
confined to a single time period. Services were and 3 (on the public financing of health services
likely to be added or deleted over time as in UK and Canada) shared a common theme:
socioeconomic and political factors changed. how much should the public sector invest in
He pointed out that South Korea originally health services and what would be the
excluded MRI and now included it in the consequences if the public sector under-funded
coverage. The participants then focused on the health? Sessions 1 and 4 (on health care
political forces that are influencing the current financing and provision in China and India)
Japanese reform. Seven million Japanese people addressed a common fundamental issue: what
signed a petition against the Regulation Reform are the socioeconomic and political
Council's proposal, which they found consequences when countries shift to private
unacceptable regardless of the technical financing for health and turn over the provision
argument in its favor. As a result, the of services to an unregulated market?
26
Chapter 2: Financing Long Term Care
Financing Long-term Care: Lessons from 19 OECD Countries
Manfred Huber
Organisation for Economic Co-operation and Development
This paper in its current form does not recent reforms of long-term care financing and
necessarily reflect the views of the OECD or of how to sustain these reforms financially in the
its member countries. future.
This paper is a rearranged and abbreviated
Introduction version of an OECD study that reports on latest
trends in long-term care policies in 19 OECD
Governments in OECD countries are faced with countries � Australia, Austria, Canada, Germany,
the growing expectations of their populations Hungary, Ireland, Japan, Korea, Luxembourg,
that they should be able to access high-quality the Netherlands, New Zealand, Norway, Mexico,
long-term care services at affordable costs. Poland, Spain, Sweden, Switzerland, United
When the baby-boom generation grows old over Kingdom, and the United States (OECD, 2005).
the next three decades, demand for services will This study was one of the major components of
rise steeply. In the meantime, consumers of the OECD Health Project, which was carried out
long-term care are already more reluctant to between 2001 and 2004 to explore key issues
accept the variability in the quality of care and involved in improving the performance of health
the wide differences in access to services that and long-term care systems (OECD, 2004b). It
currently prevail across OECD countries. was conducted with the invaluable assistance of
Long-term care is a cross-cutting policy issue a network of national experts nominated by the
that brings together a range of services for countries taking part in the project.
people who need help with the basic activities of
daily living over an extended period of time. The following box (Box 1) brings together the
Such activities include bathing, dressing, eating, key definitions and concepts used throughout
getting in and out of bed or a chair, moving this paper and the OECD study.24
around, and using the bathroom. These services
are often provided in combination with Demographic Trends and Informal Care-
rehabilitation and basic medical services. In giving
OECD countries, most people in need of long-
term care are the oldest age groups in society The rising number of very old people in OECD
who are most at risk for long-standing chronic countries is causing concern about how these
conditions that cause physical or mental countries are going to finance the care that will
disability. be needed by this large cohort. In response,
This paper begins with a brief overview of the policymakers have begun considering different
demographic trends in these aging populations. policy options for providing and paying for this
It then reviews the evidence about cross-country long-term care. However, future demand for
differences in long-term care programs and long-term care will be driven not only by growth
expenditure and identifies key national in numbers in relevant age groups but also by a
differences and drivers. An overview is given of number of other factors that may be susceptible
the need to improve the quality of care in many to being influenced by social and health policies
instances. A final section discusses lessons from in ways that may reduce this heavy demand.
The author is grateful for the OECD team who was
in charge of the long-term care project: Patrick
Hennessy, Junichi Izumi, Weonjong Kim, and Jens 24Methodological and data work on long-term care at
Lundsgaard. The project received editing support OECD is ongoing during 2005. See, for example,
from Victoria Braithwaite. Huber (2005a, b, and forthcoming).
27
Financing Long-term Care: Lessons from 19 OECD Countries
Box 1: Definitions and Glossary of Terms
The terminology used in long-term care policy and statistics varies widely between countries. This box presents various
working definitions compiled with the aid of the group of experts who supported this study.
Activities of daily living (ADLs)
Activities of daily living are self-care activities that a person must perform every day, such as bathing, dressing, eating, getting
in and out of bed or a chair, moving around, using the toilet, and controlling the bladder and bowels.
Allowances
Allowances, cash allowances, and cash benefits are all payments that may be either liable for income taxation or exempt
from income taxation.
Care
The term care is frequently used in the study as a synonym for long-term care
Consumer direction
The term consumer direction refers to arrangements whereby public programs enable people who need care or their families
to purchase their own care, sometimes by employing a care assistant.
Disabled or dependent older people
Older people whose overall level of functioning is substantially impaired to the extent that they are likely to need help from a
third party or various aids and adaptations to fulfill the normal activities of daily life.
Formal long-term care services
Long-term care services are supplied by the employees of any organization, in either the public or private sector, including
care provided in institutions like nursing homes or care provided to people living at home by either professionally trained
care assistants, such as nurses, or untrained care-givers.
Home care
Home care refers to long-term care services that can be provided to patients at home, including day care and respite services.
It also includes long-term care received in home-like settings such as assisted living facilities.
Informal care
Informal care is the care provided by informal care-givers (also called informal carers) such as spouses/partners, other
members of the household and other relatives, friends, neighbors, and others, who usually but not always have a previously
existing social relationship with the person for whom they provide care. Informal care is usually provided in the home and is
typically unpaid.
Institutional care
Institutional care is long-term care provided in an institution that, at the same time, serves as the residence of the care
recipient.
Long-term care
Long-term care is a range of services needed for people who are need help with basic ADL. This care is frequently provided
28
Financing Long Term Care: Lessons from 19 OECD Countries
in combination with basic medical services such as help with changing wound dressings, pain management, medication,
health monitoring, rehabilitation, or palliative care.
Long-term care institutions
Long-term care institutions are places of collective living where care and accommodation are provided as a package by a
public agency, a non-profit, or a private company. Residents may or may not be charged separately for care services and
accommodation.
Older people
All those aged 65 or over.
Nursing home/Nursing home care
These terms are used in this study as synonyms for long-term care institutions providing nursing and personal care to people
with ADL restrictions.
Respite care
Respite care is a short-term care arrangement with the primary purpose of giving carers a short-term break from their usual
care commitments.
Source: OECD (2005a)
An individual's demand for long-term care care in the future. Currently, over half of all
grows exponentially with age. Therefore, most long-term care in all OECD countries is
demand comes from people aged 80 years and provided through informal care arrangements.
older. A number of recent national and Unless informal care can expand to keep up with
international studies have looked at how trends demand from elderly people, then the higher
in disability among older people affect future demand for formal care services will rise.
demand for long-term care, and we provide an
overview of their findings in this section. The future level of informal care provision will
Although a number of studies agreed that itself be a response to a number of factors,
favorable disability trends in the future could including the living arrangements of elderly
substantially reduce future demand for long-term people, the longevity of elderly husbands and
care, the fast-growing number of very old wives, and trends in the labor market
people, in particular relative to the population at participation of those groups in the labor force
working age, is nonetheless expected to increase that currently shoulder most of the burden of
care needs � and related spending � by a informal care, especially women aged over 45.
substantial amount in the future. Any decisions today on how to organize the
One important factor that will influence the provision and financing of long-term care for
demand for care services is the level of health older people have to be taken in the context of
and disability of future generations of elderly aging populations in the OECD countries.
people. If the elderly in the future are more able Current population projections assume, first, that
to provide for themselves and in less need of the gains in life expectancy that have been
services than the present elderly cohort, then observed in the past will continue in the future,
demand for services will be less than purely second, that patterns of declining fertility will
demographic projections would suggest. not be reversed rapidly, and third, that future
Equally important will be the supply of informal international migration will make only limited
29
Financing Long Term Care: Lessons from 19 OECD Countries
changes to current population trends. crucially depend on the reliability of forecasts of
Under these assumptions, absolute numbers of future trends in life expectancy, in particular of
older people and their shares in the populations remaining life expectancy at higher ages as most
of the OECD countries will increase rapidly over of the additional years added to life in the past
the next 20 years when the post-war baby boom few decades of the 20th century were at higher
generation will reach the age of retirement in ages (Cutler and Maera, 2001). Increases in life
many OECD countries. By the year 2040, one expectancy for those in higher age groups are a
person in four may be 65 years or older in major reason for the growing dependency ratios
OECD countries on average (Table 1). In Italy, in the population, and long-term gains in life
Switzerland, and Japan, this number could come expectancy in the past have been consistently
close to one in three if current demographic underestimated by demographers and actuaries
trends prevail. As the populations of OECD (for example, Wilmoth, 1998). Demographers
countries age, the oldest cohort of the population are divided in their opinions as to the extent to
will grow the fastest. Over the past 40 years, the which life expectancy will be further prolonged
increase in the number of those aged 80 and over in the future (Tuljapurkar et al, 2000). The
contributed around one-third to the total increase factors driving mortality decline, in particular at
in the share of older people in these populations higher ages, are currently poorly understood
as a whole. It is this group of the population that Consequently, there is an ongoing scientific
has the most pronounced care needs. Table 1 debate about whether or not past trends will
brings together population projections that prevail and can be extrapolated into the future.
suggest that the share of the oldest-old in the From the perspective of fiscal policy and of the
population will double over the next 30 to 40 question how to ensure the financial
years. sustainability of long-term care services, trends
in demographic dependency ratios are crucial.
In 1960, only one out of seven older people The ratio of older people to the number of those
(aged 65 and over) belonged to the oldest age of working age is projected to roughly double
group (80 and over) across all OECD countries over the next 40 years assuming current
on average. Today, this figure is more than one demographic trends (see OECD, 2005a,
in five, and this share is expected to increase to TableA.4). This raises difficult questions about
around one-third in some OECD countries by the the future financial sustainability of a range of
year 2040 (Table 2). The demand for long-term publicly funded old-age benefits such as
care is therefore likely to grow in all OECD pensions, health care, and long-term care
countries in future decades. This is a major benefits.
concern for policymakers as it implies that any
decisions made about extending the supply of The fiscal outcome of this major demographic
services or reducing the financial costs of users change will crucially depend on how many
could add significant additional costs to public people of working age will be in gainful
budgets in future decades. employment, which is an argument in favor of
reversing of past social trends towards earlier
However, there are large differences across retirement. In addition, there will be fewer adult
countries. In several countries (for example, children to care for the baby boomers when they
Sweden and Norway), the number of oldest-old begin to require long-term care in 20 to 30 years'
people among the elderly already come close to time.
the average that is likely to prevail in all
countries by the year 2040. Several countries One broad indicator that is used to show the
that today have relatively "young" populations trend in the potential within societies to provide
(such as Mexico, Turkey, and Korea) are likely care for older people is the "old-age dependency
to experience the fastest aging among all OECD ratio." This is normally expressed as the number
countries in the decades to come. of people aged 20 to 64 as a proportion of those
Demographic projections of aging populations aged 65 and over. Expressed in this way, the
30
Financing Long-term Care: Lessons from 19 OECD Countries
Table 1: Share of Older People in the Population, 1960-2040
65 and over 80 and over
Change in % points Change in % points
1960 2000 2040 1960 - 2000 - 1960 2000 2040 1960 - 2000 -
2000 2040 2000 2040
Australia 8.5 12.4 22.5 3.9 10.1 1.2 2.9 7.3 1.7 4.4
Austria 12.2 15.5 29.6 3.3 14.1 1.8 3.5 8.2 1.7 4.7
Belgium 12 16.8 27.4 4.8 10.6 1.8 3.6 8.6 1.8 5.0
Canada 7.5 12.5 24.6 5 12.1 1.2 3.0 8.1 1.8 5.1
Czech Republic 8.7 13.8 28.8 5.1 15.0 1.2 2.4 8.5 1.2 6.1
Denmark 10.6 14.8 24.1 4.2 9.3 1.6 4.0 6.9 2.4 2.9
Finland 7.3 14.9 26.2 7.6 11.3 0.9 3.4 9.0 2.5 5.6
France 11.6 16.1 26.6 4.5 10.5 2.0 3.7 9.1 1.7 5.4
Germany --- 16.4 29.7 --- 13.3 --- 3.7 8.7 --- 5.0
Greece 8.1 17.3 28.2 9.2 10.9 1.3 3.5 7.9 2.2 4.4
Hungary 9.0 15.1 25.7 6.1 10.6 1.1 2.6 7.1 1.5 4.5
Iceland 8.0 11.7 22.6 3.7 10.9 1.1 2.8 7.1 1.7 4.3
Ireland 11.1 11.2 20.5 0.1 9.3 1.9 2.6 5.5 0.7 2.9
Italy 9.3 18.1 33.7 8.8 15.6 1.4 4.0 10.0 2.6 6.0
Japan 5.7 17.4 35.3 11.7 17.9 0.7 3.8 14.1 3.1 10.3
Korea 2.9 7.2 27.8 4.3 20.6 0.2 1.0 7.1 0.8 6.1
Luxembourg 10.8 14.2 24.0 3.4 9.8 1.6 3.0 7.4 1.4 4.4
Mexico 4.2 4.6 15.4 0.4 10.8 0.5 0.6 3.7 0.1 3.1
Netherlands 9.0 13.6 25.5 4.6 11.9 1.4 3.2 7.6 1.8 4.4
New Zealand 8.6 11.7 22.8 3.1 11.1 1.5 2.8 7.0 1.3 4.2
Norway 11.0 15.2 26.3 4.2 11.1 2.0 4.3 8.6 2.3 4.3
Poland 6.0 12.2 24.1 6.2 11.9 0.7 2.0 7.5 1.3 5.5
Portugal 7.9 16.3 24.0 8.4 7.7 1.1 3.4 6.2 2.3 2.8
Slovak Republic 6.9 11.4 23.2 4.5 11.8 1.0 1.9 6.3 0.9 4.4
Spain 8.2 16.9 30.7 8.7 13.8 1.1 3.8 8.5 2.7 4.7
Sweden 11.7 17.3 25.2 5.6 7.9 1.9 5.0 7.9 3.1 2.9
Switzerland 10.2 15.3 33.1 5.1 17.8 1.5 4.0 11.1 2.5 7.1
Turkey 3.5 5.7 14.3 2.2 8.6 0.3 0.6 2.6 0.3 2.0
United Kingdom 11.7 15.9 25.4 4.2 9.5 1.9 4.0 7.3 2.1 3.3
United States 9.2 12.4 20.4 3.2 8.0 1.4 3.3 6.9 1.9 3.6
OECD Average 8.7 13.8 25.6 5.0 11.8 1.3 3.1 7.7 1.8 4.6
Source: OECD Health Data 2004 for 1960 and 2000; 2040 projections: Eurostat (15 EU countries); national sources
(Canada and the United States); United Nations (2002).
Note: Germany 1960 (before reunification) not comparable with 2000 data
.
31
Financing Long Term Care: Lessons from 19 OECD Countries
Table 2: Share of Very Old People among the Elderly, 1960 to 2040
Change in % points
1960 to
Country 1960 2000 2040 2000 2000 to 2040
Australia 14.3 23.6 31.8 9.3 8.2
Austria 14.4 22.8 28.1 8.4 5.2
Belgium 15.4 21.3 31.9 5.8 10.6
Canada 15.8 23.6 32.9 7.8 9.3
Czech Republic 14.0 17.1 30.4 3.1 13.3
Denmark 15.3 26.7 28.9 11.4 2.2
Finland 12.7 22.5 35.1 9.8 12.6
France 17.2 23.3 34.6 6.1 11.3
Germany --- 22.3 29.9 --- 7.6
Greece 16.0 20.5 30.1 4.6 9.6
Hungary 12.3 17.5 28.7 5.2 11.3
Iceland 14.3 24.2 31.6 10.0 7.3
Ireland 17.5 23.0 26.7 5.5 3.7
Italy 14.6 22.2 30.6 7.6 8.4
Japan 12.6 22.0 41.1 9.5 19.1
Korea 8.1 14.2 26.1 6.1 11.9
Luxembourg 14.7 21.0 26.9 6.3 5.9
Mexico 12.0 14.0 23.5 2.0 9.6
Netherlands 15.2 23.5 30.0 8.3 6.5
New Zealand 17.1 23.8 30.5 6.8 6.7
Norway 18.0 28.3 32.7 10.4 4.4
Poland 12.2 16.2 31.9 4.0 15.7
Portugal 14.4 20.6 25.8 6.2 5.2
Spain 14.5 16.5 28.3 2.0 11.8
Slovak Rep. 14.0 22.3 27.6 8.3 5.3
Sweden 15.9 29.0 31.5 13.1 2.5
Switzerland 15.0 26.0 34.9 11.0 8.9
Turkey 8.5 11.3 18.2 2.8 7.0
United Kingdom 16.4 25.4 29.1 9.0 3.7
United States 15.2 26.4 33.3 11.2 6.9
OECD average 14.4 21.7 30.1 7.3 8.4
Source: OECD Health Data 2004 for 1960 and 2000; 2040 projections: Eurostat (15 EU
countries); National sources (Canada and the United States); United Nations(2002).
Note: Germany 1960 (before reunification) not comparable with 2000 data
32
Financing Long-term Care: Lessons from 19 OECD Countries
aging of OECD societies means that the ratio over time. There is now some evidence that
will become significantly lower in future there has been a general improvement in the
decades, possibly shrinking to about half the health and well being of the population in OECD
1960 level by 2030 in the United States. countries, leading to a longer average lifespan.
This began to be seen as a significant trend in
This may be the most appropriate indicator for OECD countries around 1980. However, there
assessing the trend in social protection schemes has been much debate about the potential impact
that are financed by the working population and of this increase in lifespan in old age. Additional
received by older people, such as pensions and years of life in very old age could in principle
health care in many countries. However, it is not lead to any of these three outcomes:
obvious that this is the best way to look at the Elderly people may continue to become sick and
potential for care. Knickman and Snell (2002) disabled at the same ages as previously, leading
have shown that re-conceptualizing the to additional years of disability at the end of life.
dependency ratio changes the potential for care Exponents of this view associate extended
in the United States in future decades markedly. lifespan with extended morbidity.
They argue that reductions in the number of
children with care needs will offset some of the The extension of lifespan has an upper limit. If
increase in older people needing care. poor health and disability tended to appear at
Moreover, relatively few people in the 65 to 74 later ages on average, this would lead to a
age group require long-term care and an "compression of morbidity." First propounded
increasing share of people in that age group by Fries (1980), this thesis has been the subject
contribute to caring for and supervising both of lively debate ever since.
young people and the very old. This increases
the ratio of potential carers to those needing The third possibility is that both average lifespan
care. and age of onset of poor health or disability
would continue to extend, leading to the deferral
Disability in Older Age of disability. Whether the average length of
years of disability would grow, decline, or stay
The share of older people with functional the same would depend on the relative rate of
limitations increases exponentially with age and extension of lifespan and onset of disability.
is highly concentrated in the oldest age groups. This argument has led to a further change in the
Since women have a longer life expectancy than way disability in old age is perceived. It is now
men, they are also more likely to be in need of seen as "end-of-life" disability rather than
long-term care. There is some evidence that care inevitably associated with passing a particular
needs are becoming increasingly concentrated in age, in which case its onset might be deferred at
the oldest age groups, but making comparisons the same rate as the rate of extension of lifespan.
across time is fraught with problems. Data on
the prevalence of disability among older people The emerging trends in international data up to
are often available for only few points in time the mid-1990s are described in Waidmann and
and are rarely entirely comparable. For Manton (1998), Jacobzone et al (1999), and
example, it is difficult to compare take-up rates Lagergren and Batljan (2000). These reviews
of certain services over time when these figures suggest that the observable trends in the data
are derived from the administrative data from concur with the third of these possible scenarios.
public programs as the care assessments for With some exceptions, there has been little
these programs may have changed over time. support for the "extended morbidity" thesis.
Finally, there has been evidence from reviews of
Until the late 1980s, there was little longitudinal a number of countries (Canada, France, Japan,
data that would enable direct measurement of the the Netherlands, Sweden, the United Kingdom,
trend in the level of disability among the elderly and the United States) that the prevalence of
33
Financing Long Term Care: Lessons from 19 OECD Countries
disability rates in old age is declining. improvements do explain part of the trends, they
still mean that the need for care services has
This reduction was found mainly among the 65 declined.
to 80 age group and was more striking in the
case of males than of females (males having Recent evidence from other countries mostly
poorer health at similar ages as women but a supports the overall conclusions of Jacobzone
shorter lifespan in old age to begin with). This (1999) and Manton and Gu (2001) and supports
decline was partly offset by an increase in the "deferral" thesis. Most of the available
disability in the institutionalized population. evidence from Canada, France and Sweden
However, these trends were far from suggests that prevalence of disability among
homogenous across countries. elderly people has declined over time. In some
other countries, for example, Finland, Italy, the
More recent data have continued to indicate that Netherlands, Switzerland, and the United
levels of disability in old age are decreasing. In Kingdom, there is as yet no consensus in the
particular, the US National Long-term Care data about whether the level of disability has
Survey (NLTCS) has added 1999 data to the data declined, but there is no evidence of an increase.
from 1982, 1989, and 1994. Manton and Gu In one of these countries, the United Kingdom,
(2001) examined the data from the 1999 NLTCS Jarvis and Tinker (1999) have re-analyzed the
and confirmed that the decreasing trend in main longitudinal data set and concluded that the
disability in the United States is not only health status of older people in the United
continuing but is growing. The average drop in Kingdom is improving but is still lagging behind
disability prevalence had been higher between the improvements seen in the United States by
each round of the NLTCS and was over 0.56 several years.
percent per year between 1994 and 1999. In
addition, it could now be concluded that the However, the trend is not clear for some
older black population, which had not shown countries. In fact in one country, Australia, there
any declines in disability in the earliest waves of has been a measured increase in disability rates
the NLTCS, was now benefiting from this trend among the elderly, although at least half of this
as well. To counter the response that this may increase can be attributed to changes in the
have been a single exceptional result for one measurement instrument (AIHW, 2003). Also,
generation, Manton and Gu cited work by Fogel because the national disability scales and the
and Costa (1997) using records of medical estimation methods used for this indicator can
assessments of US army veterans from 1912 to vary substantially across countries, the numbers
the 1990s that showed a long-term trend of a in Table 3 should mainly be analyzed with
similar magnitude. respect to trends over time but are less suitable
for inter-country comparisons.
Some (for example, Cutler, 2001) have seen this
as "clear, overwhelming evidence that the Researchers are only just beginning to study the
average health of the elderly population is factors that might explain changes in disability
improving." Others, however, such as Freedman rates among older people over time and across
et al (2002), have urged caution as comparing countries, so they are not yet well understood.
different sources yields different findings about Available evidence shows that there is a strong
which ADL or IADL functions have improved, socioeconomic gradient of disability in older age
and there remains little if any sign of a decline in (Kjoller and Rasmussen, 2002). Improvements
the underlying conditions. In addition, to the in education, health-related behavior,
extent that the measured reductions were in socioeconomic status, and the treatment of
IADL functions, the improvement might be chronic disease are probably some of the factors
environmental, arising from improved housing that drive disability rates in older age (Cutler,
conditions and use of assistive technology as 2001).
much as from improved bodily function.
Nonetheless, even if such environmental
34
Financing Long-term Care: Lessons from 19 OECD Countries
Table 3: Relationship between Care Recipient and Informal Care-giver
Country (source) Year Relationship Total Male Female Country (source) Year Relationship Total Male Female
Australia 1998 Partner 43 19 24 Korea 2001 Partner 32
Parent 22 3 19 Child 55 7 49
(Survey on long-term care
(ABS Survey of Disability, Child 24 6 19 Other
needs of the elderly, 2001) 13
Ageing and Carers, 1998) Other 11 2 9 Total 100
Total 100 30 71
Austria 2002 Partner 18 7 11 Spain 1999 Partner 23
Child 38 14 24 Child 38 6 32
(Survey on impairment,
(Microcensus 2002) Other 43 12 32 Other 39
disabilities, and handicaps)
Total 100 34 66 Total 100
Canada 1995 Partner 20 7 13 Sweden 2000 Child 46 13 33
(Survey on informal Child 35 9 26 Other 53
caregivers to adults in Others 45 11 34 (Survey of aged care, 2000) Total 100
British Columbia) Total 100 27 73
Germany 1998 Partner 32 12 20 United Kingdom 2000 Partner 15
Parent 13 2 11 Parent 7
Child 28 5 23 (General household survey, Child 43
(Schneekloth and M�ller, Other 27 1 26 2000) Other 35
2000)
Total 100 20 80 Total1 100
Ireland 1993 Partner 22 5 17 United States 1994 Partner 23 10 13
Parent Child 41 15 27
Child 48 13 35 (National long-term care Other2 35 11 24
(Survey of older persons, Other survey, 1994)
1993) Total 100 36 64
Total
Japan 2001 Partner 36 12 25
Parent 1 0 1
Child 60 11 48
(Com prehensive survey of Other
living conditions, 2001) 3 1 3
Total 100 24 76
Note: definition of carers and care recipients may differ between countries. The number of informal carers is usually higher than the num ber or carers receiving support under
public long-term care program mes (e.g. as cash allowances)
1. National data on the shares of care-recipients in the different categories, which include persons receiving care from more than one care-giver, have been recalculated to add
up to 100.
2. Missing values are included in the category "Other".
35
Financing Long-term Care: Lessons from 19 OECD Countries
Living Arrangements of Older People Informal Care-giving and Trends in Labor
Market Participation
Older people with care needs who live with their
family or partner are more likely to receive In each of the 19 countries that we studied,
informal help than those living alone informal care-giving is an indispensable
(Sundstr�m, 1994). Given the importance of component of care for older people with long-
partners, in particular, in providing care, the fact term care needs. Surveys that explore the living
that the number of older people living alone is situation of older people and available time-use
increasing will itself increase the demand for studies consistently show that the majority of
formal care services in the future. Living alone care � 80 percent or more � is provided
has become a much more frequent experience informally (see, for example, Lamura; 2003;
for elderly people in the OECD area. During the Sundstr�m/Johannson/Hassing, 2002; and
decade of 1990 to 2000, the proportion of elderly Zukewich, 2003). However, most of this time is
people living alone grew in most OECD spent on lower-level care, such as help with
countries, other than New Zealand, the United instrumental activities of daily living (Romoren,
Kingdom, and the United States. Northern 2003). However, some informal carers also care
European countries, including the Netherlands, for many older people with the greatest care
Norway, and Sweden, which started with a high needs, such as dementia patients, for whom
proportion of one-person elderly households informal care is often the most important source
showed the highest rates of living alone in 2000. of support (Mo�se et al, 2004).
Mexico, Japan, Korea, and Spain had the lowest
rates (see OECD, 2005a, Figure 3). Most informal care is provided by women,
although with marked differences across
Living alone becomes more frequent as people countries (Table 3). Men are more likely to take
age, mainly due to the death of their spouses. For over the role of care-giver for their spouses than
example, around half of all people aged 75 and for other family members. Because more elderly
over live alone in Canada, around 42 percent in people are living as couples and for a longer
New Zealand and Sweden, and 44 percent in the time, this has led to a slight increase in the
United Kingdom. Women aged 75 and above number of men providing informal care over
are the most likely to live alone. It is estimated time (Sundstr�m et al, 2002). There are,
that almost 60 percent of elderly women aged 75 however, some gender differences in the level of
and over in Canada, Sweden, and the United care provided, which are not shown in Table 3.
Kingdom live alone. Women are predominant among those informal
care-givers with the heaviest commitments. They
Several studies have forecast that this trend are more likely to be the main carer than an
towards living alone may change. A modeling additional carer. The more demanding that
exercise for the United Kingdom, for example, personal care services become, the more likely it
suggested that, between 1996 and 2031, the is that women provide them. The share of men
numbers of dependent elderly people living with providing domestic help rather than personal
others will increase faster than the numbers care is correspondingly higher than the share of
living alone, largely due to higher marriage rates women.
and increased male longevity. In turn, the
proportion of dependent elderly people living Across countries, there seems to be a peak in
alone is projected to fall slightly, from 43 care-giving by those aged between 45 and 65.
percent in 1996 to 38 percent in 2031 (Pickard et This is the age group that frequently has multiple
al, 2000). Wolf (1995) has projected that the care responsibilities for elderly parents or for a
percentage of older women living alone in eight spouse or partner with age-related health
countries would decrease sharply around by problems. In addition, policymakers have crafted
2010 and then would climb again. fiscal and labor market policies to try to reverse
trends towards early retirement. It will be
important to ensure that their caring
36
Financing Long Term Care: Lessons from 19 OECD Countries
responsibilities can be combined with unless they are in the social assistance category.
employment in this age group. In some countries with a public scheme, this is
indexed to their retirement income, for example,
Long-term Care: Program Design and 80 percent of the public pension in Norway,
Eligibility Criteria whereas in others users have to pay the actual
cost of their accommodation unless they meet a
Long-term care services are financed from low-income test.
different sources in OECD countries. Table 4
lists various long-term care programs in OECD As Table 4 shows, even under universal public
countries by type of program, source of programs, the requirement for private cost-
financing, eligibility criteria, and the use of sharing usually is substantial, although it tends
private cost-sharing. Most programs in most to be spread more evenly among beneficiaries
countries provide in-kind services for both home than in means-tested programs. Cost-sharing in
care and institutions, but there are a growing universal systems is either calculated as a fixed
number of programs that offer cash allowances percentage of cost or as the difference between
or allow consumer demand to influence the the benefit and actual spending.25 The
budgets. Most long-term care programs serve all implications of these various cost-sharing
age groups, except for those in Korea and Japan regulations for the public-private mix of
as well as the US Medicare program. financing are discussed in the following sections
on expenditure trends.
In most countries that we studied, the main
source of public financing is taxation. For Differences in Spending Levels for Long-term
example, Norway and Sweden both provide Care Services
universal coverage of long-term care services
funded from general taxation, but they differ in Total expenditure on long-term care in the 19
terms of the amount of cost-sharing required for OECD countries covered in this study ranges
services provided in nursing homes. A few from below 0.2 to around 3 percent of GDP.
countries (such as Germany, Japan, the Most countries, however, are clustered in a range
Netherlands, and Luxembourg) have set up a between 0.5 percent and 1.6 percent of GDP,
universal social insurance scheme specifically to with only Norway and Sweden spending a
cover long-term care. Austria has a universal proportion that is well above that level (Figure 1
system funded from general taxation and and Table 5).
governed by similar regulation. In other
countries, the main health insurance program Comparing spending levels across countries
finances a limited amount of care in hospitals in reveals that the many different ways of
the absence of other programs, but the total organizing and funding long-term care (as can be
involved is quite small (for example, in Hungary, seen in Table 4) have actually led to very similar
Korea, Mexico, and Poland). overall spending levels. For example, Australia,
Canada, Germany, the United Kingdom and the
Besides those countries that provide universal United States all spend within the narrow range
access to long-term care services, there are those of 1.2 to 1.4 percent of their respective GDPs..
that have a largely means-tested system in which
the user is expected to bear all or most of the
cost above a certain level of income. In means-
tested schemes, users face very high costs if their 25 The borderline between means-tested programs and
income is above the means-test level, especially "universal" programs can be blurred. If cost-sharing
if they have to go into a nursing home. This has under universal programs is high, then some
generated pressure on governments to reform households will not be able to cover the cost of the
these schemes. One common feature of long- care needed by their older members. They may then
become eligible for means-tested social assistance to
term care programs is that nursing home fill the financial gap, for example, to cover the cost of
residents have to pay an accommodation charge accommodation in nursing homes.
37
Financing Long-Term Care: Lessons from 19 OECD Countries
Table 4: Major Public Programs Covering Long-term Care in Selected OECD Countries, 2003
Country Type of care Programme Source of Type of benefits Eligibility criteria Private cost-sharing
fund
Australia Institutional care Residential care General In-kind All ages There is a standard charge plus a means-
taxation tested charge based on income
Home care Community Aged Care General In-kind Generally 70+ Users are charged according to ability to
Packages (CACP) taxation Means-tested pay
Home and community General In-kind All ages Users are charged according to ability to
care(HACC) taxation Means-tested pay
Care payment General Cash All ages -
taxation Means-tested
Carer Allowacne General Cash All ages -
taxation Universal
Austria Home care Long-term care General Cash All ages Users are expected to pay the difference
allowance taxation Universal between the benefit and the actual cost
Institutional care Long-term care General Cash All ages Users are expected to pay the difference
allowance taxation Universal between the benefit and the actual cost
Canada Home care Provincial programmes General In-kind All ages Means-tests vary between provinces
taxation Usually means-tested
Instutitutional care Provincial programmes General In-kind All ages Means-tests vary between provinces
taxation Usually means-tested
Germany Home care Social Long-Term Care Insurance In-kind and cash All ages No cost-sharing required but out-of-pocket
Insurance contribution Universal to pay for additional or more expensive
services than covered by public insurance
was on average 130 Euro per month
Institutional care Social Long-Term Care Insurance in-kind All ages Board and lodging is not covered (on
Insurance contribution Universal average 560 Euro per month); plus service-
charges in excess of statutory limit were
313 Euro on average; (these private cost
can be covered by means tested social
assistance) (1)
Source: replies to OECD quetionnaire for the Long-Term Care Study .
(1) Cost-sharing in 1998, according to Schneekloth-M�ller (2000)
38
Financing Long-Term Care: Lessons from 19 OECD Countries
Country Type of care Programme Source of fund Type of benefits Eligibility criteria Private cost-sharing
Mexico Institutional care Specialised services in General taxation In-kind All ages, all people who are
Geriatrics insured
Home care Day centres for General taxation In-kind Insured pensioners and
pensioners and retired retired people
Netherlands Home care AWBZ Insurance Consumer-directed All ages Income-related co-payments are
contributions budget(1) Universal required
Institutional care AWBZ In-kind All ages Income-related co-payments are
Universal required
New Zealand Home care Carer Support General taxation In-kind All ages,
means-tested
Home Support: home General taxation In-kind All ages, income tested
help
Home Support: General taxation All ages, universal
personal care
Institutional care Long-term residential General taxation In-kind Aged 65 and over, and 50-65
care with early onset age-related
conditions
Means-tested
Norway Home care Public long term care General taxation In-kind All ages
Universal Home nursing care is free of charge.
Home help is based on an optimal
user-payment (usually NOK 50 per
time)
Institutional care Public long term care General taxation In-kind All ages Residents in institution are charged
Universal approximately 80% of their income.
Poland Home care Social services General taxation Cash/in-kind All ages
Institutional care Means-tested
Source: replies to OECD quetionnaire for the Long-Term Care Study .
(1) By April 1, 2993, the Consumer directed budget has been changed in a cash payment
1These were contributions to health insurance not long-term care.
39
Financing Long-term Care: Lessons from 19 OECD Countries
The first lesson from this comparison is, well-equipped housing, than other countries (see
therefore, that one broad type of program is no Table 8 below). Higher cost-sharing in Norway
more associated with a particular expenditure may explain part of why its expenditure ratio is
outcome than any other. lower than Sweden's.27
Moreover, countries with similar spending levels Aspects of the quality of care may explain part
may face different challenges. This is illustrated of the differences observed in Table 5 and Figure
by Figure 2, which plots overall spending levels 1 between other countries as well. The
against the percentage of people aged 80 years proportion of single and double bed rooms in
and older in the population, this age group being nursing homes has obvious cost implications for
the largest group of users of long-term care all countries. The number of these small rooms
programs.26 Spain and Ireland, for example, is currently much lower in countries like Japan
have similarly moderate spending levels and a and Korea, which explains part of the lower
comparable split between spending for home expenditure levels for these countries.
care and spending on institutional care.
However, Spain has almost 40 percent more very The Public/Private Mix of Funding for Long-
old people in its population than Ireland. In term Care Services
addition, financing for this significantly older
population in Spain comes predominantly from Private households in most countries share the
private sources. For Ireland, private spending burden of care, not only by providing informal,
accounts for only one-sixth of total spending on unpaid care but also by making substantial co-
long-term care. payments and/or paying out-of-pocket for care
provided under public programs, both at home or
A second conclusion is therefore that countries in institutions. Even under universal social
with significantly different shares of very old insurance systems, long-term care services
people often have similar spending levels. This provided in institutions are usually only partially
is mainly due to differences in the design of their covered by public programs, and households
programs, differences such as the varying mix of may be required to contribute to the cost of
public-private funding, and, more generally, board and lodging. In most countries, users are
differences in the division of labor between also charged for nursing and personal care at a
formal and informal (unpaid) care-giving. rate decided by the results of a means test.
Moreover, some households who can afford it
Norway and Sweden spend substantially more may decide to buy additional services directly
on long-term care than any other OECD country. from private providers over and above those
Although these countries also have the highest provided under public programs.
population shares of very old people, their high
spending is also due to the generosity of the In general, private spending plays a more
programs in both countries. This can be seen in important role in funding long-term care
the generous services that both countries provide provided in institutions than for home care.
for residents in nursing homes. Both countries Because these private expenditures are
offer more amenities, such as single rooms and concentrated on a relatively small number of
households, they can represent a heavy financial
burden on the individual households concerned
26 The prevalence of functional limitations grows (see, for example, the cost-sharing rates for
exponentially with age, which leaves room for
different cut-off points for analytical purposes. Most
of the research literature chooses to use 80 and over 27The case of oil-rich Norway (with the third highest
as the cut-off point. However, other age limits have per capita GDP of OECD countries) is also a
been proposed. Residential Aged Care in Australia, reminder that in comparing expenditure ratios one
for example, has observed that the availability of care should not forget the large differences in GDP among
places increases in line with the number of people these countries.
aged 70 and older.
40
Financing Long Term Care: Lessons from 19 OECD Countries
Germany, Ireland, and Spain in the last column Behind these aggregate numbers, there are big
of Table 5). differences in the way in which access to home
care is granted. Countries with similar spending
The burden of private expenditure on nursing levels may either spend small amounts on a
home care and accommodation can be large number of cases or may targeted their
substantial for individual households and is an spending to those with the highest levels of care
important source of funding for these needs.
institutions, contributing 30 percent or more of
total spending in several countries (Australia, While even universal long-term care programs
Germany, New Zealand, the United Kingdom, currently consume only around 8 to 20 percent
and the United States). Countries with different of health and long-term care spending (taken
overall spending levels on care in institutions together), several countries have a much lower
can vary widely in the share of private spending level of resources to meet the demand for long-
contributed by households (and, in the case of term care. This is especially the case in those
the United States, by private insurance).28 countries that are only just beginning to develop
unique long-term care programs within their
Substantial private cost-sharing, in particular for health and social services sector. Moreover,
nursing home care, and the availability of public programs that cover home care are, in
informal care as a major source of support are many countries, less developed than programs
two of the main reasons why some countries for long-term care in institutions.
have been able to contain costs and spend
similar amounts on long-term care as other Public funding is the most important source of
countries with different program designs and financing for long-term care services in all
lower shares of old people in their populations. countries where data on the public-private mix
of funding are available (with the exception of
Public Expenditure on Long-term Care Spain and Switzerland). Nonetheless, public
Services: No Place like Home? spending on long-term care is still relatively low
as a proportion of GDP compared with other
This section looks in more detail at the aging-related expenditures such as pensions or
differences in the way in which public money is acute health care that are also heavily
spent on home care versus institutional care. concentrated on older people (OECD, 2004b).
Over time, policymakers in many countries have
been shifting a larger share of resources to In all of the countries that we studied, spending
support home-care services in a number of ways on care in institutions accounts for more than
by financing a larger supply of home-care half of all public spending on long-term care
providers in the community, by providing more (Figure 3). However, public programs that
support services, such as respite care and provide home care have begun to be developed
counseling, to families who care for close as this is the preferred option for most people
relatives, and finally by introducing consumer with care needs. The majority of home-care
choice in various forms such as care payments or recipients, in particular older people, have
personal budgets. As a result, home care now family or friends who support them by providing
accounts for more than 30 percent of public additional services (mostly unpaid) in addition to
resources in half of the countries for which data any care they receive from the public program.
are available (Figure 3). This makes home care a lower-cost alternative to
care in institutions in many cases.
28This is also the case when demographic differences Trends in Public Expenditure on Long-term
are taken into account, for example, by standardizing Care
expenditure levels by the share of very old people
(aged 80 and older) in the population, relative to an There is a widely shared perception that
OECD average share of about 3 percent. expenditure growth will accelerate over the next
41
Financing Long Term Care: Lessons from 19 OECD Countries
20 to 30 years, mainly as a result of larger and quality improvement. To improve the
numbers of older people and a steep increase in situation, more investment in measurement
the numbers of the oldest-old. However, as we instruments is needed. Countries already set
have discussed, the empirical evidence suggests quality standards for infrastructure and process,
that differences in program design (such as but now they also need to measure
generosity of funding and level of cost-sharing, improvements in outcomes and to disseminate
quality of services, and whether services are this information to clients, both actual and
targeted or not) play a more important role in potential.
explaining differences in current spending levels
than demand for services measured simply by There is also a case for making information on
population age structure. The caveat here is that the quality of care and the prevalence of adverse
data on time trends are even scarcer than for outcomes more transparent and accessible to the
cross-sectional analysis, making it even more public on a regular basis. Making information
difficult to make comparisons over time. on quality assessment at the level of the provider
available to the public is likely to increase
In some long-term care systems that have been consumer protection and create a climate of
operating for many years, public spending has competition in quality, especially if consumers
remained fairly stable as a share of total public are also given greater choice in terms of
expenditure on health and long-term care in providers.
several countries since 1990 (Figure 4). Any
growth in long-term care spending took place It is unlikely that better quality care will be
while Germany, Japan, and Luxembourg were sustainable in the future if current staffing levels
setting up their new social programs. However, in long-term care stay the same. According to
in those countries where a system has been in the responses given to the OECD questionnaire,
place for a longer period of time, there has been staff shortages and staff qualifications are the
no "cost explosion" in long-term care spending number one concern of long-term care
relative to acute care spending. policymakers in OECD countries (Tables 6 and
7). Therefore, it is important to address the issue
What Needs to be Done to Improve the of staff shortages now in order to prevent the
Quality of Long-term Care? situation from worsening in many countries.
There are wide variations in the quality of long- Countries also differ widely in terms of the
term care services for older people. privacy and amenities available to residents in
Consequently, the quality of these services often nursing homes. The number of people residing
does not meet the expectations of the public, the in single or double rooms, for example, can
users of services, and their families. Examples range from less than a quarter to almost a 100
of inadequate care in institutional and percent (Table 8). In those countries where
community settings are numerous and can many people have to share larger rooms, only
include inadequate housing, poor social substantial investment in new buildings will
relationships, and lack of privacy in nursing change this situation for the better.
homes as well as inadequate treatment of chronic
pain, depression, bedsores, or the inappropriate Paying for Long-term Care: Current Reforms
use of chemical or physical restraints. and Issues for the Future
Improving quality in long-term care will require
an increase in public spending and better The large variations in the public coverage of
regulation of long-term care services by long-term care costs across the OECD countries
establishing quality assessment mechanisms and reflect the differences in the way long-term care
by monitoring outcomes. Governments in many is financed and provided. A number of countries
countries are now taking a more active role in have introduced new forms of public programs
this respect, but long-term care still lags behind for long-term care. This has increased overall
acute health care when it comes to measurement coverage and consolidated previously
42
Financing Long Term Care: Lessons from 19 OECD Countries
Figure 1: Public and Private Expenditure on Long-term Care as Percentage of GDP, 2000
P
GDfo 3.50
e 3.00
ntag
2.50
perce
as 2.00 Private
care Public
1.50
term-g
lon 1.00
no
0.50
iture
nd 0.00
Expe n a a
Spai Ireland ealand Japan strali Germany Kingdom
Z Au Canad ed States herlandsNorwaySweden
New Unit ed Net
Unit
Source: Table 5, this report.
Figure 2: The Correlation between Long-term Care Spending and Aging is Weak, Suggesting that
Other factors Play an Important Role
3.00
of
Sweden
entcrepsa 2.50
Norway
2.00
care
mr 1.50 Netherlands Switzerland
-tegnol GDP Austria
Canada United Kingdom
Germany
Australia United States
1.00
on Japan
reut R2 = 0.56
IrelandNew Zealand
Spain
0.50
ndi Luxembourg
Expe 0.00
2 2.5 3 3.5 4 4.5 5 5.5
Per cent of persons aged 80 years and older
Source: Table 5 of this report.
43
Financing Long Term Care: Lessons from 19 OECD Countries
Table 5: Public and Private Expenditure on Long-term Care as Percentage of GDP, 2000
Table 1.2 Public and private expenditure on long-term care as percent of GDP, 2000
Total expenditure Public expenditure Private expenditure
Home care Institutions Total Home care Institutions Total Home care Institutions Total
Australia 0.38 0.81 1.19 0.30 0.56 0.86 0.08 0.25 0.33
Austria n.a. n.a. n.a. n.a. n.a. 1.32 n.a. n.a. n.a.
Canada 0.17 1.06 1.23 0.17 0.82 0.99 n.a. 0.24 0.24
Germany 0.47 0.88 1.35 0.43 0.52 0.95 0.04 0.36 0.40
Hungary < 0.10 < 0.20 < 0.30 n.a. n.a. < 0.20 n.a. n.a. < 0.10
Ireland 0.19 0.43 0.62 0.19 0.33 0.52 n.a. 0.10 0.10
Japan 0.25 0.58 0.83 0.25 0.51 0.76 0.00 0.07 0.07
Korea n.a. n.a. < 0.30 < 0.10 < 0.10 < 0.20 n.a. n.a. n.a.
Luxembourg n.a. n.a. n.a. 0.15 0.37 0.52 n.a. n.a. n.a.
Mexico n.a. n.a. < 0.20 n.a. n.a. < 0.10 n.a. n.a. < 0.10
Netherlands 0.60 0.83 1.44 0.56 0.75 1.31 0.05 0.08 0.13
New Zealand 0.12 0.56 0.68 0.11 0.34 0.45 0.01 0.22 0.23
Norway 0.69 1.45 2.15 0.66 1.19 1.85 0.03 0.26 0.29
Poland 0.35 0.03 0.38 0.35 0.03 0.37 n.a. 0.00 0.00
Spain 0.23 0.37 0.61 0.05 0.11 0.16 0.18 0.26 0.44
Sweden 0.82 2.07 2.89 0.78 1.96 2.74 0.04 0.10 0.14
Switzerland 0.20 1.34 1.54 n.a. n.a. n.a. n.a. n.a. n.a.
United Kingdom 0.41 0.96 1.37 0.32 0.58 0.89 0.09 0.38 0.48
United States 0.33 0.96 1.29 0.17 0.58 0.74 0.16 0.39 0.54
Average (1) 0.38 0.88 1.25 0.35 0.64 0.99 0.06 0.19 0.24
Sources: Canada, Germany, Hungary, Norway: OECD Health Data 2004; Australia: Prod. Commission (2001); Poland: Kawiorska (2004); Spain:
Marin/Casanovas (1998); Austria, Ireland, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Sweden, Switzerland, United Kingdom,
United States: Sectretariat estimates (see OECD (2004c) for a documentation of sources and methods).
Note: Data for Hungary, Korea, Mexico, and Poland are rough indications of magnitude; n.a. = not available.
The notion of "long-term care" used in a national context can be substantially broader, e.g. by including residential homes for older people
(e.g. the Netherlands, Nordic countries)
(1)Average excludes Austria, Hungary, Luxembourg, Korea and Mexico
44
Financing Long-term Care: Lessons from 19 OECD Countries
Figure 3: Public Expenditure on Long-term Care as Percentage of GDP, 2000
3
P
GDfo
e 2.5
percentag 2
Home care (including services in
as support of informal care)
e
Long-term care in institutions
car 1.5
g-termnol 1
on
er
tui 0.5
end
Exp
0
Spain Luxembourg United Australia Germany Netherlands Sweden
States
Source: Table 5 of this report.
Figure 4: Trends in Public Spending on Long-term Care, 1990-2002
18.00
)
%(
e
car
m
ert- 16.00 Canada
ngol
and
ht Netherlands
aleh 14.00
no
ngi
Japan
12.00
spend Switzerland
ci
bl
pu
altot United States Luxembourg
ni 10.00
e
car
m Australia
ert-gnolfo 8.00
era Germany
Sh
6.00
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Source: OECD Health Data 2004
Note: Australia, USA: expenditure in institutions only;
45
Financing Long-term Care: Lessons from 19 OECD Countries
fragmented health and social services systems. However, there have been considerable
Other countries have opted for reforming their modifications in Sweden to target the services to
existing long-term care systems while the sickest and most disabled older people.
maintaining the basic design of a tax-based Of the 12 countries in the second group, two �
system with set budgets. Hungary and Korea � have in recent years
discussed introducing long-term care insurance
The issue of sustainability arises in relation to in the future. A third, Ireland, has recently
private as well as public expenditures. While received the report of an independent review
existing levels of public contributions may be recommending the introduction of a form of
unsustainable in the future, putting these costs public long-term care insurance (Mercer, 2003),
onto the backs of private households is likely to and the government has set up a working group
drain the resources of many middle-income to consider various options.
families. This is already a major issue in a
number of countries. For the user, the costs of Three other countries in the second group �
long-term care are potentially very high Australia, New Zealand, and the United
("catastrophic" in health insurance terms) unless Kingdom � have in recent years modified their
they are at least partly covered by a public means-testing formula but have done so in
program or private insurance. different ways. Australia made additional types
of public support subject to income and asset
While policymakers in all countries are testing, while the other two countries have
concerned about the sustainability of their reduced the impact of means testing.
system of funding long-term care, some have
seen this as a reason to levy extra contributions, This section considers first the new public long-
while others have seen this as a reason to limit term care systems recently introduced in four
expenditure by increasing targeting or raising countries � Austria, Germany, Japan, and
user payments. Different strategies have been Luxembourg � and the potential lessons from
followed in different countries, which has widen those reforms. It then looks at the different way
the differences between OECD countries in how in which the three countries that pay for long-
they treat long-term care within their social term care from general taxation � Sweden,
protection systems. Australia, and the United Kingdom � have
attempted to balance greater equity and quality
Of the 19 OECD countries considered in the in the system with sustainable financing within a
tax ceiling.
OECD long-term care report, seven � Austria,
Germany, Japan, Luxembourg, the Netherlands, New Forms of Public Programs for Long-
Norway and Sweden � provide comprehensive term Care: Austria, Germany, Japan, and
coverage, treating long-term care in broadly the Luxembourg
same way as they treat other health-related needs
in their social protection system. Of the seven Since 1990, these four countries have each
countries in the first group, four have introduced introduced a universal public scheme to cover a
universal funding for long-term care within the substantial share of the costs of long-term care.
past decade. The Netherlands introduced The methods adopted differ among the four
universal funding for long-term care as part of countries but in each case policymakers decided
their health insurance system in 1968. This has that the costs of long-term care should be
been modified several times since its brought within the scope of each country's
introduction, most recently in 2003 in that all system of social protection.
home-care users now have the option of paying
in cash to purchase their own care. Austria. A tax-funded system of long-term care
allowances was introduced in 1993. These
Neither Norway nor Sweden is considering allowances are payable in cash only, with the
making any structural changes to their system amounts determined by an assessment of
for funding long-term care as a universal service. recipients on a seven-point scale by type of care
46
Financing Long-term Care: Lessons from 19 OECD Countries
Table 6: Policy Concerns about the Quality of Nursing Home Care
Group of issues mentioned Countries
Recruiting and retaining an adequately educated and
All twelve countries that replied to this question
skilled workforce; improved qualification of staff
Put in place or further develop quality assessment and Austria, Korea, US
monitoring system
Co-ordination of care services Canada, Hungary, Germany
Building quality and amenity Hungary, Japan
Other supply constraints: downward pressure on New Zealand, UK, Korea (shortage of government
fees/inadequate fees paid to providers; lack of enough
subsidies)
time for staff
Access to broader range of services, more
Norway, Austria (number of short-stay units)
differentiation
Use of physical restraints (Japan); Number of liability
Other mentioning of "top concerns" (country specific)
claims; lack of liability insurance for long-term care (US)
Notes: Data are based on replies from national administrations to the following question: "What are the top three
concerns in your country in terms of quality of institutional care?"
Source: Questionnaire of the OECD Long-term care study
Table 7: Policy Concerns about the Quality of Home Care Services
Group of issues mentioned Countries
Recruiting and retaining an adequately educated and
skilled workforce; improved qualification of staff Majority of countries that replied to this question
Improve skills of care managers Canada, Japan
Put in place or further develop quality assessment and
monitoring system; improved standards framework Australia, Austria, Korea
Co-ordination of care services; continuum of care Australia, New Zealand
Lack of information about services Japan, UK
Prevention of inappropriate residential care admission Australia
Supply constraints; limited financing Korea, USA
Broader range of services; too little differentiation Canada, Norway, UK
Adequate care supply for dementia cases Germany, Japan
Notes: Data are based on replies from national administrations to the following question: "What are the top three
concerns in your country in terms of quality of home care?"
Source: Questionnaire of the OECD Long-term care study
47
Financing Long-term Care: Lessons from 19 OECD Countries
and number of hours of care needed. The pre-existing number of allowances for different
allowance replaced � and made universal � a groups in the population, each with different
assessment criteria and benefits. The inequities received as payment for the service part of the
generated by these different allowances, which costs of nursing home care (excluding
had been introduced at different times to meet accommodation) up to a specified maximum for
different needs, were a strong part of the case for each of the three care levels.
reform as advocacy groups argued that similar
needs should receive similar treatment. Two major goals of the reforms were, first, to
Policymakers also began to give strong support reduce the burden on local social assistance
to enabling older people to be cared for at home, budgets by reducing the number of people
either by informal carers or by home-based care applying for social assistance to cover long-term
services. care costs and, second, to maintain as many
elderly people as possible in their own home.30
The new allowances comprise one federal and The first objective has been met. In 2001, fewer
nine provincial allowances, which together cover than 5 percent of beneficiaries in their own
the whole population and are based on the same homes and fewer than 25 percent in institutional
system of assessment and benefits. While the care were receiving additional help from social
new allowances were to be funded from general assistance (Federal Ministry of Health and
taxation as part of the same reform package, the Social Security, 2003). There has also been a
level of contributions to health insurance was significant growth in spending on home-care
increased by 0.8 percent for self- employed services.
people and farmers and by 0.5 percent for retired
people. This was done to reduce the large However, the current design of the program may
subsidy to the health insurance scheme from not be financially sustainable, and this problem
general taxation that had arisen as the costs of will need to be addressed in the future as the
health care for older people had grown. population continues to age. First, there is a
growing gap between the cost of services in the
Germany. A public scheme of long-term care long-term care market and payments per care
insurance was introduced in Germany in 1995- level, which have been kept fixed since the
96. This comprises a mandatory public scheme, introduction of the system and not been adjusted
which currently covers just over 70 million for price increases. Second, since 1998, the
people, and a private insurance scheme, which annual increases in revenues under the fixed
currently covers around 8.5 million people.29 contribution rate have been substantially lower
than the growth of expenditure in all but one
The public scheme is administered by health year, mostly due to the rising costs of
insurance funds, while the private scheme is institutional care. The long-term care insurance
administered by private insurers according to
federal regulations. The private scheme must scheme had a deficit of 2 percent in 2002 and of
4 percent in 2003, and this deficit continued to
provide at least the same benefits as the public grow during 2004. Following a ruling of the
scheme. Contributions to the public scheme, Federal Constitutional Court that called for
from retired as well as working-age people, are different contribution rates for those employees
set at 1.7 percent of gross income up to a
specified maximum, with employers usually with children and those without children, the
individual contribution rates for the latter were
paying 50 percent while the individual pays the raised in 2005 from 0.85 percent to 1.15 percent.
other 50 percent. Contributions to private long-
term care insurance are age-related and subject
to federal regulation. Where the recipient is A government commission on the financial
receiving care in an institution, the benefit is
30 For a full account of the background to the
29 These are mainly higher-income groups and civil reforms, see OECD (1996a), Chapter 18. See also
servants. Evans, Cuellar, and Wiener (2000).
48
Financing Long-term Care: Lessons from 19 OECD Countries
sustainability of the social insurance systems care at home and should increase the
recommended that the federal government contributions paid by pensioners (Federal
should provide further incentives and support for Ministry of Health and
Table 8: Privacy in Nursing Homes
Average Percentage of all residents living in room that is
number of
persons 5-bed or
Country Year per room Single Double 3-bed 4-bed more
Australia 1997 1.60 24 29 9 29 9
1999 1.56
2000 1.50 61 17 4 14 4
2003 1.44
Germany(1) 1999 1.40 45 49 4 1
2001 1.40 47 49 3 1
Japan 2002 2.80 10 13 4 70 3
Korea 2004 2.90
Netherlands 2000 2.00 22 35 4 33 6
Norway 2000 1.15 75 24 1
2002 1.08 80 20 0
Sweden 2000 98
UK 1996 1.40 46 44 6 1 2
2003 n.a. 84 16
(1) Number of beds per room
Source: Gray (2001) Two year review of reform (Australia); Federal Statistical Office (1999; 2001) (Germany); The
Ministry of Health, Labour and Welfare, Japan (2003) Survey on Long-Term Care Service
Institutions/Undertakings, 2002, Netherlands (2000) Branchnerapport Care; Netten et al. (1998) 1996 Survey of
Care Homes for Elderly People; Laing and Buisson Market survey, 2003 (UK); National Board of Health and
Welfare (2004) Care and services for elderly persons (in Swedish), and previous editions..
Note: UK, 2003 refers to private-for-profit institutions only, which, however, account for the majority of
nursing home places
Social Security, 2004). Reports by other think with a capital stock as a buffer in the context of
tanks have recommended making fundamental the aging population.
reforms of the way in which the current system
is financed (see German Council of Economic Luxembourg. Luxembourg introduced a new arm
Experts, 2004). These proposals range from to its social insurance system to cover long-term
extending mandatory social insurance to the care in 1999. Forty-five percent of this
whole population to introducing a funded system insurance is funded from general taxation and
49
Financing Long-term Care: Lessons from 19 OECD Countries
requires a 1 percent individual contribution provider or municipal official. All benefits are
based on salary or pension (which amounted to paid according to a national scale and are
around 35 percent of funding in 2001). The received as an equivalent amount of services.
remainder is funded from a special tax on The user pays 10 percent of the cost of services.
electricity bills. The new insurance scheme The new system collects contributions from, or
provides benefits both in cash and in kind to pays benefits to, almost half the population.
cover the cost of care at home or in an Given its large scale, the introduction of the
institution, with benefits being calculated on a scheme was assessed to have gone smoothly. It
sliding scale based on the extent of need for help has also been very well received by the public.
with the activities of daily living (Inspection As one of the main goals of the scheme, the
G�n�rale, 2003). range of services to choose from was increased,
mostly by increasing home-care services.
From 1999 to 2003, Luxembourg's long-term Between April 2000 and October 2002,
care insurance had an annual budget surplus due thenumber of home-care recipients almost
to the combination of fixed payments per care doubled from 970,000 to 1,910,000 (97 percent)
level and only moderate growth in the overall while institutional-care recipients increased by
number of recipients. Moreover, there has been 37 percent from 520,000 to 710,000.31
a significant shift in the balance of care between
2001 and 2004, with a larger share of care The new insurance system, together with other
recipients now being cared for at home rather service-related long-term care reforms, also had
than in an institution. This was one of the goals the goal of reducing inappropriate
behind the introduction of the new long-term hospitalization of older people. Previously, large
care system. Projections on the longer-term numbers of older people received long-term care
financial sustainability of the new system are not in hospital. The proportion of older people
yet available. residing in institutions in Japan was reduced
between 1990 and �2000, partly due to reduced
Japan. Japan introduced public long-term care institutionalization in hospital in the period
insurance in 2000, funded 50 percent from before the new system came into force as new
general taxation (shared between central and long-term care services were gradually put in
sub-national governments), 32 percent from place. The new insurance system helps to pay
contributions from employees and 18 percent for the nursing home and home-care costs of
from contributions from pensioners. There is no those who would otherwise have been in hospital
single rate of contribution. Instead, the and subsidized by health insurance in previous
municipalities, which run the long-term care years.32
insurance funds, levy whatever contributions are
necessary to cover their costs. These There is concern that the aging population in
contributions depend on income up to a specified Japan will put increasing pressure on the current
maximum, and social assistance funds subsidize system. Recent projections suggest that average
the contributions of those with the lowest contributions per capita might have to grow by
incomes. Long-term care insurance is currently as much as 80 percent within the next 10 years
restricted to people aged 40 and older. As a to meet likely demand. In order to secure the
consequence, younger age groups with relatively financial sustainability of the new long-term care
moderate care needs do not contribute to the scheme in the long run, the government is
financial sustainability of the system. currently considering trying to contain the costs
Assessment of need is done by a case conference
31
of health and social professionals according to a These data come from Japanese replies to OECD
six-point scale based on the amount of help questionnaire on long-term care.
32
required with personal care and household tasks. For a full treatment of the Japanese system prior
to the introduction of the new insurance system, see
On-site visits and the completion of the OECD (1996, Chap. 10). On the impact of the
assessment is usually delegated to a service reforms on that system, see Matsuda (2002).
50
Financing Long-term Care: Lessons from 19 OECD Countries
of long-term care by implementing more Finally, it should be noted that introducing a
prevention strategies (Ministry of Health, Labor, comprehensive public scheme does not have to
and Welfare, 2004). be at the expense of reducing the coverage of
private long-term care insurance. In Germany,
Lessons from the Reform Process. While the the market for voluntary complementary long-
details of the reforms introduced in these four term care insurance to meet additional costs not
countries differ significantly and it is still too covered by the public scheme has grown
early to assess their long-term impact, they have alongside the establishment of the public long-
some common features that are noteworthy. term care system. There are now some half a
First, all of them have been funded by additional million such policies. The public scheme has
contributions.33 They are not a "free good" but made such insurance affordable by covering the
so far the public has been willing to support first tranche of the costs of long-term care.
them paying the extra contributions.
Reforms to Long-term Care within the Tax
Second, none of the schemes puts all of the Envelope: Sweden, Australia, New Zealand, and
financial burden onto the working population the United Kingdom
and employers.34 All of the schemes require
contributions from pensioners as well. In Countries that already fund both health and
addition, in Austria, Japan, and Luxembourg, a social services largely from general taxation will
substantial share of the cost is spread across all probably have no wish to adopt a social
age groups via general or earmarked taxation. insurance system for long-term care. This
Requiring contributions from all age groups, section examines reforms in four countries that
including from the older population, is important fund long-term care from general taxation.
if such schemes are to be sustained in an aging
society. Targeting within the Nordic model: Sweden.
Sweden has faced the problem of trying to fund
Third, all of the schemes were implemented by long-term care within a very high-cost welfare
existing health insurance or social services system in which additional expenditures were
agencies. These were agencies administering the ruled out. Thus, reform required getting better
existing, rather fragmented dependency outcomes from existing expenditure while not
allowances in Austria, the health insurance giving up the basic principles of the Swedish
schemes in Germany, and the municipalities in system. The approach that the government
Japan. All had experience in assessing and adopted has been to target services, and therefore
delivering benefits to the public, and the use of public expenditure, to the most sick and disabled
these existing and well-known (to the public) and requiring those with lesser disabilities to
mechanisms appears to have been instrumental either buy private services or receive informal
in getting these new and extensive schemes up care from their families.
and running.
The key reform that initiated a period of
considerable change in Swedish long-term care
33 Although these were indirect in Austria, higher was the �del reform of 1992. This involved
health insurance contributions to cover the acute devolving responsibility for all long-term care
health care costs of the elderly were a vital part of the and related services (accompanied by a transfer
package, enabling the launch of a tax-funded scheme. of funds) to the municipalities. This
34There are limits to the extent to which contributions responsibility had previously been divided
can be raised from employees and employers, between the municipalities and the counties.
especially in countries where these contributions are The counties retained responsibility for acute
already high and make up a big proportion of labor care in hospitals, and, as part of their new
costs. If total labor costs are too high, this has
implications for the level of employment, with responsibilities, the municipalities became
resulting erosion of the contribution base. The same financially responsible for older people who
caveat applies to some forms of general taxation. were unnecessarily retained in hospital beyond
51
Financing Long-term Care: Lessons from 19 OECD Countries
the clinically necessary time (so-called "bed received care during the nights and weekends,
blockers") as in principle they should arrange a but by 1997, this had increased to 28 percent.37
suitable package of care to allow these people to Charges to recipients were increased, but these
be discharged. were then capped by the central government in
2002, together with charges for nursing homes.
One of the initial aims of the reforms � to reduce However, recent projections of the future cost of
"bed blockers" � was successfully achieved. In care of older people suggest that the pattern of
1990, it was estimated that as many as 15 care that has emerged following the �del
percent of hospital beds were occupied by "bed reforms may be more sustainable over the longer
blockers," but this had been reduced to around term than was previously thought (Lagergren,
6 percent by 1999. During these years, the 2002). Taking into account recent trends in
counties also drastically reduced bed capacity by improved health among older people results in a
30 percent in short-term care and 55 percent in projection of a 20 to 25 percent increase in
geriatric care between 1992 and 1998.35 spending in real terms between 2000 and 2030,
which is significantly lower than older
One outcome of this considerable change in projections that used a simple demographic
hospital use has been a steady and significant multiplier. Current policies rest on this latest
transfer of responsibility for long-term care to projection. The main issue for the future is not
the municipalities. As this coincided at the how to curb the growth in cost of services but
beginning with a steep recession in the Swedish rather is how to maintain � or increase � the
economy, municipalities were generally unable level of employment among the working-age
to raise new tax expenditure to meet the costs of group to secure the tax base to fund services and
this extended responsibility. In addition, benefits.
between 1990 and 1999, the central government
introduced various controls to cap local Grappling with income and asset testing for
government taxation. The net result has been a long-term care: Australia, New Zealand, and the
considerable increase in targeting and a United Kingdom. A major reform of long-term
qualitative change in the nature of the services care was implemented in Australia in 1997. As
supplied. the financing of institutional long-term care is
primarily a federal (Commonwealth)
As a result, one of the aims of the reforms, � to government responsibility, the reform process
create more "social" nursing homes � has not was highly centralized, with the federal
been met in the face of the overriding need to government consulting with community
"re-medicalize" nursing homes to cater for the representatives and then implementing its
higher nursing and medical needs of residents proposals.
(Johansson, 2000, p. 13).
A major issue for the government was the high
The impact on home care has been even more projected growth rate of the over-80 population,
marked. Between 1990 and 1995, the proportion leading to concerns about the sustainability of
of the older population supplied with home care the pre-1997 system, which was primarily
shrank from between 13-14 percent to around 9 government-funded with small contributions
percent, 36a level that has been sustained since from users. There was also some concern that
1995. However, the volume of help supplied to the separate scales of subsidy for nursing homes
this smaller group was higher. For example, in and for hostels (residential homes with some
1988, 16 percent of home-help recipients care provided) led to inequities in treatment.
Hostels in many cases provided significant
35 amounts of care, especially for older people
The average length of stay in hospitals also fell,
very dramatically in the case of stroke victims from suffering from dementia, but had a subsidy cap
56 days in 1989 to 13 days in 1999. that did not recognize this. This might have
36These data come from the responses to the OECD
questionnaire (see Table 2.3 in Chapter 2). 37See Johansson (2000).
52
Financing Long-term Care: Lessons from 19 OECD Countries
meant that these people would have to be groups and the older public that service users
relocated to a different facility even though the were having to spend down their savings to a
hostel would be willing to increase the level of level that met the social assistance means-test
care that they were providing. level before they could receive any financial
help with their nursing and residential home
To address these concerns, the reform unified costs. Charges for home care were set by local
nursing homes and hostels under one assessment governments according to different local
and subsidy system and introduced income- formulas, which led to concerns about
tested fees to reduce the government subsidy. inequitiesacross the country. In 1997, the
From 1997, all facilities were unified into one recently elected Labour government set up a
system that offers the full continuum of care. Royal Commission to consider options and
The system was subsidized through a single recommend a sustainable system of financing for
funding scale, the Resident Classification Scale, the future.
which was designed to cover the full spectrum of
care needs in any location and to recognize the The Commission argued in its 1999 report that
specific costs of caring for those with dementia. long-term care is a risk that is best covered by
The reforms also unified the previously different some kind of risk-pooling. Having considered
systems for paying for care and accommodation and rejected other options for risk-pooling �
in institutions. Under the reforms, users now such as private long-term care insurance and a
had three possible components of cost to meet � social insurance scheme � the commission
a uniform basic contribution that was designed recommended that nursing and personal-care
to be affordable to those receiving the public costs, both for institutional and home-based
old-age pension, income-tested fees for care, and services, should be financed from general
an asset-tested accommodation payment.38 taxation in the same way as the National Health
Federal subsidies now met any costs not met by Service is financed.
users under these rules.
The UK government responded to these
The outcome of the reforms was evaluated two recommendations as part of a wider program of
years later. The evaluation found that the investment and reform in health services � the
reforms had made it possible to provide a NHS Plan. The government took a different
continuum of care, especially in hostels, and to view of priorities in health and social care for
focus on the needs of those with dementia (Gray, older people than that of the commission. It
2001). They had also increased the average accepted several proposals for ameliorating the
level of user payments through increased means-testing mechanism and to correct the
income- and asset-testing, thereby generating anomaly that nursing care in nursing homes was
enough finance to support the drive to raise currently means-tested rather than provided free
standards in institutional care homes. of charge as in the health service. However, the
government argued that to make all personal
The UK government was also concerned in the care free of charge would involve committing
late 1990s about the sustainability of financing large sums of money with no increase in the
long-term care in the long run. However, it did amount of services available to older people.39
not take the view that its current subsidy of So in 2001 and 2002, the government introduced
institutional care was over-generous, unlike in reforms that reduced the impact of means testing
the Australian case where institutional long-term for institutional care without removing it
care subsidies had been available to most of the altogether. It also issued new guidance to local
population. On the contrary, there was
considerable concern on the part of advocacy
39In Scotland, however, following devolution of
responsibility for health and social care to the
38In Australia, the assets test excludes a significant Scottish Parliament, the commission's central
part of the value of the family home, applying to proposal to provide personal care free of charge has
long-term care the same rule as for pensions. been accepted and implemented.
53
Financing Long-term Care: Lessons from 19 OECD Countries
governments to encourage a more consistent notably by raising the age at which people
approach to charging for home care. qualify for the state pension from 60 to 65.
The New Zealand government that was elected Conclusions about the Future Financial
in 2000 pledged to introduce a number of Sustainability of Long-term Care
reforms to health and long-term care that were
designed to make the system more effective and When confronted with the rising demand for
less costly to the users, as the quality and cost of long-term care, some OECD countries have
care had been a growing public issue throughout beenprepared to raise additional taxes or social
the 1990s. As noted in Chapter 2, separate insurance contributions specifically to finance a
streams of funding for health and long-term care new benefit for long-term care. They have
were brought together under the management of justified this on two main grounds: (i) it
District Health Boards (DHBs) that are funded represents the most efficient way of insuring
by the central government from taxation and that against this risk; and (ii) it yields immediate
have assumed responsibility for all of these benefits to the public in relieving them of high
services (acute health in 2000 and long-term care personal costs or the need to apply for social
in 2003). assistance when their savings have been
depleted.
Most institutional long-term care in New
Zealand is provided in licensed private care Fortunately, the governments who have
homes, and around two-thirds of the residents implemented these benefits have been able to
are eligible for state subsidies through the use high-quality information to predict with
Residential Care Subsidy scheme. However, some accuracy the expected scope and cost of
some long-term care is still provided in public the new benefit, which has helped them to avoid
hospitals, which were the major supplier of this any immediate financial problems. While this
care in the past. The more generous terms has solved short-term problems by generating
available to users of the shrinking number of additional finance, these countries now have a
public sector hospital beds were a major driver significant new commitment to maintain in
of public criticism of means testing. economic bad times as well as good. How
feasible this is may hinge on how far the health
Access to Residential Care Subsidies is income of the older population improves in the future,
and asset-tested, these tests being administered thus containing the size and needs of the target
on behalf of DHBs by the Ministry of Social population. It is far from certain that the long-
Development. The subsidy formula is designed term financial sustainability of their systems is
to keep private cost-sharing below a specified assured.
maximum payment per week. In order to qualify
for the subsidy, the person must have assets The governments of those countries with
below a certain level, leading some users to universal long-term care coverage are concerned
"spend down" their assets, including housing, about the financial sustainability of their systems
before qualifying for help. The impact on in the future as their populations age. In social
housing assets was a major public concern. insurance countries, the governments are
To meet their election commitment, the New currently discussing a number of options for
Zealand government has announced that asset further reform such as improving prevention and
tests for institutional care will be phased out in rehabilitation strategies and broadening the
stages from 2005, leaving a system of income contribution base, for example, by seeking
tests that will on balance be more generous to substantial additional contributions from
the user than the current system. While making pensioners.
a commitment to increasing public costs for
long-term care in future years, it is noteworthy Those countries trying to live within a tax
that New Zealand has taken other measures to envelope have faced difficult choices such as
reduce the public finance costs of aging, most reducing the scope of services while targeting
54
Financing Long-term Care: Lessons from 19 OECD Countries
services to the sickest and most disabled people Another area where more research will be
(Sweden). Other countries with tax-funded needed in the future is the role that preventive
systems have unified all of their systems of measures targeted to the elderly could play in
subsidies and care assessments (Australia). containing spending on long-term care. This is
Means testing has been tightened in Sweden all the more complex because these measures
(where in the past benefits had been offered to typically involve both health and long-term care,
most of the population) and increased for which are often funded from different sources.
residential care subsidies in Australia but has Private long-term care insurance as primary
been relaxed in New Zealand and the UK. cover against disability in old age has played a
very limited role in most OECD countries (see
High private cost-sharing is a common cost- Columbo and Tapay, 2005). However, private
containment measure for public long-term care insurance might play a stronger role in the future
programs. Even "universal" systems may in providing voluntary complementary long-term
exclude important costs such as accommodation care insurance to meet additional costs not
in nursing homes or services of low-level covered by public programs. This type of
support. It is currently too early to judge if complementary insurance becomes more
universal systems with cost-sharing are any affordable when the public system covers the
more or less sustainable than systems based on first tranche of the costs of long-term care.
means-tested benefits.
55
Financing Long-term Care: Lessons from 19 OECD Countries
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Labour Market and Social Policy Occasional and Experimental Research, Vol. 14, Editrice
Paper No. 37, OECD, Paris. Kurtis, Milano, pp. 265-270.
Jarvis, C. and A. Tinker, 1999. "Trends in Old Mattke, S., 2004. "Monitoring and Improving
Age Morbidity and Disability in Britain." Ageing the Technical Quality of Medical Care: A New
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Johansson, L., 2000. Social Protection for Series, Paris.
Dependency in Old Age in Sweden, Katholieke
Universiteit, Leuven. Mercer Limited, 2003. Study to Examine the
Future Financing of Long-term Care in Ireland,
Johansson, L., G. Sundstr�m, and L.B. Hassing, The Stationary Office, Dublin.
2003. "State Provision Down, Offspring's Up:
the Reverse Substitution of Old-age Care in Ministry of Health, Labor, and Welfare, 2004.
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Kj�ller M. and N.K. Rasmussen, 2002. "Danish Ministry of Health, Welfare, and Sport, 2002.
Health and Morbidity Survey 2000 & Trends Health Insurance in the Netherlands: Status as of
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Knickman, J.R. and E.K. Snell, 2002. "The 2030 Mo�se, P., M. Schwarzinger, and M.Y. Um,
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Financing Long-term Care: Lessons from 19 OECD Countries
Netten, A., R. Darton, and J. Williams, 2002. Romoren, T.I., 2003. "The Carer Careers of Son
"The Rate, Causes, and Consequences of Home and Daughter Primary Carers of Their Very Old
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pp.745-.772. Giving." Canadian Social Trends, No. 70,
Autumn.
58
Long-term Care in Germany
Heinz Rothgang
University of Applied Sciences, Fulda
and University of Bremen
Introduction factor.
After more than 20 years of debate, the Long- Particularly after the reunification of Germany,
term Care Insurance Act of 1994 introduced which put a severe burden on the economy and
mandatory long-term care insurance (LTCI) for the public purse, municipalities were
practically the whole population of Germany increasingly unable to bear the costs of
(see Haug and Rothgang, 1994). Interestingly, providing social assistance to the dependent
the introduction of this new welfare state elderly. Therefore, the introduction of a LTCI
component happened under a middle-right was also a way to lift this burden from
government during an ongoing period of municipalities by relieving them of their role as
austerity.40 There were many reasons for this financing agencies for social assistance.
(see Campbell, 2002). First, the "aging of
society" resulting from an ongoing declining Nevertheless, the introduction of a LTCI must
rate of mortality accompanied by constant not be seen purely as an expansion of the
fertility levels below the replacement rate caused German welfare state arrangement. On the one
the number of dependent people in Germany to hand, it was accompanied by cuts in other
increase. Even when the Act was passed, it was welfare state programs, and the relevant federal
clear that the number of dependent people would minister, Norbert Bluem, stated that these
rise over the following couple of decades. retrenchments in some areas were made to make
Second, there was growing concern about who it possible to expand others (FAZ from 22-4-
would care for these dependent elderly. The 1992). Thus, the introduction of long-term care
family as the traditional backbone of care was insurance was part of a program to restructure
seen as a declining resource, while the the welfare state by adopting programs to face
infrastructure for formal care, both home care "new risks" (such as long-term care and poverty
and nursing home care, was underdeveloped due to single parenthood) at expense of
relative to other European countries (Alber and programs that dealt with traditional social risks.
Sch�lkopf, 1999 and Sch�lkopf, 1999). Third, In a way, this was an attempt by "old" social
due to rising fees for nursing homes, almost 80 politicians like Bluem but also by his social
percent of all residents of these homes were democratic equivalent, Rudolf Dressler to save
dependent on social assistance, a situation that the German system as a conservative welfare
was regarded, particularly by conservative social state in the sense that Esping-Andersen (1990)
politicians, as a scandal. According to the has described. Hence the introduction of a
prevailing conception of the welfare state, living classical social insurance system based on the
a "normal life" (in other words, a life with a long pay-as-you-go principle.
record of gainful employment or as dependent
spouse of such a person) should guarantee that On the other hand, the newly introduced LTCI
no means-tested social assistance would be contains new elements that can be seen as a
required in old age. This principle had clearly natural extension of the ongoing restructuring of
been violated, and the fact that so many nursing the welfare state. For example, benefits are
home residents depended on social assistance capped, the contribution rate is legally fixed, and
was the standard argument in favor of claims for benefits are assessed by an agency
introducing an LTCI from a social policy point run by the LTCI rather than by providers of care
of view. The introduction of a LTCI, however, (as in health insurance) in order to prevent moral
cannot be explained without adding a fourth hazard. With respect to these new elements,
which together mark the shift from a needs-
driven to a budget-driven system (Rothgang,
40The latter is also true for the Japanese LTCI. See 1994), the new system contributed to the
Campbell and Ikegami, 2003 for an account of this.
59
Long-term Care in Germany
reshaping of the welfare state in the age of insurance are obliged to buy private (mandatory)
permanent austerity (Pierson, 2001). LTCI guaranteeing at least as much coverage as
the public scheme does. Consequently, the same
The LTCI that resulted from these considerations definition of dependency holds for both
has been operating for more than 10 years now. insurance systems, though different agencies are
This paper discusses the peculiarities of this responsible for making individual assessments.
system and its successes, failures, problems, and As a result about 89 percent of the population is
reform options.41 The first section outlines the now covered by the public LTCI and 9 percent
institutional framework of the LTCI. In the two by the private LTCI. There are specific systems
subsequent sections, an account is given of the for 2 percent of the population, including police
services provided by the LTCI and the fiscal side and firemen.43 Since all insurance benefits are
of the system respectively. The fourth section capped, private co-payments remain important,
assesses the system's problems and related and means-tested social assistance still plays a
reform options, and the fifth section does the vital role, particularly in nursing home care
same specifically for the health sector's where about 30 percent of all residents still
financing system. The conclusion discusses the receive social assistance. At the state level, the
lessons that can (or cannot) be learned from the "Laender" (in other words, the 16 provinces
German experience. with different legislation) are responsible for
subsidizing the building and modernization of
Long-term Care in Germany: The nursing homes, thus reducing private co-
Institutional Setting payments and social assistance expenditure.
In legal terms, the "need for long-term care" (or Public LTCI follows the pay-as-you-go
"dependency") refers to those people who are � principle, while private mandatory LTCI is
as a consequence of illness or disability � unable partially funded with the addition of individual
to perform the activities of daily living (ADLs) saving accounts for the young that will yield
independently for an expected period of at least income when the members grow older. In
half a year. principle, this mechanism should guarantee a
constant premium for the whole of the
Until the introduction of Long-term Care contributor's life.
Insurance (LTCI) in 1994, there was no
comprehensive public system for financing long- Public LTCI is financed almost exclusively by
term care in Germany. Dependent people or contributions, which are income-related but not
their families had to pay for care services � risk-related. In the case of those who are
when they used them at all � out of their own employed, employers and employees pay 50
pockets, with only means-tested social percent each of the worker's premium. The
assistance as the last resort for those who had employers' part is tax-free. In order to
exhausted their assets and could not otherwise compensate employers, the federal government
afford the necessary formal care. In effect, abolished one national bank holiday. Originally,
approximately 80 percent of the people in pensioners also had to pay half of the
nursing homes relied on social assistance.42 The contribution, while the other half was financed
LTCI Act of 1994 established public long-term from pension funds. Since 2004, pension funds
care insurance and mandatory private long-term no longer contribute, leaving the whole premium
care insurance that together covers almost the to be paid by the pensioners. In the case of the
whole population. Members of the public health unemployed, their contributions are completely
insurance system become members of the public financed by unemployment insurance.
LTCI scheme, and those who have private health Contribution rates are calculated as 1.7 percent
of gross earnings up to an income ceiling of
3,525 Euro per month (2005 figure). Income
41See also Rothgang, 2002a for an account in the from other sources such as assets or income
Japanese language.
42 See Rothgang, 1997: 215ff. See also Pabst and
Rothgang, 2000 for the situation before LTCI was 43 For civil servants (Beamte), special additional
introduced. systems (Beihilfe) remain in place.
60
Long-term Care in Germany
from rent and leases is not considered in how long it takes a non-professional carer to
calculating contributions. The contribution rate help the dependent person (see Table 1).44
can only be changed only by an act of
Parliament. The LTCI benefits are set by law. Beneficiaries
(and their relatives) may choose between
From 2004 onwards, insured people aged 23 or different benefits and services. It is important to
older who have never been parents have to pay note that this choice is up to the beneficiaries
an additional contribution rate of 0.25 percent. and not to care managers, state agencies, or
This extra contribution was introduced to fulfill long-term care insurance funds. The LTCI
a verdict of Germany's Federal Constitutional benefits are for home care, day and night care,
Court dating from 2001 ruling that families were and nursing home care. People in home care can
disadvantaged by having to pay contributions as choose between in-kind benefits for community
anyone else for themselves while also having to care and cash benefits. Cash benefits are given
raise future contributors to the system (their directly to the dependent person, who can
children) at their own cost. In economic terms, choose to pass it on to a family carer. However,
families thus produce a positive externality that there is no obligation for the dependent person
benefits for all insured people, and the Court's to do so, and the use of cash benefits is at the
argument was that this benefit had to be beneficiary's discretion. Community care is
internalized in the interests of both efficiency provided by both non-profit and for-profit
and justice (see Rothgang, 2001). While the companies. Up to certain ceilings (see Table 2),
Court aimed to reduce the burden on families, their bills are covered by LTCI funds. Cash and
the legislature instead raised the contribution in-kind benefits may be combined. For
rates of those without children, ignoring the example, if a family carer is on vacation, the
Court's justification that clearly indicates that LTCI will cover the expense of a professional
the number of children is also relevant to carer for a period of up to four weeks � up to a
determining just contributions. Although the ceiling of 1,688 Euro. This is a benefit in its
resulting regulation was criticized by all experts, own right but is weighted against other claims
it was nevertheless implemented (Schm�hl and for home care. There is also a small grant for
Rothgang, 2004). special aides, and the insurance funds offer
courses for non-professional carers.
Public LTCI is administered by different LTCI
funds. Since the benefits, as well as the In nursing home care, the dependent person is
contribution rates, are common and all expenses responsible for paying the costs of housing and
are financed by the sum of all contributions � catering (so-called "hotel costs"). Hotel costs do
irrespective of which fund is responsible � there not include the annuities resulting from building
is no competition between these funds. or modernizing nursing homes. These
"investment costs" are partly financed by the
In contrast with the Japanese Long-term Care provinces and partly by the nursing home
Insurance, in Germany, entitlement is residents themselves. Only care expenses are
independent of the age of the dependent person. co-financed by LTCI funds up to a certain
However, almost 80 percent of all beneficiaries ceiling (see Table 2). LTCI funds pay the
are 65 years old or older and more than 50
percent are at least 80 years old (own
calculations based on information from the 44Of course, there are also less dependent people who
Department of Health for 2004). The do not qualify for LTCI benefits. According to a
entitlement to claim benefits is based on whether representative survey conducted in 2002, there were
the individual needs help with carrying out at 1.4 million dependent people in private households
least two basic and additional instrumental who would qualify for LTCI benefits, but there were
activities of daily living (ADLs and IADLs for also about 3 million older people who needed help,
an expected period of at least six months. Three mainly with IADLs, who would not qualify for LTCI
levels of dependency are distinguished benefits (Schneekloth and Leven, 2003, p. 7). Thus,
depending on how often assistance is needed and in private households, there are about an additional
2.1 people in need of some help for every recipient of
LTCI benefits.
61
Long-term Care in Germany
Table 1: Definition of Dependency
Level I: Level II Level III
Need of care with At least once a day with At least thrice a day at Help must be available
basic ADLs at least two bADL different times of the around the clock
day
Need of care with More than once a week More than once a week More than once a week
instrumental ADLs
Required time for At least 1.5 hours a day, At least 3 hours a day At least 5 hours a day
help in total with a least .75 hours for with at least 2 hours for with at least 4 hours for
bADL bADLs bADLs
Source: � 15 SGB XI.
Table 2: Amount of LTCI Benefits (Major Types of Benefits)
in Euro / per Home care Day and night care Nursing home care
month
Level Cash benefits In-kind benefits In-kind benefits In kind benefits
I � moderate 205 384 384 1,023
II � severe 410 921 921 1,279
III � severest 665 1,432 1,432 1,432
Special cases 1,918 1,688
Source: ��36-45 SGB XI.
Table 3: Average Monthly Rates for Nursing Homes, LTCI Benefits, Co-payments in 2002
in (1) (2) (3) (4) (5) (6)
= (1) + (2) = (1) - (4) = (3) - (4)
Level of care care costs Accommodati daily rate LTCI co-payments, Co-payment,
on and food (investment benefits care costs care and hotel
excluded) only costs
Level I 1.172 738 1.910 1023 149 887
Level II 1.558 738 2.296 1279 279 1.017
Level III 1.979 738 2.717 1432 547 1.285
Source: AOK
62
Long-term Care in Germany
pension contributions of informal carers,45 who provincial level have been abolished or are in
are also covered by accident insurance without the process of being abolished.46 In theory these
having to pay contributions. In general, all needs-planning systems were meant to prevent
benefits are capped or given as lump sums. under-supply by subsidizing, for example, the
Table 2 contains the respective amounts of building of nursing homes. In practice,
money for the most important types of benefits however, this often meant that government
as laid down in the Sozialgesetzbuch, 11. Buch agencies would not allow new providers to enter
(SGB XI). As the table shows, in-kind benefits the market because there was already
for home care are about twice as high as cash "sufficient" supply to meet needs.
benefits, while day and night care is in line with
in-kind benefits. In grades I and II, benefits for The LTCI funds and municipalities are expected
nursing home care are higher than for home to create information centers to increase the
care. Only in grade III are benefits for all types transparency of the formal care market and to
of formal care the same. This policy was aimed correct any inaccurate information about LTCI
at preventing a shift towards nursing home care activities and benefits. LTCI funds also have to
as a result of the introduction of LTCI. provide comparative price lists to LTCI
beneficiaries, which have recently had to be
LTCI funds provide co-payments that, in transformed into a list of prices and services.
general, are not sufficient to cover the costs of Since the attempts to empower beneficiaries
formal care at home (see Rothgang, 2000) or in have not been sufficient, additional legislation
a nursing home. As Table 3 reveals, LTCI (pflege-Qualit�tssicherungsgesetz) was passed
benefits are even insufficient to cover average in July 2001 that aimed to guarantee minimum
care costs. Since residents are responsible for quality levels. Moreover, LTCI funds and
paying for hotel costs, co-payments are quite providers have to sign contracts that regulate
substantial, particularly if an average monthly quality standards. Unfortunately, these standards
amount of about 300 for investment costs is relate to structure and process rather than to the
added. outcomes of care. While the system of
regulation is tight in the area of formal care,
Moreover, there are no regulations concerning there is hardly any quality control for the care
how benefits can be adjusted by the federal provided by families.
government. Until the time of writing, benefits
have never been adjusted, not even for inflation, The prices of formal care are agreed in a process
while prices for nursing home care, to give one of collective bargaining between providers and
example, have gone up by 10 to 15 percent. financiers, in other words, LTCI funds and social
Consequently, the purchasing power of LTCI assistance bodies. If agreements are not
benefits is declining. reached, a so-called arbitration board
(Schiedsstelle), whose members have been
The LTCI Act aimed to introduce competition nominated from both sides, decides.
between providers of long-term care. To this
purpose, all of the privileges of non-profit Provinces have the responsibility for financing
providers have been abolished, and the LTCI investments in the provision of long-term care
funds are obliged to contract with any provider � services. Regulations vary greatly among the 16
irrespective of need. Hence, barriers to entering provinces. Some states directly invest in, for
the market have been torn down. In particular, example, nursing homes, while others only
planning systems for service provision at the
45 The amount of contributions differs according to
the extent of the dependency of the person cared for 46Only gradually did all L�nder governments realize
and the time spent caring. Contributions to pension that they must no longer prevent providers from
funds require a minimum of 14 hours of care work a entering the market or subsidize particular providers
week. The minimum contribution paid is 26.7 percent to give them an advantage against newcomers. This
of a full-time employee's average salary, while the realization has mainly been due to recent rulings by
maximum is 80 percent of this amount. their respective courts.
63
Long-term Care in Germany
provide subsidies for dependent older people aim to integrate younger disabled people into
living in nursing homes who rely or would working life.
otherwise rely on social assistance
(pflegewohngeld). In order to help East The beneficiary's opportunity to choose between
Germany to "catch up" with the former West different care arrangements and respective
Germany, however, a special program was set up benefits is one of the innovations of the LTCI
that invested about 500 million Euro a year in Act. Therefore, it is interesting to take a close
the former East Germany between 1996 and look at the development of these arrangements.
2003. The central government covered 80 In the next subsection, I review some patterns in
percent of this amount as long as the respective the development of care arrangements over the
region provided the remaining 20 percent share. last decade, and in the following subsection, I
discuss expected future developments.
With respect to regulation, collective bargaining
between providers of services and funds is the The Current Situation
predominant governance structure within a neo-
corporatistic framework (gemeinsame Long-term care insurance was phased in
Selbstverwaltung). Providers and payers agree gradually. The first contributions were due in
on guidelines of good care and requirements for January 1995, but benefits for home care did not
good quality that must be met if providers are to start being dispensed until April. Nursing home
be allowed to enter the care market. At the care benefits only came into being in July 1996.
provincial level (Landespflegeaussch�sse) and Between 1997, the first year when the system
the federal level (Bundespflegeausschu�), was fully operating, and 2004, the number of
coordinating bodies have been established that beneficiaries increased by about a quarter of a
include representatives of all of the relevant million, which equals about 34,000 per year on
actors. However, these bodies are more of a average. The highest growth rates however,
forum for discussion and communication than occurred in the early years of the system when
for decision-making. In some regions, such the population still had to get used to having a
coordinating bodies have also been established right to benefits. In the last five years, an annual
at local levels (see Eifert and Rothgang, 1997 for growth rate of 2 percent was exceeded just once
details). Generally, LTCI funds are the most (Figure 1). Thus, there has been no "explosion"
important actors in the field. They are of the number of beneficiaries but rather slight
responsible for contracts with care providers but steady growth. However, the gradual shift in
(including admission to the market and prices), care arrangements is even more interesting
pay (for in-kind care), and cash benefits. The (Figures 2 and 3).
Medical Services of the Health Insurance system
(Medizinischer Dienst der Krankenversicherung From 1997 to 2004, the share of dependent
or MDK) perform the assessment to determine people in public LTCI has increased from 27 to
whether an individual is entitled to benefits. For 32 percent (Figure 2). At the same time, the
private LTCI, Medicproof, a private company, share of those dependents who are informally
carries out this task. cared for at home decreased from 78 to 72
percent (Figure 3). So, while about half of all
The Provision of Care dependent people are still cared for without the
involvement of any professional carer, this
Long-term care is often provided informally by figure has fallen from 56.7 to 48.9. This drop of
families and friends � mainly spouses, 7.8 percentage points clearly indicates the
daughters, and step-daughters � as well as growing involvement of formal care services in
formally by public and private (profit and non- care-giving.
profit) care providers. Formal care is provided in
private households (in other words, home care); With respect to the levels of dependency, Figure
day and night care centers, and nursing homes 4 reveals that the share of dependent people who
for older people. Long-term care is also fall under level I is growing, whereas the share
provided in nursing homes for the disabled, in both level II and level III has declined. Since
although in Germany these institutions mainly the share of the very old (those aged 75 and
over) among the beneficiaries has not decreased
64
Long-term Care in Germany
Figure 1: Number of public LTCI beneficiaries
2,050 8,0
2,000 y = 0,0336x + 1,6727 7,0
in 1,950 R2 = 0,8904 6,0 .
1,900 5,0 rate
1,850 4,0
beneficiaries Mio growth
of 1,800 3,0
1,750 2,0
Annual
Number 1,700 1,0
1,650 0,0
1,600 -1,0
1997 1998 1999 2000 2001 2002 2003 2004
Year
Beneficiaries of Public LTCI in Mio. Annual growth rate
Linear (Beneficiaries of Public LTCI in Mio.)
Figure 2: Share of Dependent Persons in
Home Care and Nursing Home Care
100%
90%
.
80%
70%
60%
50%
beneficiaries
all 40%
of 30%
% 20%
in
10%
0%
1996
(last 6 1997 1998 1999 2000 2001 2002 2003 2004
months)
nursing home care 23,3 27,1 28,7 28,9 29,6 30,1 30,5 31,0 32,1
home care 76,7 72,9 71,3 71,1 70,4 69,9 69,5 69,0 67,9
65
Long-term Care in Germany
Figure 3: Beneficiaries in Home Care
.
100%
care
80%
home
in 60%
40%
beneficiaries 20%
all
of 0%
% 1996
in 1995 (last 6 1997 1998 1999 2000 2001 2002 2003 2004
months)
in kind benefits 7,9 8,9 9,6 10,6 11,5 12,2 12,2 12,3 12,6 12,7
combination 7,9 11,4 12,6 13,5 14,5 14,8 15,2 15,2 15,1 15,3
cash benefits 84,3 79,6 77,8 75,9 74,0 73,0 72,6 72,5 72,2 72,0
Figure 4: LTCI beneficiaries according to level of
dependency
60
. 50
40
30
beneficiaries
all
of 20
%
in 10
0
1997 1998 1999 2000 2001 2002 2003 2004
Level I 43,9 46,3 47,8 49,0 49,8 50,6 51,2 51,5
Level II 40,7 39,3 38,3 37,5 36,9 36,3 35,8 35,6
Level III 15,4 14,5 14,0 13,5 13,2 13,1 12,9 12,9
66
Long-term Care in Germany
Figure 5: LTCI beneficiaries in nursing home care
according to level of dependency
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1997 1998 1999 2000 2001 2002 2003 2004
Level III 24,5 22,1 21,1 20,6 20,1 20,0 19,8 19,8
Level II 41,0 41,2 41,5 41,8 42,0 41,6 41,4 41,2
Level I 34,5 36,7 37,4 37,6 37,9 38,4 38,8 39,0
but rather has slightly increased, this could be family carers to the dependent people they care
the effect of tighter assessments by the MDK. for. Not surprisingly, about three-quarters of all
main carers are female. However, over the last
Even more puzzling is the growing share of decade, this share has decreased by 10
level I dependent people among beneficiaries in percentage points. As the table shows, care by
nursing home care (Figure 5). The LTCI Act spouses or partners has decreased over the last
states a preference for home care over nursing decade from 37 percent in 1991 to 28 percent in
home care. Correspondingly, benefits for 2002, while the share of other groups among
nursing home care must only be granted if home main carers on the other hand is fairly stable.
care is "impossible," which was thought to be Today, 42 percent of carers are the children or
the case for dependent people in level III and daughters-in law of the dependent elder, which
partly in level II but only rarely in level I. Thus, highlights the importance of inter-generational
it was expected that there would only be a small care and also the vulnerability of the care
and decreasing share of moderately dependent system to the fact that the ratio of children to the
people in nursing homes. dependent elderly is declining.
As Figure 5 shows, however, the share of With respect to formal care, the LTCI Act
dependent people in level I has been increasing triggered an expansion of capacity. In both
constantly, from 34.5 percent in 1997 to 39.0 nursing home care and home care, the number
percent in 2004. This can partly be explained by of providers doubled between 1992 and 1997.
the benefit structure. For those in level I, However, the official figures should not be over-
benefits for nursing home care are much higher interpreted. As residential homes for the elderly
than for home care (Table 2), while co-payments were re-founded as nursing homes and as
on the other hand are smaller than for those in former informal help systems (such as those
levels II or III (Table 3). Thus, there are organized by churches) transformed themselves
incentives for beneficiaries to choose nursing into formal care providers, there are no valid
home care, particularly for those in level I who time-series data showing the exact expansion of
may not always need that degree of care. capacity before and after the LTCI Act. Table 5,
therefore, concentrates on the development from
Table 4 gives an overview of the relation of 1999 onwards for which reliable data exist.
67
Long-term Care in Germany
Table 4: Main Carer of Dependent People in Private Households
Share in % 1991 1998 2002
Sex
Male 17 20 27
Female 83 80 73
Relation of Carer to Dependent Person
Husband or (Male) Partner 24 20 28
Wife or (Female) Partner 13 12
Mother 14 11 12
Father 0 2 2
Daughter 26 23 26
Son 3 5 10
Daughter-in-law 9 10 6
Son-in-law 1 0
Other Relative 6 10 9
Neighbor / Friends 4 7 8
Residence of Main Carer
Co-resident 78 73 62
Separate Household 22 27 38
Sources: Schneekloth and Potthoff, 1993, 126; Schneekloth and M�ller, 2000, 52; and Schneekloth and Leven,
2003: 19.
Table 5: The Capacity of the Formal Care Sector
Home Care Nursing Home Care
Number of Employees Full-time Number of Number of
Providers Employees Providers Beds
1999 10,820 183,782 56,914 8,859 645,456
2001 10,594 189,567 57,524 9,165 674,292
2003 10,619 200,897 57,510 9,743 713,195
1999-2001 -2.1 3.1 1.1 3.5 4.5
2001-2003 0.2 6.0 0.0 6.3 5.8
1999-2003 -1.9 9.3 1.0 10.0 10.5
Source: Federal Bureau of Statistics
Table 6: Projections of the Number of Dependent People
Assumption about Age-specific Growth in Number of Dependent Source
Dependency Rates People until 2040
Constant 50-75% Hof, 2001
Constant 60% Dietz, 2002
Constant 60% Rothgang, 2002b
Constant 80% Ruerup �Commission, 2003
Declining 45% Rothgang, 2002b
68
Long-term Care in Germany
While the number of providers and the overall vanishing. This has been partly reinforced by
capacity of nursing home care (measured by the the introduction of the LTCI, which regards
number of beds) are still growing, the picture is long-term care as the responsibility of society as
more complex for home care. The number of a whole, thus making clear that it is no longer a
providers decreased slightly between 1999 and purely family obligation.
2003, while the number of employees grew.
Obviously, this must reflect a process of Projections therefore assume a shift towards
concentration and also changes in staff structure formal care, which, however, could either lead to
leading to a growth in the number of part-time more nursing home care or to a strengthening of
employees. Overall, from 1999, (in other words, formal home care.
well after the end of the initial boom to 2003),
capacity in home care stopped growing. Fiscal Developments
Future Developments While the last section dealt with the provision of
care, this section treats the other side of the coin,
In the future, the number of dependent people that of financing. After giving an account of the
can be expected to grow and care arrangements past and present situations, we present the
can be expected to change. According to OECD results of some projections, thus laying ground
figures, the number of people aged 65 or older for the discussion of reform debates and
and 80 or older will grow by 80 percent and 130 proposals in the following section.
percent respectively by 2040. Since these are
the age groups with the highest dependency The Current Situation
rates, the number of dependent people will also
increase. Projections based on constant age- While beneficiaries tend to choose cash benefits,
specific and sex-specific dependency rates show public LTCI funds spend more on nursing home
growth rates of between 50 and 80 percent. care because this type of care has higher per
Assuming a decline in age-specific dependency capita benefits. . Over time, the proportion of
rates (as assumed, for example, by Jacobzone et LTCI spent on nursing home care is even
al, 1998) results in much lower but still increasing (Figure 6). This demonstrates once
considerable growth rates (Table 6). again the past and potential future fiscal effects
of a shift in long-term care towards nursing
As demonstrated above, over the last decade home care.
formal care has partly begun to substitute for
family care. A further shift to formal care can be What is most important for the sustainability of
expected to occur in the future due to at least the long-term care insurance system, however, is
four factors. First, for demographic reasons the balance sheet. As Figure 7 demonstrates, this
alone, the number of potential caregivers will be balance has been deteriorating constantly from
declining. The share of widowed dependent high surpluses in the mid-1990s to considerable
elderly will decline as the war generation is deficits in recent years. Current deficits can be
gradually replaced by post-war generations so met by money in the reserve fund, which was
there will be fewer dependent elderly who need accumulated in the first three months of public
to be cared for. However, the ratio of children LTCI, when only contributions were paid but no
per dependent person is also declining. Second, benefits were granted and which was further
female labor market participation is likely to filled by the considerable surpluses of 1996 and
increase, which will increase the opportunity 1997.47 The deficits of 2003 and 2004 however,
costs of care-giving for women. This is started to drain this reserve fund, which will
reinforced by the fact that future female cohorts only last until 2007/08 according to government
will be better educated and may earn higher projections.
wages than their mothers and grandmothers.
Third, the share of single households among the
elderly is expected to grow (Alders and
Manting, 2003; Hullen, 2003; and Mai, 2003). 47 In 1995, a loan of 560 million was given to the
Finally, as surveys reveal, the moral obligation central government, which paid it back without
to care for dependent parents is gradually interest in 2002.
69
Long-term Care in Germany
Figure 6: Structure of expenditure on benefits
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
Cash benefits Home care
Respite care Contributions to pension funds for carers
Technical Aids Nursing home care
Others
Figure 7: Balance sheet of public LTCI
5,000
4,000
. 3,000
n
2,000
millio
in
1,000
0
-1,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Balance 3440 1180 800 130 -30 -130 -60 -380 -690 -823
Liquidity 2870 4050 4860 4990 4950 4820 4760 4930 4240 3417
70
Long-term Care in Germany
Figure 8: Growth Rates of Contributions and Expenditure
5,0
4,0
.#
3,0
year
2,0
preceding
of
% 1,0
in
0,0
1998 1999 2000 2001 2002 2003 2004
-1,0
Year
Annual growth rate of expenditure Annual growth rate of contributions
In order to explain this development, it is Comas-Herrera, 2003), and entitlement for LTCI
necessary to look at annual growth rates for benefits is based on a rigorous assessment by the
contributions and expenditure, which are given Medical Service of funds to preventing any ex
in Figure 8. In every year except 2001, the ante moral hazard, which might have been
expenditure growth rate was higher than the expected if service providers were to make these
contribution growth rate. Not that the growth assessments. A recent revision of the assessment
rates for expenditures were extraordinarily high. guidelines that aimed to reduce regional
Since 2000, the growth rate has exceeded 2 variations in assessment results actually reduced
percent only once, and from 1997 to 2003, the the number of claims that were approved.
geometric mean was a mere 2.2 percent. Second, all benefits are capped and have not
been adjusted since 1995, not even for inflation.
The actual deficit has instead been caused by So, while the assessments have prevented any
disappointing growth rates for (nominal) explosion of the number of beneficiaries, the
contributions. From 1997 to 2003, the average benefit caps have controlled expenditure per
annual growth rate of nominal contributions was beneficiary. Of course there is a price to be paid
0.8 percent (geometric mean). In 2003, for cost containment of this kind. First, the tight
contributions actually declined and in 2004, they definition of dependency has meant that people
remain practically unchanged. Thus, growth with dementia are entitled to LTCI benefits only
rates of contributions have been much lower insofar as they need help with the activities of
than had been projected by government agencies daily living as the assessment does not evaluate
and researchers alike. or take into account the general need for
supervision. Second, due to the benefit caps,
Both of these developments � the moderate there is still a large amount of out-of-pocket
growth rates for expenditure and the payments, which is unusual for the traditional
disappointing growth rates for contributions � German social insurance system, and still
need to be explained. The moderate growth of considerable amounts of social assistance being
expenditures has been due to two major factors. claimed, which should have been reduced by the
First, the insurance system is based on a tight introduction of the LTCI. Moreover, the fact
definition of dependency (see Rothgang and that the benefits have never been adjusted in a
71
Long-term Care in Germany
decade has caused the purchasing power of decades has been that the problems in one
LTCI benefits to decline, which will eventually branch of the insurance system have often been
lead to a de-legitimization of this branch of resolved at the expense of others. As for the
social insurance. This is why it is simply not existing reserve fund, the LTCI has been used as
feasible to continue to control costs by capping a melting cow for other branches of social
benefits but never adjusting their value. security. In addition, LTCI contributions have
suffered from the general trends that have
The slow growth of contributions is partly an affected all branches of social security, namely
effect of certain social policies. Certain changes the reduction in the number of jobs that are
in social law have reduced contributions either subject to social insurance contributions,
explicitly or implicitly. For example, in 2000 cyclical and structural unemployment, and low
the federal government reduced contributions for (if any) rises in wages and pensions.
the unemployed, which have to be financed by
the unemployment insurance, because, at that Thus, it is an irony of history that LTCI
time, it was beset with fiscal problems. financing is in trouble despite successful cost-
Similarly, the introduction of so-called mini-jobs containment because of inadequate contributions
and midi-jobs, that is jobs earnings up to 400 partly caused by social policy regulations aimed
and 800 a month respectively, reduced the at solving problems in other branches of social
amount of contributory income to the LTCI security. Even if contributions were to rise
funds as these workers are exempt from making faster in the future, that would not be sufficient
regular contributions. This effect is likely to to balance the LTCI budget because the ongoing
become yet more noticeable as normal jobs are decline in the purchasing power of LTCI
increasingly transformed into mini-jobs. benefits will eventually undermine the
Something similar is happening to the old-age legitimacy of the insurance system.
security system. Since the public pension
system is disintegrating, the government has As mentioned before, the capped benefits are
introduced new opportunities for sacrificed insufficient to cover even the assessed needs of
compensation to give private providers an the current number of dependent people in
incentive to enter the market, which also has Germany. Consequently, both private financing
reduced the amount of contributory income. A and social assistance still play an important role
general feature of social policy over the last in financing long-term care (Table 6).
Table 6: Sources of Funding for Long-term Care
Source of Funding In million Euro As % of Public / As % of All
Private Spending Spending
Public Funding 24,230 100 75
Public LTCI* 17,360 79 60
Private Mandatory LTCI* 0,520 2 2
Social Assistance 2,900 13 10
Investment Financing* 1,070 5 4
Public Accident Insurance 0,080 0 0
Out-of-pocket Private Funding** on: 7,220 100 25
Nursing Home Care 5,050 70 17
Home Care 2,170 30 7
Total 29,160 100
Notes: * Cash allowances are included ** Estimated.
According to the figures in Table 6, about one- which means that this system is still very
quarter of all funding is out-of pocket, and important in the financing of long-term care.
another 10 percent comes from means-tested
assistance. About 80 percent of public funding Social assistance expenditure on nursing home
and 60 percent of all funding comes from LTCI, care nowadays is less than one-third of what it
72
Long-term Care in Germany
Figure 9: Social assistance for nursing home care:
Number of beneficiaries and expenditure
300 6.000
250 5.000
. .
200 4.000
tsd. tsd.
in in
150 3.000
100 2.000
beneficiaries expenditure
50 1.000
0 0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
beneficiaries 268 288 219 187 160 191 203 196 186 187
expenditure 5.796 5.755 4.453 2.133 1.894 1.923 1.895 1.910 1.948 1.905
was in 1995. The number of beneficiaries has in expenditure of up to 0.5 percent per year can
also dropped considerably but still is about two- also be expected. If we assume that benefits are
thirds of the 1995 figure (Figure 9). The likely to be increased by about 2 percent per
introduction of LTCI has not been as successful year, this adds up to a 4 percent growth rate per
in terms of the number of beneficiaries as it has year in expenditure, which simply cannot be
been in terms of reducing the fiscal burden on financed if the contribution rate stays the same.
municipalities.
Table 7 contains the results of some projections
Future Developments on the contribution rate that all assume rising
real wages but differ with respect to what drives
Projections can be made concerning the the adjustment. As long as benefits are adjusted
expenditure of public LTCI funds and the only for inflation, the current contribution rate
contribution rate. Due to demographic changes, will suffice albeit with deteriorating purchasing
both the number of beneficiaries and the funds' power. However, as soon as we assume that an
expenditure levels can be expected to increase adjustment will be made (partly) according to
by about 1.2 to 1.5 percent per year. Due to wages, the contribution rates are projected to
changes in care arrangements, an additional rise rise.
Table 7: Projected Contribution Rate in 2040
Projections Adjustment according to Source
1.6 � 2.1 Inflation Rothgang, 2002a
3.6 � 3.9 Average wages and salaries Rothgang, 2002a
3.0 (Average wages + inflation) / 2 Ruerup �Commission, 2003
Reforming Market Regulation and the regulation and to the benefit structure. While
Benefits Structure some debates have already led to changes in the
institutional structure, most center on future
Part of the reform debate relates to market reforms.
73
Long-term Care in Germany
Market Regulation disadvantage. Even worse, social assistance was
denied if dependent person were to go to a
With respect to market regulation, two issues nursing home that did not receive public
have dominated the debate � the relationship subsidies. Thus, the market was effectively
between competition and planning on the one closed to newcomers. However, following a
hand and the mechanisms by which ruling from the Federal Court of Social Law in
remuneration for nursing homes is determined 2001, regulations of this kind were abolished or
on the other. are about to be abolished. Today therefore,
provinces have reduced their planning activities
Competition and Planning. While competition and are allowing more competition.
between health insurance funds was introduced
in the early 1990s, there is no competition Remuneration of Nursing Home Care. Daily
among LTCI funds. All funds offer identical rates for nursing homes are set as a result of a
benefits and require an identical contribution bargaining process between LTCI funds and
rate and have identical contracts with providers. social assistance agencies on the one side and
Moreover, an equalization scheme guarantees the providers on the other side. Rates are
that all expenses are covered by all differentiated according to three classes that by
contributions. Hence, in effect, all funds are just and large follow the three levels of care.
branches of one LTCI. Competition is among Recently, this system of pricing has been
(contracted) providers for contracts with challenged on three counts.
dependent people and their families, who choose
not only among different providers of services First, the legitimacy of the bargaining system
but also between two different care has been questioned. Funds negotiate with
arrangements, in other words, between buying providers over rates for care although they only
formal care or relying on the help of family or finance benefits that fall well below those rates.
friends. The choice between cash benefits and Furthermore, they are also responsible for
in-kind benefits enhances this make-or-buy negotiating rates for accommodation and food,
decision for each household. As the increased which they never finance and are thus not
use of formal services implies a reduction in the affected by the results of negotiations. This also
receipt of cash benefits, there is an implicit co- applies to municipalities, which negotiate on
payment for all service use that prevents over- behalf of residents of nursing homes who never
use and produces some price elasticity of receive any social assistance. Funding agencies
demand. thus negotiate only as advocates for their clients
without being (fully) affected by the results of
The intensity of competition in these the negotiations. Therefore, many experts are
circumstances heavily depends on how much now advocating in favor of introducing market
access providers have to the market. The LTCI pricing in those regions with sufficient supply of
Act tried to intensify competition by stripping providers. As residents of nursing homes are
public and private non-profit providers of all of captive consumers, it would be vital to
the privileges that they had traditionally had. implement regulations to protect them from
Moreover, the LTCI Act entitles every provider abrupt rises in rates. Similar regulation already
that fulfils certain formal criteria to a contract exists for rented flats. Furthermore, a maximum
with the LTCI funds � irrespective of need. rate would have to be fixed for recipients of
Since benefits are capped and providers do not social assistance, for example, based on the
assess beneficiaries' entitlement to benefits, the average rate. For those users not eligible for
federal government did not regard oversupply as social assistance, the co-payment resulting from
a problem for the system. capped benefits would act as an incentive
against ex post moral hazard.
At the provincial level, however, this was seen
differently. Laender governments restricted their Second, the unit for pricing has been challenged.
subsidies to those nursing homes that they Since only three classes exist, there is a lot of
regarded as "necessary." Without public heterogeneity within each class. Thus, nursing
subsidies, the daily rates were higher, putting the homes must charge the same rate for people
nursing homes that did not receive subsidies at a needing very different amounts of care. Even if
74
Long-term Care in Germany
the number of classes were to be increased to initiative.
five as in Japan, the problem would still exist. A
more fundamental change would be to introduce Benefits for People with Dementia. By now, all
the same units as in formal home care, which is political parties and all experts agree that people
about two dozen service packages with dementia are discriminated against.
(leistungskomplexe) such as bathing and Dependency is defined only with respect to
morning toilet. This would also help to blur the ADLs without taking into account the particular
distinction between home care and nursing home needs of people with dementia. Consequently,
care. Alternatively, classification systems such many people with dementia do not qualify for
as those used by the Resource Utilization Group LTCI benefits or receive benefits for moderate
System could be implemented, which dependency (level I) even though they need care
distinguishes among 44 classes of dependency. and supervision around the clock. From 2002
onwards, additional benefits for dependent
Third, the base for price negotiations itself is people with dementia in home care were
being questioned. Although prospective introduced as a first step towards solving this
budgeting is used, in practice the costs incurred problem. These benefits are earmarked for day
by each nursing home in the past still influence and night care, respite care, or related services.
what daily rate it can achieve in the negotiations. However, the maximum annual amount to be
Therefore, nursing homes have no incentive to spent on those additional services was set at a
strive to make efficiency gains. If the mere 460. This low ceiling may be the most
remuneration on the other hand were based on important reason why in 2003 only 30,000
the average costs incurred by nursing homes in a people applied for this specific benefit out of an
given region, then this would give all of those estimated 400,000 people who were likely to be
homes an incentive to increase efficiency. entitled to it (BMGS, 2004). So while the
government originally expected to spend an
Although the pricing system has been additional 250 million on this benefit, in 2003
questioned, for example, in a recent report from it spent only 13.4 million .
the province of Northrhine-Westfalia (Landtag
NRW, 2005), reforms are unlikely to be adopted The most straightforward way to resolve the
in the near future as other questions are more problem would be to change the (legal) concept
pressing. of dependency and establish a definition that is
not based on ADLs and physical needs alone.
The Structure of Benefits As the fiscal consequences of such a bold move
are difficult to calculate, this has not been
There are two major issues currently being seriously discussed among politicians.
discussed with respect to the structure of Politicians of all parties rather favor a more
benefits � the introduction of additional benefits modest solution that is likely to be included into
for dependent people with dementia and the the next reform bill � granting all people who
equalization of benefits for formal home care suffer from dementia an addition need of care of
and those for nursing home care. The so-called 30 minutes a day in their LTCI assessment.
Ruerup Commission (the commission for While this will put some people into a higher
achieving financial sustainability for the social category of dependency, it will allow others to
security system) made suggestions about both of qualify for LTC benefits for the first time. The
these issues, which were picked up in a reform government estimates that this will cost an extra
bill that was prepared in the winter of 2003/04. 500-750 million , which is the amount of
However, the reform proposal was shot down as money that could be spent additionally on
a whole by the German chancellor, Gerhard dementia.
Schroeder, who felt that his pension and labor
market reforms had caused enough trouble for Equalizing Benefits for Formal Home Care and
his government at that time. Therefore, he Nursing Home Care. Another element of the
decided to postpone any LTCI reform that would failed reform of the winter of 2003/2004 was the
require the population to make more sacrifices. attempt to equalize benefits in formal home care
So it was not the content of the reform but rather and nursing home care. This proposal is also
its timing that put an end to this reform likely to be implemented one way or the other in
75
Long-term Care in Germany
the reform that will inevitably be decided upon Adjustment of Benefits
after the general election this autumn (2005).
The starting point of the proposal is a reversal of There is a general consensus that LTCI benefits
a perverse incentive in the current benefit must be adjusted if the system is to survive.
structure. In levels II and III, benefits for This could be done more or less regularly at the
nursing homes are much higher than benefits for discretion of politicians or by the introduction of
formal home care, thus creating an incentive in an adjustment mechanism, which would
favor of nursing home care, particularly in level guarantee an automatic adjustment according to
I where � generally speaking � nursing home some pre-agreed formula. Given what is known
care is least necessary. This incentive would be about other branches of social security, only an
abolished if benefits were the same for formal adjustment mechanism will yield a regular
home care and nursing home care. There would adjustment. Since future economic development
be another advantage of such an equalization. is always hard to project, adopting any system
Today, each care arrangement must be with a fixed adjustment rate of X percent per
categorized either as nursing home care or as year is doomed to fail as the rate is likely to be
home care. Alternative care arrangements such considered either too high or too low depending
as small groups of dependent people living on the prevailing economic situation. Therefore,
together in a flat suffer from the legal any formula should relate to such
restrictions caused by this dichotomy. Equal macroeconomic indicators as inflation or the rise
benefits for all types of formal care would help in average (nominal and gross) wages.
to minimize this kind of restriction. Assuming that wage increases in the care sector
are similar to those in the rest of the economy
The fiscal effects of this equalization, however, and assuming further that in the long run wages
would depend on how the benefits were are the major determinate of the price of labor-
equalized. If this were achieved simply by intensive care services, adjusting benefits
cutting benefits for residential care, this can be according to the rise in average wages seems to
expected to lead to a decline in LTCI be the perfect indicator if their purchasing power
expenditures but also an increase in the number is to be maintained.
of recipients of social assistance. Also, making
moderate cuts in benefits for nursing home care Radical Reform
while at the same time increasing benefits for
professional home care would have unclear The two main radical reforms that have been
fiscal consequences due to the possible suggested as a way to finance LTCI are to
substitution of cash allowance by (higher) care integrate LTCI and health insurance or to abolish
service benefits. LTCI in favor of either a tax-funded system or a
(mandatory) funded private insurance scheme.
The System of Financing
Integrating LTCI and Health Insurance. The
The financing of the health sector is another suggestion to abolish the separate LTCI and
major issue on the reform agenda. The current integrate long-term care into health insurance is
deficit of LTCI funds is the starting point for as old as the insurance system itself. Recently it
most reform debates, which therefore tend to has been discussed (favorably) by the Enquete
revolve around fiscal issues. Allowing benefits Commission (2002) and (less favorably) by the
to be adjusted is one issue that is rarely missed Ruerup Commission (2003). Advocates
out of any proposal . In order to fund such emphasize the fact that elderly people suffering
adjustments, two different kinds of proposal from several different conditions would be better
have been made � radical reforms and reforms able to receive integrated care under this
within the current system. We consider each of arrangement. Today, LTCI funds have no
these in turn in this section and then discuss incentive to pay for rehabilitative measures that
whether any of these proposals are likely to be could reduce dependency because the expenses
implemented and whether they would solve the of long-term care are financed by all of the
problems at hand. funds together. On the other hand, integrating
LTCI and health insurance has dangers and
disadvantages as well. Given the relative weight
76
Long-term Care in Germany
of both areas, most likely long-term care issues older generation cannot bear the financial
would be dominated by health issues. Even burden of their own insurance by themselves,
today, the long-term care divisions within the they have to be subsidized by the younger
LTCI funds are rather weak and after any generations. Any kind of switch towards a
integration, this domination would be likely to funded system would transfer the future burden
increase. The same applies on the service side. into the present and would necessitate enormous
As highlighted by Ikegami and Campbell (2002: increases in contributions since benefits for the
721f.), in an integrated system, medical doctors elderly would have to be financed at the same
tend to predominate over nurses, with the result time as capital stock would have to be build up
that terminal care is over-medicalized and (a double burden). Moreover, this move would
rehabilitation is under-medicalized. not solve the system's current fiscal problems
but in fact would increase its actual problems.
The introduction of competition among LTCI Therefore, only the small Liberal Party
funds would be a more moderate solution to the advocates such a policy, which means that a
lack of incentives for funds to care for switch of this kind seems very unlikely in the
dependent people. As a consequence, the near future.
contribution rate could no longer be legally
fixed, and each fund would be able to set its own Introducing a Mandatory Supplementary
rate. As is well known from the experience of Funded System. To avoid the double burden,
the health insurance system, introducing some have advocated a hybrid system that
competition also requires the introduction of a combines public LTCI with a mandatory
risk-equalization scheme. supplementary funded system. Basically, the
However, neither option is likely to be existing LTCI would remain untouched � with
implemented in the next reform, because such nominally fixed benefits, which could be
schemes are inevitably complicated and as such financed at the present contribution rate. To
tend not to be vote-winners. Moreover, the compensate for the declining purchasing power
administration seems to be overloaded with of these benefits, each person would be obliged
complicated reforms in the health care area to buy private supplementary insurance. The
already. benefits of this insurance would be set at
whatever level would be necessary to fill the gap
Replacing LTCI with a Tax-financed System. caused by missing adjustment in public LTCI.48
During the discussions leading up to the LTCI The monthly premium would be 8.5 per
Act, policymakers also discussed a means-tested person. It would neither income- nor risk-
tax-financed system but ultimately dismissed related. Each year the premium would rise by 1
this alternative. Recently, one member of the .
Ruerup Commission started the discussion
again, but the proposal was dismissed within the This model would avoid dramatic rises in
Commission. As all major parties favor an premiums and has no legal pitfalls as everyone
insurance system, the replacement of LTCI by a
tax-financed system seems extremely unlikely.
48 The proposal assumes a proper adjustment of LTCI
Switching to a Funded (Private) System. benefits of 2 percent per annum, and the mandatory
Switching to a funded private system has mainly supplementary insurance to fill the gap between this
been suggested by those economists who proper benefit and the nominally fixed LTCI benefits.
generally favor funded systems. Basically, they Benefits for the supplementary system can therefore
have suggested two variants of this idea. First, be calculated as:
the Kronberger Kreis (Donges et al, 2005), a Bsup = (1,02t � 1) * Bpub,
B
group of conservative economists, has suggested with Bsup denoting the benefits of the supplementary
B
completely switching the whole population at system, Bpub the (nominally fixed) benefits of the
B
once. Alternatively, the Council of Economic public system, and t the number of years after the
Advisers (2005) advocates a cohort model in introduction of the supplementary system.
which only those born after 1950 switch to a After 35 years, the benefits for the supplementary
private funded system while older people remain insurance would be as high as those of the public
in the traditional social insurance system. As the LTC.
77
Long-term Care in Germany
remains in the existing system. In the long run, Additional Contributions for Pensioners.
however, it would put a considerable burden on Current pensioners gained windfall profits when
households, particularly on low-income LTCI was introduced as a pay-as-you-go system.
households, which would suffer from the This fact can be used as a rationale for
abolition of income-related premiums. introducing an additional contribution for
Furthermore, administrative costs would be pensioners as has been suggested by the Ruerup
fairly high as another system would have to be Commission. Such an additional contribution
built up for comparatively very low benefits and would in effect counteract this initial "present"
premiums. Finally, the co-operation of both from the elderly. As windfall profits get smaller
insurance systems would have to be secured, as the younger cohorts also get smaller, the
which might prove difficult, because justification for a pure additional contribution
supplementary insurance benefits would be low will vanish over time. To compensate for this,
immediately after the introduction of this the introduction of an additional contribution for
scheme but would grow continuously until they pensioners could be combined with a new
were higher than the benefits from public compulsory requirement on younger generations
insurance. to contribute to a private funded pillar of the old-
age security system. This would enable them to
Despite these problems and disadvantages, this pay the additional contribution once they
model is highly favored by the Christian become pensioners themselves. In effect, an
Democratic partly, which is most likely to form extra element of funding would be introduced
the incoming government. without the need to introduce a supplementary
LTCI.
Reform within the System
As normative justification is possible and the
Other than these radical reforms, there are potential fiscal effects are substantial, this could
several options for making reforms within the be an important element in any financing
system, that is reforms that neither abolish reform. Unfortunately, pensioners have recently
public LTCI nor supplement it with an additional been subjected to cuts in their pensions.
system, but rather concentrate on changing the Therefore, any additional LTCI contributions
parameters of the existing financing system. from pensioners must been discussed against the
background of social policy in general and old-
Tax-financed Subsidies or Contributions to the age security policies in particular.
Insurance System. Both pension insurance and
health insurance receive tax-financed subsidies Raising the Contribution Rate. The easiest way
or contributions that are fed into the system. to raise additional funds, however, is simply to
Obviously, this raises the question of whether raise the contribution rate. This can be done
something similar is possible for LTCI. without much administrative effort and will
However, making tax-financed subsidies to yield additional revenue at once. Even when the
insurance systems needs to be justified. system was first introduced, policymakers
Particularly in pension insurance, the anticipated that they would increase the
justification centers around the idea that the contribution rate. A moderate rise could not
insurance scheme also provided benefits that are harm the country's economic performance and
out of its control and rather are governed by, for would hardly affect the labor market,
example, the area of family policy. With respect particularly if it were combined with a freeze on
to LTCI, it could be argued that insuring children the employers' contribution.
without contributions is one kind of family
policy that should be tax-financed. Accordingly, If any rise is moderate, any fiscal effects would
tax-financed subsidies to LTCI or tax-financed be limited as well. Nevertheless, a moderate rise
contributions for children could be justified. in the contribution rate could be introduced as
Since children produce about 5 percent of all part of a sensible package deal. For ideological
public LTCI expenditures, it might be reasonable reasons, however, this is unlikely to happen. As
to expect the public purse to contribute the same all major parties agree that social security
amount. Of course, this could only be one small contribution rates must be reduced, the current
part of any fiscal reform. rate of 1.7 has become a kind of a dogma.
78
Long-term Care in Germany
Buergerversicherung. The Social Democratic be cut. Third, sources for additional revenue
Party (at least its left wing) and the Green Party might be discovered and exploited.
both favor transforming the existing long-term
care (and health) insurance into a citizens' In Germany even today, eligibility criteria are
insurance (buergerversicherung). As the current tighter than in Japan (Campbell, 2002) or in
government is expected to lose the next general other countries (Rothgang and Comas Herreras,
election in the autumn (of 2005), this concept as 2003). Moreover, the number of beneficiaries is
a whole has little chance of being implemented. growing at a moderate pace, and on average the
Since it is the counterpart of right-wing concepts assessed level of care is declining. A recent
of a funded system or insurance based on flat report concludes that the declining level of
premiums, it is worth exploring. assessed need is due to tighter eligibility
assessments as there is no evidence that the real
The concept is based on two elements. First, all level of need is decreasing (Landtag NRW 2005:
citizens should be part of one insurance system. 457, own translation). Therefore, there is little
When implemented, this principle would mark room to make even tougher assessments in the
the end of a separate mandatory private LTCI. future.
Second, contributions should be based on all
sources of income, not just on income from Cutting benefits has been the predominant policy
gainful employment (and derived benefits as of the last decade. Since benefits are nominally
benefits for the unemployed and pensions). fixed, this policy could be executed smoothly
Both elements combined would increase simply by not allowing the benefit caps to be
horizontal justice as all types of income would adjusted. Although there has hardly been any
become contributory, and it would also increase protest against this practice in the past, it seems
vertical justice as high-income groups would impossible to continue this policy forever. Too
participate in redistribution without being able to many commissions and reports have brought up
opt out. The combined insurance would also this issue, and by now the deteriorating real
attract additional revenue equivalent to an purchasing power of LTCI benefits is being
increase in the contribution rate of up to 0.2 to discussed in the media. Cuts in remuneration
0.5 percentage points. There are, however, would not reduce LTCI expenditure as this
administrative and legal problems connected cannot be done as long as benefits are fixed.
with both elements and only the former element Reduced remuneration would increase the
is favored by the Council for Economic Advisers purchasing power of benefits and thus ease the
and other more conservative groups. Thus, there pressure to allow them to be adjusted. On the
is a chance that the whole population would be other hand, cuts in remuneration could make
forced to enter the public system if this were formal care benefits more attractive to
combined with a radical reform of public LTCI. beneficiaries and thus reduce the extent to which
they choose (cheaper) cash allowances. So this
Discussion would in fact increase LTCI expenditure.
Due to demographic changes, the number of In a nutshell, cuts are no way to deal with fiscal
dependent elderly will continue to increase over problems as this strategy has been used
the next decades. Although it might be possible exhaustively during the last decade. In
to influence the speed of this increase by recognition of this, recent debates about reform
prevention and rehabilitation and although the have concentrated on the final option �
fiscal effects of reduced dependency rates are identifying new sources of revenue.
considerable, there are no policies for long-term Radical reforms are unlikely to be adopted as the
care on the political agenda. political costs would be enormous, and the
system is too small (and unimportant) to make it
Generally speaking there are three remaining worthwhile to start a public relations campaign
options to deal with demographic changes. on this. This is why solutions within the system
First, the eligibility criteria could be tightened in are more likely or rather solutions that combine
order to moderate the expected increase in the new elements with the existing system.
number of beneficiaries. Second, individual
benefits and/or remuneration for providers could The obvious way to deal with the fiscal crises, in
79
Long-term Care in Germany
other words, to increase the contribution rate, management. Second, there are those problems
cannot be done for ideological reasons. The that could easily be solved if more funding was
buergerversicherung idea is associated with the available. For example, the narrow concept of
present government, which has very little chance dependency leads to the neglect of
of being re-elected. Thus, a supplementary communication needs in general and the
privately funded system seems to be the most particular needs of people with dementia. Tight
feasible option as it is ideologically sound budgets cause understaffing in nursing homes,
(funded private insurance) without causing too and the nominally fixed benefits of the LTCI
much opposition as the initial additional have caused their purchasing power to decline.
financial burden would be too small to engender Finally, the collapse of revenue in particular has
much conflict. caused the public LTCI to incur increasing
deficits, which are at the heart of all current
Lessons from Germany reform debates.
In order to learn any general lessons from Generalizations
Germany, it is necessary to reassess the
successes of the German LTCI on the one hand Based on this account at least three lessons can
and its failures and problems on the other hand. be learnt from the German experience. First,
cash allowances can help to stabilize family care
Successes and Failures and thus expenditure on long-term care. More
than half of all dependent people are cared for
At least five major successes have to be without the involvement of any professional
mentioned. First, due to the introduction of a carer. Although the data clearly reveal a trend
public LTCI that followed the pay-as-you go towards formal care, there can hardly be any
principle, immediate benefits were available to doubt that cash allowances moderated this trend.
those who were eligible. Second, family care Moreover, future care arrangements will
was strengthened, particularly through the inevitably be a combination of formal and
introduction of cash benefits and contributions informal care. The opportunity to combine cash
to pension insurance for family carers. Third, and in-kind benefits has opened the way to such
the fiscal burden on municipalities was lifted as arrangements.
social assistance spending for dependent people
declined by two-thirds. The number of Second, it is possible to control costs. The
recipients of social assistance was reduced by German system has been quite successful at this,
one-third, which is less than was promised but is mainly by capping benefits and by having an
still a success. Fourth, the LTCI Act triggered institution that is independent from providers
an expansion of capacity in the formal sector assessing the eligibility of potential
and improvements in the quality of care. beneficiaries. However, this strategy of
Finally, attempts to control costs were quite effecting real cuts through nominally fixed
successful. benefits cannot be applied forever as it causes
the purchasing power of the benefits to decline,
On the other hand, the system suffers from which will sooner or later de-legitimize the
several failures and problems. First, there are whole system.
the structural problems of service provision.
The quality of care is still not satisfactory, Finally, even successful cost control is not
alternative care facilities (such as assisted living) sufficient to stabilize the system unless a steady
are developing only very slowly, there is too growth in revenue can be guaranteed. It must be
little rehabilitation for dependent elderly, there regarded as an irony of history that the German
are still breaks in the chain of care between system is financially unbalanced despite its
institutions (hospitals, nursing homes, and success in cost-containment simply because of
rehabilitation facilities), and there is no the collapse of revenue.
trajectory management and no case
80
Long-term Care in Germany
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Sozialpolitik, Band 7. Frankfurt: Campus. Wirtschaftspolitik, 53. Jg., Heft 2, 181-191.
Rothgang, Heinz, 2000. Wettbewerb in der Schneekloth, Ulrich and Ingo Leven, 2003.
Pflegeversicherung, in: Igl, Gerhard (Hg.): Das Hilfe- und Pflegebed�rftige in Privathaushalten
Gesundheitswesen in der Wettbewerbsordnung. in Deutschland. Schnellbericht. Erste Ergebnisse
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im Forschungsprojekt ,,M�glichkeiten und der Peripherie des Sozialstaats? Die Expansion
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Auflage. Schriftenreihe des Bundesministeriums Ministerialb�rokratie und Parteien" Politische
f�r Familie, Senioren, Frauen und Jugend, Band Vierteljahresschrift, Heft 2: 246-278.
111.2. Stuttgart: Kohlhammer.
83
Sustaining Long-term Care Insurance in Japan and Beyond
John Creighton Campbell
University of Michigan
Introduction determine eligibility, often on particularistic
grounds, and decide on which services will be
Long-term care (LTC) for frail elderly people provided by whom � usually the local
has been viewed as the last frontier for the government itself or a monopoly contracted-out
welfare state. It used to be seen as a family provider. The other main possibility is social
responsibility that required state intervention insurance, which has been more attractive to
only in exceptional dire cases. The growing countries that have also taken a social insurance
number of frail old people along with a approach to health care. Here, financing comes
weakening of family care capacity has put from contributions accumulated into a fund and
pressure on governments to do more. The initial consumers become entitled to a certain level of
responses were piecemeal, extending existing cash or in-kind benefits strictly on the basis of
health-care or social-welfare programs to cover the degree of disability.
more and frail older people. Inevitably there
were strains. Two important examples of comprehensive LTC
systems are Germany and Japan. From its start,
Some countries have gone a step further and the German program has been a pure social
installed what could be called "comprehensive insurance system. Japan started off in a different
long-term care systems." Without being too direction but then adopted a mixed program that
strict about definitions, comprehensive means a mainly operates as a social insurance type of
program that goes well beyond a safety-net. It system.49
need not cover all needed services, and perhaps
people with ample financial or family resources Origins of the Japanese and German Systems
might be excluded, but a comprehensive long-
term care system would play a primary rather The German and the Japanese long-term care
than subsidiary role in providing assistance to insurance (LTCI) programs are similar enough
the population of frail older people (though of and different enough to make for interesting
course not an exclusive role since in all nations comparisons. To look briefly at similarities, it is
the majority of care comes from families). striking that the long-term care issue reached the
policy agenda in both countries in the same year,
In creating comprehensive systems, nations and indeed by the same route.50 Facing the 1990
naturally built on their institutional heritages. general election in Japan, Hashimoto Ryutarou,
The first countries to move in this direction were the LDP top leader most identified with health
in Scandinavia, notably Sweden. It already had and welfare policy, committed his governing
extensive social welfare programs established at party to a new policy for frail older people.
the municipal level. Three factors � a Facing the 1990 federal elections in Germany,
heightened sense of the needs of frail older Norbert Bl�m, the CDU top leader most
people and their caregivers, a desire to employ identified with health and welfare policy,
more women, and a general sense of prosperity � committed his governing party to a new
led municipalities (aided by a national expansive policy for frail older people.
government subsidy) to expand long-term care
programs incrementally but quite substantially.
49 Note that various combinations are possible.
A tax-based, direct services program is one way Austria pays social insurance type cash benefits
to do comprehensive long-term care. It requires financed from taxes. The Netherlands relies on social
a substantial social services infrastructure to insurance financing, but most of its benefit delivery
start with, and is most likely in countries in has been carried out by municipal governments in
which health care is also covered from tax Scandinavian fashion.
revenues. In such systems, local caseworkers 50This comparison of the two systems is drawn from
Campbell, 2002.
84
Sustaining Long-term Care Insurance in Japan and Beyond
Similar factors were in the background for both Japan too was in economic travail in this period,
countries. First, population aging was just after the bursting of the economic "bubble"
proceeding at a rapid rate, and was already quite in 1989-90. Asset prices were plunging, growth
high compared to other nations, at the same time was anemic, and official committees were
that traditional family care was looking more worried about the future fiscal obligations of the
and more inadequate. Second, the strains of welfare state. The "Gold Plan" was really little
providing institutional care for frail older people more than an election promise, and after the big
were affecting the finances of existing systems. old-age services budget for 1990 (announced
In Germany, increased numbers of people in just before a general election), the government
nursing homes, largely supported by public could well have tapered off spending growth
assistance, pressured municipal government thereafter. However, to the surprise of observers
budgets. In Japan, frail old people were more who thought Japanese truly believed in family
likely to go into hospitals, and their costs care, public demand for the expanded services
pressured health insurance financing. was enormous - a "New Gold Plan" with higher
10-year targets was announced in 1994.
Hashimoto and Bl�m's statements put LTC on
the policy agendas of their governments. In While Germany had simply added a "fifth pillar"
Japan, which up until then had adopted the to its extensive system of social insurance, Japan
"Scandinavian model" albeit at far lower levels, seemed headed down the road to a full-scale
social services including nursing homes and Scandinavian-style welfare program (albeit just
home and community-based services (HCBS) for frail older people). However, Ministry of
were being delivered by municipal governments Health and Welfare (MHW) leaders soon came
with heavy national subsidies. When the LDP to see that this course would require both higher
announced its "Gold Plan" or "Ten-Year taxes and a large and capable local bureaucracy,
Strategy for Health and Welfare Services for the and decided instead to pursue something more
Elderly," it backed it up with sharply increased like a German-style system. Kaigo Hoken,
expenditures in the 1990 budget. Japanese LTCI, was passed in 1997 and came
into effect in 2000.
Germany had the world's longest social
insurance tradition and little infrastructure for Differences
direct, tax-based provision of social services.
Although the desirability of a Scandinavian Although Japanese experts often visited
approach was suggested by a few academics, it Germany and other countries in drawing up their
was not seriously considered (nor did the idea plans, Kaigo Hoken should be seen as mostly
put forward by free-market conservatives of homegrown rather than an imitation.51 The two
private long-term care insurance get far). programs are different in at least four important
Instead, German political party leaders, ways:
governmental ministries, and powerful interest
groups (notably big business and labor) entered 1 Spending growth is firmly controlled in
a long and difficult negotiation over starting a German LTCI and is not formally
new social insurance program. constrained in Japanese LTCI.
2 Japanese LTCI is much more generous than
This struggle occurred just as reunification was German LTCI, both in the number of people
getting underway, which required huge covered, and in benefits.
government subsidies to the East and future 3 German LTCI covers all ages, while
economic uncertainties. It is no wonder that Japanese LTCI essentially is only for old
opposition to a new spending program that people.
would burden companies and employees was 4 German LTCI provides a cash allowance to
strong. One reason it could be overcome, and an subsidize family or other informal care,
LTCI law finally passed in 1994, was public
opinion � German citizens were worried about 51Note that a plan close to the final version had been
the personal and social burdens of caring for the developed by 1993 in Japan; German LTCI was
frail elderly. There was no other plausible passed in 1994 and started in 1995, so there was no
solution. program to imitate.
85
Sustaining Long-term Care Insurance in Japan and Beyond
while Japanese LTCI only provides formal This difference in formal constraints is an
services. important explanation for why the Japanese
program expanded at about 11 percent per year
It is interesting to look at why these differences (by one calculation) and the German program at
appeared.52 just 2 percent, as we will see presently. For now,
we should ask, why this extreme difference?
Fiscal Controls
The answer is not simply institutional legacy.
German LTCI was subject to very stringent Indeed, German social insurance programs have
spending controls. The law specified that all generally included adjustments for inflation.
expenditures had to be covered by social But their increasing costs were a key argument
insurance contributions, with no subsidies from for fiscal conservatives who wanted to defeat the
taxes. The contribution rate was also specified, new program. In order to get it approved at all,
meaning a new law would be required to raise it. proponents had to guarantee fiscal conservatives
Increases in total spending would therefore be that spending would not explode by imposing
limited to the "natural" growth in revenues of stringent caps.
more contributors and higher wages (in the
event, neither really materialized). The German debate over LTCI focused mainly
on money, with rather little attention to details
No mechanism was specified for holding down above caregiving. The debate in Japan was the
expenditures. Benefit levels were frozen by law. opposite. Criticism of the LTCI idea was
The purpose was to prevent increases, even for coming mostly from people attached to the
inflation, but that also barred decreases to cope Scandinavian model who were concerned that
with revenue shortfalls. Eligibility and the level service levels would be constrained. There was
of need were supposed to be based on an remarkably little attention to future cost
objective test of Activities of Daily Living estimates, and indeed very little opposition from
(ADL), so that supposedly there would be no fiscal conservatives. We can assume that the
control over entitled benefits. However, these Ministry of Health and Welfare (MHW) had a
tests are physical and mental examinations preference for not having its hands tied by
carried out by the "Service Corps" of physicians financial strictures, and lacking any challenge,
employed by the insurance funds. The doctors its preference prevailed.
presumably could be asked to tighten their
standards, without any public notice, thereby Still, the lack of opposition seems puzzling.
restricting the number of enrolees or their level After all, this was a large new program whose
of benefits. costs would have to be borne by employees and
companies through contributions and taxes. One
Japan had no such clear-cut ceiling on revenues. factor was that the MHW's argument that LTCI
Contribution rates could be raised, by was needed to reduce pressure on health
municipalities for the premium on people aged insurance spending � which was a lively concern
65 plus, and by the national government on among employers and workers � seems to have
workers aged 40 to 64. Half of the revenue been rather convincing even though specious.
comes from taxes, and that amount would be Another, perhaps, was that businessmen were
raised automatically to match contributions. As too distracted by all the bad news of the post-
for controlling spending, the test for eligibility bubble economy to pay much attention. I don't
and level of benefits was based on a long find either explanation very satisfying, but for
questionnaire graded by a computer, with the whatever reason, business opposition was far
result then reviewed by a committee that was from vocal.53
independent of any government control.
52 My account of Germany is sketchy and does not 53 Incidentally, the Ministry of Finance, which
provide a comprehensive picture; my aim is to normally would oppose a new spending program,
provide a contrast with the Japanese system. For was actually supportive because LTCI was a good
details on Germany, see the paper by Heinz pretext for its long-cherished goal of increasing the
Rothgang. consumption tax from 3 to 5 percent.
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Sustaining Long-term Care Insurance in Japan and Beyond
Size program possible. A smaller one would be far
easier to manage. However, in effect their hands
Japanese LTCI is a much bigger program than were tied by a policy legacy, albeit a recent one.
German LTCI. First, the threshold for eligibility
is much lower - Japan has six levels of benefits, That is, programs and services for frail older
as opposed to three in Germany, and the ADL people had expanded very rapidly under the
criteria for the lower two would not qualify for Gold Plan, growing at a rate of over 10 percent a
any coverage at all in Germany. As a result, year for the entire decade of the 1990s even
some 10 percent of the over-65 population in amid continuing budget stringency. Recall that
Germany is covered, while the figure is edging these programs were in the hands of
toward 15 percent in Japan.54 Secondly, benefit municipalities, which since 1990 had been
levels are much higher in Japan. For example, required to draw up plans for health and welfare
someone at the lowest level of eligibility in services for the elderly based on need surveys.
Germany would receive about US$375 a month The municipalities faced rising public demand
in services if living at home, or US$1,000 on the one hand and had increasing national
toward nursing home costs; a Japanese at a subsidies on the other. A problem was that their
similar level of disability could get US$1,300 in organizations and personnel were equipped for
services at home or US$1,680 for a nursing small-scale, means-tested programs and were
home.55 not up to managing an expansion to "ordinary"
or middle-class clients. Determinations of
Why this difference? The explanation for the eligibility, the amount and kind of services
difference in fiscal controls � the strong role of needed, and the fees to be collected were often
fiscal conservatives in the German but not the willy-nilly, and by default not very strict.
Japanese debate, also applies here. Proponents
in Germany had to fight hard to keep enough As a result, by 1995 when LTCI was being
benefits to have any claim of dealing with the debated, 1997 when it was enacted, and certainly
problem - in effect, they decided to cover no 2000 when it started up, many more people were
more than half of need. In Japan size was not a receiving services than earlier in the decade, and
contentious issue. quite a few of them were getting services when
they were not really very frail, getting more
Having said that, the size of Japanese LTCI is services than they really needed, and/or getting
quite striking. Both the low threshold and the all their services free. Still more consequential,
high benefits are considerably more generous since the 1970s, great numbers of older people
than the levels not only in Germany but in the had been getting LTC in hospitals, covered by
rest of the non-Scandinavian world as well.56 health insurance, where admission standards
That is quite surprising for a country long were quite lax and the out-of-pocket costs were
known as a "welfare laggard", and demands minimal.57
more explanation.
Given this environment, a higher eligibility
In particular, there is no reason to assume that threshold would have cut off many current
MHW officials would have a strong motive to recipients, and anything less than full coverage
establish the biggest and most expensive of needs would have meant a substantial cut in
the quantity of services for others. That was
54 This figure is approximate and includes people seen as politically impossible. As it was,
who have been judged eligible but are not yet throughout the 1990s, the LTCI proposal was
receiving benefits, and people still getting LTC in drawing fire mainly from the left, attacking the
hospitals covered by health insurance. impact on low-income people of the 10 percent
55Figures as of 2000 converted at purchasing power co-pay (as well as the new premium) and the
parity rates; Japan is for level two. restrictions on quantity of services inherent in
56This is an assertion based only on impressionistic
evidence since data on benefits are scarce and 57 Actually, many old-age hospitals charged various
comparisons across different systems are difficult. In extra fees to be able to provide decent care, but in
any case, Japanese generosity is certainly principle and often in reality, the charges were very
"surprising" low.
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Sustaining Long-term Care Insurance in Japan and Beyond
the eligibility process. exclusively at old people is not at all surprising.
The "aging society crisis" had been at the top of
It is interesting to speculate what would have the public agenda for years, with the problem of
happened if LTCI had been proposed in 1990 caring for frail older people seen as a critical
rather than the Gold Plan. Since at that time the factor. Caring for younger disabled people was
level of services was quite low, and largely seen as a problem only by disabled people and
restricted to people who had neither much their representatives themselves. And to make
money nor family care available, a social their inclusion even less likely, several disability
insurance program of the size Germany started interest groups, for various reasons, were
five years later would probably have seemed opposed to coverage by LTCI.
very generous. But it would have taken an
awful lot of planning and negotiation. At the Cash Subsidy for Family Care
time, with an election impending, the need was
for a concrete plan backed up by immediate In all nations, most care for frail older people is
action, and there really was no alternative other provided by family members, most often a
than expanding existing programs and quickly spouse, daughter, or daughter-in-law. Many see
adding on any new ideas that MHW specialists family "informal" care as natural and as
had been thinking about.58 preferable to "formal" care by outsiders from the
point of view of the older person, although of
Scope course the burdens on caregivers are often
considerable. A logical approach for public
In one respect, German LTCI was more policy is to encourage family members (or other
encompassing than Japanese LTCI. The informal providers such as neighbors) by paying
possibility of covering only older people rather a cash allowance that the frail older person can
than disabled people of all ages was not use as he or she wishes.
entertained in Germany. Given that the
financing had to be completely covered by Germany followed this route: the eligible person
contributions, it would be necessary for the can choose between institutional care, formal
entire workforce to contribute. If younger community-based services, a cash payment, or a
people were contributing, they should be combination of the latter two. For all three
covered. That is normal social insurance levels of need, the cash payment was
thinking. substantially less than the payment for
institutional care or formal community-based
Some in Japan had the same idea, but they were services, although there is an additional fringe
opposed by politicians who were concerned benefit that LTCI will pay pension premiums for
about imposing a new premium. Limiting the a family caregiver. The majority of clients of
premium to people aged 65 and over was not home and community-based services (HCBS)
feasible either fiscally or politically (that old take the money, though the proportion of those
people would bear any burden at all was an selecting only services or a combination has
important first for Japanese social programs), so been rising a little.
a compromise was reached rather amicably.
Premiums would be charged from age 40. The The reasons for this approach appear
main justification was that middle-aged people straightforward. The immediate precursor was
would be worried about caregiving for their the introduction of cash benefits in the medical
parents and could see their own aging not far insurance system, for recovery at home after
off, but as an added inducement, "age-related hospitalization, instituted in 1988. More broadly,
impairments" due to stroke early-onset cash payments are seen as normal (and direct
Alzheimers and so forth would be covered. services not) in Germany's social insurance
based approach. Moreover, the basic policy
In a broader sense, having LTCI aimed almost problem (along with the increasing number of
old people) was perceived as a decline in the
capacity of the traditional family to take care of
58See Campbell, 1992 (Chapter 7), for a detailed frail older people. Germans saw the cash benefit
account of Gold Plan decision-making. as a way to prevent or at least postpone this
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Sustaining Long-term Care Insurance in Japan and Beyond
decline by shoring up the family's willingness to a problem for Germany because all the financing
provide care. Although a few specialists was from a new social insurance contribution
criticized the cash allowance on grounds that which also started at the full rate. In Japan, half
quality of caregiving could not be assured and it the money was budgeted from tax revenues, at
really would not change existing patterns very all three levels of government, and such an
much, there was little real debate over this abrupt surge of expenditures would be hard to
provision and it was included almost as a matter handle.
of course.
The second reason was the argument that home-
In Japan, the question of whether or not to offer care based services were poorly developed in
a cash allowance for family caregiving was Japan; if the supply of home helpers, day care
discussed through the entire decade of the and so forth were to be available for Japanese
1990s. The law as enacted did not include a households, enough demand to induce a critical
cash allowance, although debate on this point mass of services would be needed.
continued in and out of the Diet right up to
implementation and there was a last-minute The third reason has to do with ideology or even
small compromise. culture. The fight against a cash allowance was
led by a group of women who were involved
On the face of it, it seems quite surprising that throughout the planning stages of LTCI, who
Japan would reject family caregiving and come took a strongly feminist position is nicely
down so strongly for formal services. The summarized in a comment at a 1995 committee
German example would itself seem to boost the meeting:60
cash allowance idea, particularly in that this
approach was demonstrably cheaper on a per- "In some cases, by receiving cash, the pattern of
case basis. Popular opinion favored support for family caregiving would become fixed (koteika),
family caregiving, at least as an option.59 And and in particular there is the danger that women
in terms of history and ideology, Japan had will be tied down (shibaritsukareru) to family
relied more on the family for social support than caregiving. A cash benefit is allowed in German
had Western countries, and quite a lot of popular LTCI, but the family situation is different in
rhetoric ("Japanese-style welfare society" and so Japan and Germany."
forth) had enshrined this custom as a principle
and a virtue. The difference in the family situation is that
traditionally older people in Japan lived in the
There were three reasons why Japan opted same household as their oldest son and the son's
against a cash subsidy for family care. First, wife was responsible for their care. In reality, in
finances: although offering a cash allowance at the 1990s, only about half of people over 65
lower cost than the services option would seem lived with a child, and many of these lived with
to save money, in the short run at least it would a daughter, but there certainly were enough
cost more. If cash were available everyone women who were virtually trapped into
would apply all at once, while a desire for burdensome caregiving roles to reinforce the
services would develop more slowly. To have image of a perpetual "caregiving hell" (kaigo
the new program start at nearly full cost was not jigoku).
59By 58 percent to 28 percent in an August 1995 It is not common for feminist views to be
government survey and by 72 percent to 24 percent in influential in Japanese policymaking, but this
a Mainichi survey the following month. In an NHK argument at least had the effect of deflating any
survey in November with more options, 7 percent social conservative claim that support for
said they preferred cash only, 25 percent services traditional Japanese family practices could solve
only, and 63 percent both. In an Asahi Newspaper the problem of caring for the frail elderly - a
survey the following February, however, 48 percent
approved and 42 percent opposed substituting cash 60It was the December 4 meeting of the Long-Term-
for services. (Results summarized in Kouseishou Care Benefits Subcommittee of the Advisory Council
Koureisha Kaigo Taisaku Honbu Jimukyoku, 1996 , on Health and Welfare of the Elderly. From ibid, p.
pp. 520�523. 129.
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Sustaining Long-term Care Insurance in Japan and Beyond
view that was quite prevalent in Germany. on the other must not become so expensive that
Together with the two less emotional reasons fiscal conservatives (big business, the Treasury,
mentioned above, the appeal to liberate Japanese and parties and politicians of the right) will
women was enough to keep the Japanese LTCI mobilize against it.
system restricted to formal services, with no
subsidy for family care. Usually when we say "sustainability," we are
thinking mostly about imposing constraints. In
Reforms for Sustainability the normal course of events, cost control is
difficult for LTCI. First, population aging alone
LTCI got underway in Germany in 1995 and in - more old people and more "old-old" people -
Japan in 2000. Now that they have been in will require increased spending. As Heinz
operation for, respectively ten and five years, it Rothgang observed, the impact of population
is possible to get some sense of the problems the aging might be mitigated by "compression of
two systems have encountered and the solutions morbidity" (a decline in the incidence of
proposed. Actually, the German program has yet disability in successive cohorts of older people),
to be modified, although a review in 2002-03 by but surely not enough to offset increased
the Ruerup Commission produced some numbers completely. Second, additional cost
recommendations for reform that then came to pressure comes from wage inflation since LTC is
be short-circuited at the political level.61 The inevitably quite labor-intensive.
Japanese program has been changed. In its five
years of operation, it went through a fiscal Sustainability and Legitimacy in Germany
review in 2003 and an overall review in 2005.
However, the "legitimacy" side of sustainability
Unquestionably, the most important observation was emphasized by the Ruerup Commission.
to make is that both programs have been popular This was because, as emphasized earlier, cost
with the public and are now accepted as normal control was such a dominant theme when LTCI
and important components of national social was initiated - a severe cap had been imposed on
policy. The Ruerup Commission mentioned that total spending, which in fact was effective. As
there had been suggestions to convert to tax- Heinz Rothgang shows, expenditures have
based rather than social insurance financing, or grown only an average of 2.2 percent a year
to private LTCI, or to merge the program with since the startup period (indeed, under 1 percent
health insurance, but it rejected them in favor of in 2004), mainly because the number of
incremental reform proposals. In Japan, there beneficiaries grew by 2.0 percent a year.
have been virtually no serious proposals for
radical changes. Such a slow rate of increase at a time when the
number of recipients was growing meant great
Given the assumption that LTCI should continue pressure on spending per recipient. Their
in both countries without radical change, benefit entitlement could not be cut in nominal
"sustainability" becomes the key concern. The terms (since fixed by law), but in effect, real
programs must maintain their public support benefits were reduced by inflation. For those
(often called "legitimacy") on the one hand, and getting a cash allowance, that meant lower
purchasing power; for those in HCBS, since the
61 This was the Commission for the Financial fees paid to providers had to be raised a bit due
Sustainability of Social Security Systems, or Ruerup to wage inflation, the hours - quantity of service
Commission, which discussed LTCI after major - were reduced.
reform proposals for the pensions and health care
system. An English translation of its report was Heinz Rothgang further points out that among
published in PDF format by the Federal Ministry of beneficiaries, the proportion of those in the
Health and Social Security in 2003. In Japan, the heaviest care category went down and those in
only radical proposal was to broaden LTCI to include the lightest category went up. Clearly, this was
younger people (as contributors and potential not because individuals had improved; it is
beneficiaries), which did not succeed but in any case because each year's new cohort gets lower
was an expansion and endorsement of the program scores. This could be "compression of
rather than a critique. morbidity" but more likely it is because the
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Sustaining Long-term Care Insurance in Japan and Beyond
"service corps" physicians toughened their though not sole theme in the Japanese reforms.
criteria - whether due to some spoken or
unspoken instruction from their employers, the It has been argued that expenditures grew much
insurance funds, is hard to say. faster than expected in the first five years of
LTCI. Actually, this is difficult to measure. At
It is interesting that neither of these trends, the time the LTCI system was enacted and even
which represent real reductions in average at the time it started, Welfare Ministry officials
benefits, became known to the public or at least were remarkably cagy about how much the
provoked any political protests. Presumably this
was because the evidence was rather subtle if system would cost. It is possible to find
not murky and because no interest groups were forecasts but it is hard to say how authoritative
watching very closely. The fact that did they were; it is also hard to know what the right
generate a lot of publicity was about how the starting point should be: estimated or actual
program was running in the red, and many first-year expenditures.
people probably jumped to the conclusion that In any case, expenditures did grow fairly rapidly.
spending was out of control. Certainly some The official calculation in the third-year fiscal
conservative observers in the United States � review raised contribution rates to cover
people who always think entitlement spending is increased expenditures by an amount that
out of control � were happy to make that claim. assumed growth of about 7 percent a year.
In reality, of course, it was severe shortfalls on Many statements by MHLW officials at the time
the revenue side that had caused the red-ink the fifth-year review was getting under way
"crisis" such as it was (actually just an annual indicated that they were concerned about
shortfall which could easily be covered by expenditure growth. They proposed reforms that
reserves for several years). would demonstrate their intention to constrain
spending, in order to deflect criticism. They
The Ruerup Commission, which was paying probably hoped there would also be some real
closer attention, saw the problem of restricted effects.
expenditures as most worrying for the long term, Limiting Eligibility
foreseeing that a system that was covering a
smaller and smaller portion of the real costs of If the Ruerup Commission was trying to correct
care would lose legitimacy and eventually for excesses in the original design of German
become irrelevant. The Commission's reform LTCI - fiscal rigidity - Japanese reformers took
proposal therefore centered on easing rather than aim at what in retrospect must have looked like
tightening the cost controls in the initial excessive generosity. That is, as emphasized
legislation. In effect, it called for older people earlier, political imperatives had led to a very
themselves to be charged a higher premium that low threshold of eligibility in Japan, so that
would allow benefits to be indexed to inflation, something like 15 percent of the over-65
and it suggested other provisions to take care of population qualified compared with about 10
a surge of beneficiaries in the future.62 percent in Germany. Moreover, lighter-care
beneficiaries were entitled to quite a high level
Sustainability and Cost Control in Japan of services if they wished them.
This sort of concern about sustainability in the The trend that was seen as most alarming was
sense of legitimacy is probably rare. Nearly that the number of beneficiaries was growing
always it is cost control that is evoked, or, more rather rapidly even after the initial start-up
specifically, controlling government spending on period. Eligible recipients increased by 76
long-term care. This was certainly the dominant percent in the four years from the program's
start to 2004 with no tapering off as yet. The
growth was quite uneven across levels: the two
62The additional charge would eventually amount to lowest groups, those who for the most part
about 20 Euros a month. This plan, described on pp. would not have been eligible at all in Germany,
15-16 of the English report, is actually much more more than doubled in this four-year period,
complicated but is not worth describing at length while the heavier-need groups went up by 50
since it was not adopted.
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Sustaining Long-term Care Insurance in Japan and Beyond
percent. lower-need categories, but this would have had
to be done out in the open, and in effect was
Note that this trend is similar, though more politically impossible. Instead, they purported
extreme, than the German trend. There, the to come up with a way to serve this group better
increased proportion of lower-rated clients was - and only incidentally, at lower cost.
interpreted as demonstrating tougher criteria on
the part of the service corps physicians. The fact The notion they came up with was kaigo yobou,
that this occurred when the total number of which translates literally as "care prevention"
recipients was not growing very quickly lends and has sometimes been called "preventive
weight to this interpretation. In Japan, however, rehabilitation." The logic, as set forth in a
the total number was going up quickly. public relations barrage that got started about
Moreover, the certification process in Japan two years ago, is as follows.
really does not allow a change in criteria � the
computer exam is too out-in-the-open, and the The goal of the LTCI program, in law and in
review of its recommendation by an expert practice, is supposed to be "independence"
committee cannot be controlled by the insurers. (jiritsu). By providing professional services, it
is supposed to liberate frail older people from
their own physical limitations and from
The most plausible explanation for the dependence on family members. However, the
difference from Germany is that lighter-need argument goes that, when people are not very
people (or their families) did not have as much frail, the same services can lead to a loss of
desire for services and so were not as quick to independence. Two examples were frequently
sign up as the heavier cases. They applied when mentioned. If an older person can perform
they became more acquainted with the program. chores around the house only with difficulty, he
This would not have occurred in Germany or she qualifies for a home helper under LTCI,
because, again, cash was available and of course but if the home helper does all the work the old
was desired by all. person will lose the ability to do chores or any
This Japanese trend can therefore be seen as a other sort of physical activity. Or, giving old
normal pattern, although some MHLW people who can barely walk a wheelchair could
comments about it had something of a moralistic mean they would never try to walk again. They
edge. But whatever the cause, it was worrisome. become more dependent.
More and more resources were going into
services for people who needed them less. In The response to this situation, then, would be to
Sweden, growth in its extraordinarily generous substitute independence-creating services for
LTC policy was constrained substantially when dependency-creating services. Instead of getting
the economy slowed, by means of targeting a home helper, people would be encouraged to
services on the most needy. It is estimated that undergo "muscle training" at a local center
about 25 percent of the over-65 population was (essentially an exercise program, though many
getting services, and that figure was reduced to detailed articles have been written to show how
just 16 percent by 2004. it should be done). Nutrition counselling and
other services would also be offered. If a home
In Sweden, the process of concentrating helper is allowed, then he or she should assist
resources on the heavier cases at the expense of the client to do more and more rather than doing
those who were not as needful was carried out things for him or her.
over time via individual decisions by
caseworkers who worked for municipal This idea was not just a policy recommendation.
governments. It was very hard to see. As was It was embodied in a substantial organizational
true of the milder form of targeting that reform. During the certification process itself,
happened in Germany, there was little in the way people who are scored in the bottom two of the
of political protest. six eligible categories would be evaluated to see
Japanese policymakers no doubt thought if "care prevention" would be better for them
wistfully about simply making the eligibility than the regular caregiving services. The
criteria tougher, or reducing benefits for the methodology for making this judgment is not yet
clear (although it has been specified that it will
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Sustaining Long-term Care Insurance in Japan and Beyond
not apply to people with dementia), but in any bottom two categories will be shunted off into
case the people who are excepted will be treated this new category (well more than half, it is
as before, which is to say, they could pick thought), how stringently the new rules will be
whatever services and providers they want up to imposed, how much the preventive services will
their limit. In most cases, they would be assisted cost, and � perhaps most significantly � how
by a "care manager," but the client always has many recipients will say they simply are not
the right to choose (and to change) care interested in exercising or any other part of it,
managers if desired.63 and simply walk away.
For those identified for "prevention," however, a This reform has only just passed and it is not at
brand-new system was to be set up. Instead of all clear how quickly and in what ways it will be
being able to pick their own care manager, a implemented or whether the recent opposition
committee under municipal government will have some effect in modifying the
auspices would take charge of their case and Ministry's plans.
specify what services they would be offered.
Most would be provided by the local Cutting Fees
government directly or under contract, in a new
"neighborhood comprehensive center." The "preventive rehabilitation" strategy for cost
control via eligibility limitation is, so far as I
This reform did generate some opposition from know, unique to Japan. Its other strategies have
advocates for both clients and providers. Critics been more commonplace but are worth a brief
said that it would violate the principle of description.
consumer choice in LTCI - clearly correct - and
that many clients really do need the regular The main institutional forerunner for LTCI in
services. However, whatever the merits of these Japan was health insurance. The MHLW had
arguments, the protests were too little too late. A been struggling to constrain medical spending
conference meant to mobilize resistance was for decades, and had developed an unusual but
held after the reform bill including this plan was effective mechanism: selective reductions in the
just passing the Lower House and on its way to prescribed fees for all medical goods and
enactment. Similar questions had been raised services. Every two years, the government
during legislative proceedings but not to much negotiates with the Japan Medical Association to
effect. revise the fee schedule, item by item. Some are
raised, but most are reduced, particularly those
Whether this reform is good or bad is beside the that seem to be excessive based on surveys or
point. Indeed, one could agree with all the simply on the evidence that usage was
opponents' arguments and still argue that Japan increasing.64 It was therefore natural for
should have used more restrictive criteria, Ministry officials to keep tabs on how its LTCI
perhaps to come out at around 10 percent of the fee schedule was working out and to fine-tune
Japanese over-65 population like Germany, in the "relative values" of the various services.
the first place. This view depends on one's This was in the scheduled fiscal review in the
sense of how public money should be spent and third year of the program, 2003.
of what spending levels will be required for
long-term political sustainability. The biggest change was to reduce the fees for
institutional care in nursing homes by an average
This approach, in my view, may demonstrate of about 3 percent. When the original fees were
that substantial cost savings without blatantly set, the authorities had been mindful of the
cutting off beneficiaries or slashing benefit financial viability of nursing homes, which were
levels. How much money will be saved is hard mostly run by small-scale, not-for-profit
to say until one sees what percentage of the organizations. Under the previous system, they
had been paid on a set formula amounted to the
63These and many other features of LTCI in Japan
are not covered in this paper, but see Campbell and 64The process is quite complicated, and is detailed in
Ikegami, 2003. Campbell and Ikegami, 1997.
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Sustaining Long-term Care Insurance in Japan and Beyond
managers simply getting a check from the institution. This is held to be better from the
municipal government (including national and point of view of the client's preferences and
prefectural subsidies) every month. Under quality of life and is also supposed to be cheaper
LTCI, their revenues would come with for all but the heaviest cases. The main reason
individual residents, the amount depending on why this goal remains more a wish than an
their certified level of care; moreover, the effective policy in countries like the United
residents would be picking the nursing home States has been the fear that HCBS cannot easily
themselves rather than just being assigned to one be targeted on those who otherwise would go
by the municipality. Another new factor was the into a nursing home, so increased spending
emphasis on home and community-based would not be offset by savings on institutional
services, which would seem to be competition. care.
From a nursing home manager's point of view, Once a nation commits to a comprehensive
this transition looked something like being approach to LTC, this obsession about costs is
pushed into an uncertain and dangerous market less pressing, and there have been many
environment. Many responded by trying to cut successful examples in Europe of improved
their fixed costs, mainly by moving away from HCBS leading to reductions in
permanent full-time staff to rely more on
temporary and part-time employees.65 institutionalization (though not in total
Their spending). The question is then not whether to
efforts succeeded to the extent that, under the
new system, many nursing homes started provide extensive HCBS, but rather, how to
running surpluses - because demand for nursing balance out-of-pocket costs and other incentives
home beds actually increased, their new between home and institutional care to obtain an
environment was not so uncertain and dangerous appropriate mix.
after all.
In Germany, one of the proposals from the
At least one MHLW official I interviewed Ruerup Commission was to discourage
regretted that nursing homes had reacted so institutional care by equalizing benefits at each
defensively rather than taking the new system as need level between HBCS and nursing homes.
an opportunity for innovation, but given the cost Originally, institutions received much more to
concerns that were already coming to the fore in reflect their actual costs. No doubt that was seen
2003, it was natural to reduce their fees. It is as crucial because reducing the burden of
noteworthy, however, that, rather than cutting institutional care on municipal public assistance
across-the-board, the MHLW reduced fees for budgets was an important reason for instituting
lower-need and actually gave small increases for LTCI in the first place. This problem has hardly
the heavier residents. This was partly based on gone away � many nursing home residents still
real costs and partly on the policy goal of have some of their costs covered by public
incentivising the homes to favor heavier-care assistance � and the suggestion of such a radical
applicants. Fees for home helpers and some rebalancing indicates how important the
other HCB services were adjusted for similar Commission viewed the goal of
reasons, although the average fees were not deinstitutionalization.
reduced.
Japan was not so radical. Another of the
Discouraging Institutionalization significant reforms in the fifth-year review of
LTCI was to shift the "hotel" costs in institutions
A cherished assumption among specialists and into the out-of-pocket category, residents will
policymakers in the long-term care field is that now pay the equivalent of their room rent as
frail older people should remain at home or in well as their meal charges. The rationale was
the community, rather than going into an "fairness" since the room "charge" was being
"paid" when families kept the older person at
home (most often in the sense of forgone other
65In Japan these terms connote employees with less uses for the room, in a cramped Japanese house,
pay and job security, although many stay for rather than a cash outlay). Concerns were raised
extended periods and essentially work full time. about how low-income people would be able to
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Sustaining Long-term Care Insurance in Japan and Beyond
bear the additional expenditure. "aging-type" would be included, revenues would
greatly exceed expenditures for the younger age
Broadening the Scope group. Another goal was rationalization of care
for the younger disabled - a new system called
These Japanese strategies have all been aimed at Shienpi had been started in 2004 and, due to
cost-containment. To the extent the problem is incorrect assumptions and poor design, it was
defined in terms of the balance sheet of the already causing major headaches. In particular,
program, rather than growth in expenditures, it lacked effective eligibility and benefit
solutions may be sought on the revenue. An determination processes.
obvious example from the United States is the
way Social Security fiscal imbalances over the The MHLW did its best to sell this proposal, but
years were handled by enlarging the scope of the it failed and was dropped from the fifth-year
program - it had started as employees only, but review legislation. Opposition had come from
the self-employed, farmers, employees of state politicians in the ruling party, who were worried
and local governments, and other occupational about imposing a new social insurance
categories were successively added in order to contribution on younger people (many of whom
broaden the base of contributors. were not paying their pension premiums as it
was), and from most of the interest groups in the
In a pension program, this is only a temporary disability field. They raised a variety of issues,
fix, since eventually all these people would but one factor was their perception that LTCI
become entitled to benefits, but the situation is would be stricter than Shienpi.
different in LTCI. As mentioned earlier, when
Japan's LTCI program started, it had been Conclusion
crucial to have people aged 40 and over
contributing or else it could not have been social A comprehensive approach to long-term care, in
insurance (total contributions from the 40 to 64 particular a model based on social insurance, is a
age group are double those of the over 65 age reasonable and viable policy option for rich
group and make up one-third of revenues). To countries. It is reasonable in that it deals with a
justify those contributions, people aged 40 and major aspect of the ever-growing problem of
over who had an "aging-type" disability could population aging in a fair way - that is my own
get benefits, but they made up only a small opinion but it is shared by the citizens of the
portion of beneficiaries (4 percent) and countries that have taken this path. It is viable in
expenditures. that, unlike some of the social programs that
frighten policymakers so much, it is unlikely to
One of the Japanese government's top priorities go "out of control." The German experience
in the fifth-year review was to expand the indicates that controlling expenditures is not
program's coverage down to age 20 for both impossible or necessarily even particularly
benefits and contribution, as had been the case in difficult compared with other public programs.
Germany from the start. The main goal was The Japanese experience indicates that
clearly to improve the balance sheet, since even incremental but substantial mid-course
though all disabilities rather than the narrow corrections are possible.
95
Sustaining Long-term Care Insurance in Japan and Beyond
References
Campbell, John Creighton and Naoki Ikegami, 1997. The Art of Balance in Health Policy,
2003. "Japan's Radical Reform of Long-Term Cambridge University Press.
Care."Journal of Social Policy and
Administration. 37:1 (February 2003) 21-34. Campbell, John Creighton, 1992. How Policies
Change:The Japanese Government and the
Campbell, John Creighton, 2002. "How Policies Aging Society, Princeton University Press.
Differ: Long-Term-Care Insurance in Japan and
Germany" in Harald Conrad and Ralph Lutzeler Kouseishou Koureisha Kaigo Taisaku Honbu
(eds), Aging and Social Policy - A German- Jimukyoku, 1996. Koureisha kaigo hoken seido
Japanese Comparison, Munich: Iudicium. no sousetsu ni tsuite (Regarding the
Establishment of the Long-Term-Care Insurance
Campbell, John Creighton and Naoki Ikegami, for the Elderly System), Tokyo: Gyousei.
96
Summary of the Discussion
Kotaro Tanaka
Yamaguchi Prefectural University
The second session opened with a brief LTCI. A comprehensive disease management
presentation by Manfred Huber on the program that provides for both health and social
comparative study of long-term care (LTC) in 19 care management may yield better health
OECD countries. Then Heinz Rothgang outcomes than having two separate programs.
reported on the 10 years during which the long- On this point, John Campbell stressed the need
term care insurance (LTCI) system has operated for much greater coordination between the two
in Germany. After Heinz Rothgang had sectors without making the system too
answered some questions and comments specific complicated. However, in New Zealand,
to his presentation, John Campbell reported on integrating the two sectors has led to an increase
the LTCI in Japan from a comparative aspect. in the number of people identified as needing
these services, which has thus increased the
After the coffee break, the chair opened the pressure on the health system overall. Alan
discussion by referring to the discussion points Maynard stressed the importance of designing
in the handout prepared by Kotaro Tanaka. On appropriate incentive structures: for example,
the first topic (controlling increases in making local governments pay hospitalization
expenditures caused by an aging population), charges for any patients who could be
Naoki Ikegami opposed the notion of discharged to the community appeared to be the
concentrating public resources on the more only effective measure to decrease bed-blocking.
severely dependent and having little family Manfred Huber pointed out that, in Sweden,
support because the family would then receive giving more authority to community nurses in
no services until it was no longer able to care for LTC service provision had more impact than the
its own members. He also doubted whether the transfer of financial responsibility from the
new preventive services that will be provided by counties to the municipalities in the Adel
the Japanese LTCI will be effective in Reform.
controlling expenditures because of the
difficulty of monitoring whether the home-help On the basic differences between health services
service had been provided with the active and LTC, the discussion centered on two issues:
participation of the client, as had been episodic versus continuous function and
prescribed by the regularions, instead of as a reversible versus uni-directional function. LTC
passive recipient. appears to be continuous and uni-directional
(towards decline) when compared with health
This led to a discussion on the effectiveness of services. William Hsiao stressed that, since LTC
preventive services in general. Wendy Edgar is a broader concept than basic health care,
described New Zealand's positive aging designing benefit packages is likely to be more
campaign to change diet and exercise habits. difficult for LTC than health care. If formal
However, several participants expressed doubts services are available, then patients are likely to
about whether people could be induced to choose these services over being cared for by
change their behavior on a population basis. family members. Joseph White argued that
Nevertheless, Manfred Huber pointed out that, if income protection is less important in LTC
dementia could be prevented, this would lead to because those receiving services do not expect to
a considerable change in the burden for come out alive. Heinz Rothgang provided data
dementia patients and their families. based on a longitudinal analysis of changes in
the dependency level in Germany showing that,
The discussion then turned to the integration of although some people in Level 2 do improve to
health care and LTC. Naoki Ikegami argued that Level 1, most tend to decline or die with time.
there should be better integration between
services provided by health insurance and by On the issue of how to fund LTC, William Hsiao
97
Summary of the Discussion
recommended a three-tier mixed model. periods of time for those with physical
Concerning cash benefits, participants discussed disabilities, but patients with dementia continue
the implications for the employment of informal to need long periods of care. It was recognized
caregivers. Soonman Kwon thought that that hotel (bed and board) costs are generally
recipients could be trusted to make rational excluded from LTC benefits in most countries,
choices in the use of informal care, and so and so are covered by public assistance for those
argued that cash benefits should be introduced. who cannot pay. However, this was not the case
Some were opposed to this because there is no in Japan until the recent revision in the
guarantee that the cash would be used for legislation. Naoki Ikegami pointed out that the
caregivers. Regarding measures to monitor the definition of "institution" differs greatly from
quality of informal care, Heinz Rothgang country to country, which should be taken into
explained that in Germany, assessments are consideration in comparative studies. The
made by professionals every six months. One distinction between hotel services and care
alternative to providing cash or service benefits services should also be made clearer.
is the new "personal budget" in Germany, which
allows recipients to choose among a wide circle At the end of the discussion, John Campbell
of caregivers that includes non-licensed workers commented that since relying on family care will
and volunteers. become increasingly difficult, while relying
entirely on formal care will be too expensive,
How to prevent institutionalization was policymakers must design an appropriate mix of
discussed next. Nursing home care appeared to arrangements within publicly funded LTC
be needed increasingly only for relatively short systems.
98
Chapter 3: Increasing Public Expenditures on Health Care
Increasing Investment in the UK-NHS: Some Policy Challenges
Alan Maynard
University of York
I was asked to consider the challenges created increase NHS expenditure to equal the
by increasing expenditure in a centralized health "average" expenditure by the European
care system, the UK's �National Health Service Community countries. This was a changing and
(NHS).66 After describing the political rationale ambiguous target, especially following the
of this policy, I will review the demand-side and enlargement of the EU to include 10 relatively
supply-side challenges that it has posed. I will poor states. The UK government pledged to
focus not only on the positive achievements of increase real NHS expenditure by 7 to 8 percent
this policy but also on the problem that rapid every year until 2008. Subsequently the Wanless
growth in spending creates opportunities for Report (Wanless, 2002), which sought to
rent-taking by providers and how this has forecast future health investment needs for the
limited the positive impact of increased funding NHS, rationalized and supported this policy.
on outcomes and performance and on the
achievement of political goals. After over 50 years of parsimonious funding,
which some health economists argued had
Background constituted systematic under-investment in the
NHS, there was suddenly a large and sustained
The Labour Government came to power in 1997 injection of increased funding, and this created
with no clear health care policies except the some significant challenges. Because of
intention to remove the "failed" vestiges of shortages of labor (especially of doctors and
Margaret Thatcher's internal market (in nurses), time lags in acquiring and implementing
particular to abolish Hospital Trusts and GP increased bed and diagnostic capacity, and
fund-holding). For the first two years of the significant monopoly power in the health care
Blair administration, government funding was market in the form of strong and skilful medical
parsimonious and in line with the policies of the trade unions and a powerful pharmaceutical
preceding government. Then in 2000, the Blair industry, there was a major risk that part of the
government radically altered its policies as part increased investment would not only reduce
of a program of public sector reform that greatly waiting times and improve quality of care but
increased investment. Initially, this policy would also be partly absorbed as rents or as
focused on "acting smarter in the provision of higher prices for inputs.
health care." More recently, the increased
investment has been accompanied by the re- Demand-side Controls
adoption of such Thatcherite "market" policies
as Foundation Trust Hospitals and GP budgeting Taxation is the predominant source of funding
(now called "practice-level budgeting") in for the NHS � a combination of national (social)
primary care and by a much greater emphasis on insurance payments and general taxation, with
the use of competing private suppliers to provide user charges financing 5 percent of expenditure.
care for NHS patients. The Blair government's expenditure increases
have been funded by a 1 percent increase in the
In 2000, the Prime Minister announced an national (social) insurance contribution (in other
extended investment program that was to words, by a proportional tax) rather than by
progressive income taxation. Consequently, the
redistributive effect of the funding has been
66In fact, this paper addresses the performance of the reduced now that the system is more dependent
NHS in England. The NHS in Scotland, Wales, and on proportional taxation.
Northern Ireland differs in structure and policy
following devolution but remains publicly funded by Co-payments are charged for pharmaceuticals
the UK government. and for the small slice of the dentistry sector that
99
Increasing Investment in the UK-NHS: Some Policy Challenges
the government still covers. Coverage of over two dozen items in what is called "the
community care, in particular the provision of balanced scorecard" where the organization's
nursing home care, remains means-tested with performance relative to its peers determines its
public funding channeled through local grading. These measures of "success" focus on
government. Local councils fund patients in process, in particular reductions in waiting times
privately owned and operated nursing homes. for certain elective procedures (such as hip
The problem of "bed blocking" (when elderly replacements), cleanliness of facilities, and the
patients in need of social care occupy expensive prompt delivery of interventions such as
hospital beds even after their medical needs have thrombolytics after myocardial infarctions.
been met), has been solved following the Success merits some financial rewards (for
Swedish model, by fining those local example, �1 million if a hospital achieves three
governments that fail to move such patients out stars) and the dismissal of management staff in
of NHS facilities and into residential care. The "failed" hospitals with zero stars.
introduction of this policy, under which local
governments have to pay the NHS the cost per The Commission for Health Improvement (CHI)
patient bed day, was accompanied by additional was created to "police" the working of the NHS
funding for nursing home care and has in relation to its performance targets, the NSFs,
significantly reduced bed blocking and the and the use of NICE guidelines. It is now called
demand for NHS facilities by elderly patients the Health Care Commission (HCC) and is
needing social care. responsible for grading the performance of
purchasers (Primary Care Trusts or PCTs) and
Supply-side Issues primary and secondary providers.69 Currently,
the performance of the NHS is being reformed
When Blair increased spending on the NHS, he by this regulatory agency. (Health Care
also required that it "act smarter," in other Commission, 2005)
words, that it increase the efficiency with which
it uses resources. Initially, efforts to increase Supply-side Achievements
efficiency focused on central institutions. For
example, in 1999, the National Institute of The large investment in resources and the
Clinical Excellence67 (NICE) was created to centralized system of target setting and
appraise new and old technologies in terms of monitoring has achieved some significant
their clinical and cost effectiveness and to changes in patients' waiting time for care,
facilitate the production of evidence-based particularly for elective care (see Table 1). At
clinical guidelines (where economic elements the time when the policies were initiated, many
are only now being injected). patients were having to wait over 12 months for
elective procedures. Now, no one in England
In another attempt to improve quality, the has to wait for longer than nine months, and by
government issued a series of National Service the end of 2005, no one will wait longer than six
Frameworks (NSFs), setting out targets for months. However, this average statistic
reducing waiting times and enhancing the disguises certain issues. In particular, those who
quality of provision in areas such as cancer, have had a lengthy wait and who have often
heart disease, diabetes, renal medicine, the care been categorized as non-urgent by their
of the elderly, and children's care.68 The NSF clinicians have been "tail-gunned" � in other
targets are complemented by a primary group of words, policy and management have focused on
targets against which the performance of reducing the tail of the distribution. This has
providers and purchasers is graded annually been successful in reducing the mean waiting
according to a star rating system. There are time for elective surgery by 30 percent and
currently eight primary targets for hospitals and reducing the median waiting time by 21 percent.
67 This was recently expanded into the National
Institute for Health and Clinical Excellence to cover
health improvement and illness prevention but is still
referred to as NICE (www.nice.nhs.org.uk).
68The NSFs can be found at www.doh.gov.uk. 69www.healthcarecommission.org.uk
100
Increasing Investment in the UK-NHS: Some Policy Challenges
Table 1 : Waiting and Access Targets
Delivery Date
Hospital services (elective care)
Maximum wait for inpatient treatment: 6 months End 2005
Maximum wait for inpatient and day case treatment: 3 months 2008
Maximum wait for outpatient appointment: 3 months/13 weeks End 2005
Maximum time from GP appointment to treatment: 18 weeks 2008
Emergency care
Maximum wait in A&E: 4 hours End 2004
75% of emergency ambulance calls to be responded to within 8 minutes 2001
Primary care
Guaranteed access to primary care professional within 24 hours 2004
Guaranteed access to primary care doctor within 48 hours 2004
This means that the mean waiting time for oriented performance measures.
inpatients in 1997 � of over four months � was
reduced to under three months by 2004, and the Significant resources have also been invested in
median waiting time fell from three months to services for conditions such as heart disease,
two and a half months (The King's Fund, 2005). cancer, and mental health. The performance of
As the government adopts increasingly the NHS in this respect has improved, with
ambitious targets (for example, no one having to patients being seen and treated more rapidly.
wait more than six months by December 2005 or Whether these improvements have yielded
more than 12 weeks by 2008), the absolute improvements in health is less clear. Fewer
number of patients who have to be treated Britons are dying of cancer and heart disease,
becomes ever greater. but these trends were evident before the
government's increased investment. There is no
Not only has there been some success in the evidence (yet) that levels of obesity are
timely treatment of elective patients, there have declining or that healthy eating, and exercise are
also been improvements in the treatment of increasing. Smoking levels are declining slowly.
emergencies. For instance those patients labeled The impact of the National Service Frameworks
as "urgents" by general practitioners (such as on, for instance, five year survival rates will take
cancer sufferers) now have to be seen within 14 time to emerge and will also require better data
days, and no patient should have to wait in collection.
accident and emergency for more than four
hours. These modest goals are increasingly Challenge: Rent Seeking
being achieved because Chief Executives and
their teams know that their jobs are on the line if The relaxation of the tight NHS budget
they fail to meet these centrally determined constraint has inevitably induced providers to
targets. seek "rents", in other words, to enhance their
rewards without improving their activities or
There has been considerable investment in their outcomes. This situation has manifested
physical facilities and equipment for treating itself in several ways.
patients, with the consequence that they are
continually improving after decades of relative The National Institute for Clinical Excellence
neglect. This aspect of the "modernization" of was originally conceived as a mechanism to
the NHS is not detectable in the activity- ration resources (Maynard and Bloor 1997).
However, it has developed in a way that is
101
Increasing Investment in the UK-NHS: Some Policy Challenges
actually contributing to inflation, particularly in Wennberg, 2002; and Wennberg, 2004).70 The
pharmaceutical expenditures. NICE is universal nature of these variations and their
"approving" for use in the NHS (and sometimes continuation over decades is as remarkable as it
for only particular sub-groups of patients) new is wasteful (Fisher, 2003). These variations are
and expensive drugs that have only marginal evident in routine administrative NHS data,
clinical benefits. This situation arises because which are also unmanaged (Bloor and Maynard,
NICE approval requires only a minimal 2002). To vary is human, but the variations in
threshold of approximately �30,000 per quality the USA and in the UK's NHS are prime facia
adjusted life year (or QALY). Certain cancer evidence of considerable inefficiency and are
drugs are prime examples of this practice, usually ignored in health care reform efforts
although recently NICE has begun to show more (Maynard, ed, 2005). Furthermore, they
rigor in its rationing by suggesting in one of its substantiate the hypothesis that increased
guidelines that the Alzheimers drug Aricept activity could be produced from existing
should not be reimbursed in the NHS, and as a consultants if the mean of the distribution could
consequence it cannot be prescribed for NHS be increased and/or if the shape of the
patients in future. There is currently much contribution could be altered. To this end, in
discussion in both academia and government 2004 the government supplemented the
that either the NICE acceptance threshold should consultant contract with fee for service "pilots"
fall to �12,000 to 15,000 per QALY or that the in the hope that mixed remuneration systems
organization should be given a budget sufficient would increase the activity levels of specialist
to cover the costs of the entire NHS adopting its doctors in NHS hospitals. While this may be
guidelines, which would oblige it to ration more beneficial in terms of increasing activity, the
effectively (Maynard, Bloor, and Freemantle, preceding contractual settlement was, in effect,
2004). Until the implementation of some such rent. Consultants were given significant pay
constraint, NICE will continue to be, in effect, rises (many are now being paid in excess of
the "marketing arm" of the pharmaceutical �100,000 per annum) with no corresponding
industry, injecting expenditure inflation into the improvement in the delivery or quality of patient
NHS by obliging it to adopt drugs of marginal care.
clinical effectiveness.
Unlike the consultant contract reforms, the new
Another provider group that has been very contract for general practitioners included
successful in acquiring rent has been the medical incentives in the form of generous fees for the
profession. The government negotiated a new delivery of 10 categories of patient care. The
contract for hospital specialists or consultants, quality framework (QOF) assigns points to
which has given members of the profession particular tasks, and points are awarded to
significant pay increases (20 percent and more) practices based on the extent to which it meets
with no return to the NHS in terms of either its target. In this way, doctors within each
increased activity or improved quality. The practice are encouraged to police each other. The
contract has cost the NHS several billion QOF was accompanied by the chance to opt out
pounds, but there has been no observable of the contractual obligation of GPs to provide
reduction either in the variation in clinical round the clock care for patients, whether
activity between specialists in particular directly or via cooperatives of local GPs. For a
specialties or in the temporal trend for surgeons �6,000 reduction in salary, GPs could be
in particular to reduce activity (Maynard and released from this part of their contract, and
Bloor, 2003b). most GPs have done so. However, many still
offer this out-of-hours service through primary
Clinicians' large and unaccountable variations in care trusts (PCTs) and receive pay rates for
activity have been well chronicled in the USA doing so that are considerably higher than they
by the Wennberg group at Dartmouth Medical used to be paid for this service. Recent surveys
(Wennberg et al, 1989; Wennberg, Freeman, and of GPs' salaries have revealed that they receive
Culp, 1987; Wennberg and Gittelsohn, 1973;
70www.dms.dartmouth.edu
102
Increasing Investment in the UK-NHS: Some Policy Challenges
of �100,000 per year. The opportunity cost of As a result of these alterations in pay and
the QOF is unclear. What has been given up to organization, purchasers and providers have had
make it possible to pay these generous fees for to increase their activity to achieve waiting time
service (Maynard and Bloor, 2003a)? targets by increasing capacity proportionately
rather than by complementing such investment
The combined effects of these three factors � with increases in productivity and "sweating"
NICE approving expensive drugs with marginal assets. Consequently, there has been little
clinical benefits, the inflation of doctors' salaries funding left over to pay for the quality changes
with no increases in activity or quality, and required by the NICE guidelines and the
increased capital costs due to the full imperatives of the National Service
employment economy and public sector reform, Frameworks. At worst, they have to struggle not
� highlight an important question in financing to go into the red as deficits are not tolerated by
reform. How can you avoid the acquisition of central managers in the NHS. Figures for the
rents by provider groups when funding is rapidly 2005-6 fiscal year in Scotland indicate that, of
increased with little prior warning and planning? the new money available at the local level (�524
million), 92 percent was already committed
There is a further challenge involving rent before the start of the year to meet promised pay
seeking in the health labor market. The Agenda increases and other obligations mostly related to
for Change is a national policy document that pay, pharmaceuticals, and working conditions
classifies the hundreds of skill categories and (Walker, 2005).
wage systems in the NHS into a simple national
banding system. The aim of the new policy is to A paradoxical aspect of the sharp increase in
ensure that all non-physician workers are neither funding created by the Blair reforms is that the
unduly downgraded and de-motivated nor able organizations that are delivering care are in
to create further wage inflation without increasing financial difficulties. Quite rightly,
productivity gains. the government has raised the expectations of
the public that waiting times for elective
The government has also adopted policies that procedures will be reduced and that quality will
are meant to improve the quality of care be improved in elective, chronic, and emergency
provided in the NHS but are likely to be highly care. However, the changes being made to
inflationary. For example, the European achieve these targets, while creating some
Working Time Directive requires all NHS significant improvements, are creating some
institutions to limit the hours of junior hospital avoidable waste and arousing frustration in both
staff to 56 hours per week, with a further fall by politicians and the public who expected more
2009 to 48 hours. The UK government rapid change.
reinforced this policy by offering junior staff
very high overtime payments if their employers Challenge: Increasing Capacity
made them work over this limit, making the
opportunity costs of non-compliance very high The Blair government has operated on the
for employers. As a result, compliance with the principle that increasing the funding of the NHS
Directive is being achieved at high cost with will produce the necessary additional capital and
short-term pay increases and the necessity to labor to reduce waiting times, increase physician
reduce hours and hire additional staff to replace activity, and improve the quality of patient care.
lost manpower. Two more examples of new However, an immediate problem with this
policies with inflationary potential are strategy is that it can take a decade or more to
emphasizing classroom teaching rather than on- plan, build, and open new hospitals and that
the-job experience in the training of junior staff training doctors can take 10 to 15 years before
and making all hospital services consultant-led they can be licensed as specialists and
or specialist-led. Both of these policies require independent practitioners. With this in mind, the
the recruitment of new staff to maintain patient government has adopted a range of policies
services. The impact of these changes on quality aimed at resolving these difficulties.
has yet to be evaluated.
103
Increasing Investment in the UK-NHS: Some Policy Challenges
The preceding Conservative Government had the recruitment of doctors has focused first on
developed the Private Finance Initiative (PFI) as increasing the intake at medical schools and
a way to reduce public sector capital expenditure second on immigration. New medical schools
by replacing it with private funds, with the aim have been created and old ones expanded, and
of increasing efficiency in the building and intake has increased by 30 percent, but it will
operation of hospitals and other health care take at least a decade for the number of doctors
facilities. The Blair government has not only to increase accordingly. Consequently, the NHS
retained the PFI policy but has significantly has been actively recruiting doctors from
expanded it as a way to further its public sector overseas. This is a contentious policy as many
reforms and to contain public sector expenditure. of these immigrant doctors come from relatively
This policy has been controversial and is poor nations, and the flow can be regarded as
difficult to evaluate, as many aspects of PFI "reverse foreign aid." For example, countries
contracts are "commercial in confidence", in such as India "traditionally" over-produce and
other words, secret, so that rivals cannot detect export doctors to the UK. In fact, at the
providers' cost and quality structure. Also, the moment, the NHS cannot provide its services
transaction costs of PFI projects have been high, without the over 25 percent of UK doctors who
as each function of the facility being built is are foreign-trained. With 10 countries joining the
subject to a separate contract. Recently the European Union (EU) last year and free
decision of the Office of National Statistics to movement of doctors and nurses throughout the
count PFI expenditure as part of the EU guaranteed, more immigration is likely,
government's expenditure may mean that there subject to language restrictions and EU
is less reliance on this funding source in the registration criteria.
future.
Yet, even after the recent increased flow of
The capital program, both public and private, doctors and nurses from Spain and nurses from
aims very gradually to increase the size and Finland and the Philippines, recruitment
quality of the stock of hospitals and of problems remain. The government has therefore
diagnostic and other equipment. However, high attempted to alter the skill mix of staff who
consumable costs associated with upgrading provide services to patients. Nurses and
equipment and procedures can increase pharmacists are being given prescribing powers
expenditures significantly (for example, for the full formulary, and nurses are being
switching from open to laparoscopic surgery). trained in anesthesia, surgery, and endoscopy.
Whether these improvements have been While there is some evidence that nurses are
implemented efficiently is difficult to determine. proficient in such skills, it takes a long time to
Given the way in which capital markets appraise train them properly, and if this training time
risk, the private sector inevitably borrows at a were reduced, the diagnostic and therapeutic
higher cost than the public sector, and the quality of such practitioners might not be good
resulting increase in costs has to be offset by enough. Furthermore, although nurses may be
efficiency savings in the creation and operation clinically effective, the limited research
of more and better facilities. As PFI contracts literature does not reveal whether such skill
exclude clinical inputs, savings have to be made substitution is cost-effective (Lankshear et al,
on the non-clinical aspects of care. At present, it 2005; Lankshear, Sheldon, and Maynard, 2005;
appears that private contractors are receiving Laurant et al, 2005; and Sibbald, Shen, and
"healthy" rates of return on their PFI contracts McBride, 2004).
as revealed by the UK's new Freedom of
Information legislation.71 For nurses and especially for doctors, the
The development of labor market policies has increase in their pay may reduce emigration and
been more problematic. The policy governing retain more staff in the medical professions. To
date, there has been no systematic analysis of
these issues or any appraisal of the changes in
71www.dh.gov.uk/PublicationsandStatistics/Freedomo gender and skill mix.
f Information/ReadingRoom/fs/en
104
Increasing Investment in the UK-NHS: Some Policy Challenges
Quality of considering those old marginal therapies,
which could be eradicated from clinical practice.
The annual hospital league tables show that Finally, the threshold at which NICE approves
performance is now an integral part of the technologies for use in the NHS remains too
NHS's star system for grading hospitals. Also, generous at �30,000 per QALY, with the
the Royal College of Physicians voluntarily consequence that marginal and expensive
determines and appraises "ambulance-call-to- therapies have been approved by NICE that
needle" and "door-to-needle" times for produce only limited patient health gains (for
thrombolytics in cardiac care, at both the example, some pharmaceutical interventions for
institutional and the individual clinician level. cancer patients).
Not all NSF targets for the different care
categories are mandatory performance A noticeable limitation of the Blair reforms has
standards, but there is pressure from the been their neglect of both variations in activity
Department of Health for some elements of the and outcome measurement. A private sector
framework (such as thrombolytics and stroke firm, Dr Foster72 has published annual mortality
care) and, more generally, for Trusts to be rates for hospitals in England, based on the work
required to comply with these targets. Waiting of Jarman and colleagues (Jarman et al, 1999)
time targets for diagnostic and therapeutic using NHS data. The data come from an annual
interventions in cancer care are already administrative series, the Hospital Episode
mandatory, but the government should be careful Statistics (HES), and record a considerable
about extending this to cover all NICE amount of process detail for every NHS patient
guidelines. For example, certain NICE (including the patient's post code, the referring
treatment guidelines for cancer have been GP's practice, the type of procedure(s), the
implemented unevenly (Sheldon et al, 2004). length of stay, the name of the specialist,
readmission rates, and mortality rates). This vast
Some NSFs (for example those related to renal data set has been collected since 1987 but has
care and diabetes) are relatively new, have not rarely used in research, let alone in routine
yet progressed significantly, and will add to management. Simple analysis of these data
funding pressures. The slow implementation of shows considerable variation in the activity rates
the mental health NSF reflects the low social both in crude numbers of finished consultant
and political profile of this sector, a factor episodes (FCEs) and tariff-adjusted FCEs (Bloor
increasingly recognized as unacceptable and and Maynard, 2002).
counter-productive. A prime example is that
many patients in acute care suffer from Certain policy issues are highlighted by this
dementia, making the absence of psychiatric variation. For instance, would supplementing
liaison care a cause of "bed blocking." Also, the salaries of hospital consultants with fee-for-
research demonstrates that outcomes are service payments shift the mean of this
improved both for younger patients in acute care distribution and produce more activity from
(for example, after breast cancer surgery) and existing doctors? If so, would it be necessary to
older patients if their social and psychiatric bring in overseas practitioners and affect so
needs are met. significant an increase in the intake of medical
schools? The choice of the UK Government has
While the creation of NICE was essential and its been to underplay this issue. Instead of focusing
role is pivotal in rationing resources and on variations and seeking to produce more
targeting interventions in the most cost-effective activity from existing doctors, it has chosen
way, its influence has been mixed during the instead to import and train more doctors.
first six years of its existence. First, its impact Although such activity analysis can be useful
has been marginal and cumulative as it has only and a certain amount of variation is both
appraised a few therapies as yet. Second, the inevitable and human, the government's focus
political processes that have determined its on waiting times has caused it to neglect all
selection of interventions for appraisal have
tended towards new technologies at the expense
72www.drfoster.co.uk
105
Increasing Investment in the UK-NHS: Some Policy Challenges
outcome measures other than mortality and standards. This is likely to be introduced
recurrence rates. It is remarkable that the initially as a pilot scheme in the NHS.
international health-related quality of life Hopefully, it will be carefully evaluated to
(HRQoL) measurement is absent from health ensure both the validity and sensitivity of the
systems. An experiment by the Rand Insurance instruments before being extended to the entire
led to the creation of Short Form 36, an HRQoL NHS.
completed by patients themselves assessing their
physical, social and psychological functioning.73 The fact that quality issues have not been
European work in the 1990s led to the creation integrated into policy and practice in the UK's
of a generic HRQoL that can be converted into a NHS or in all other national health care systems
simple numerical score (unlike SF36).74 These is puzzling. Reformers worldwide are eager to
two generic HRQoLs have been used in improve quality. However, they have an
thousands of clinical trials across the world and unfortunate tendency to blur the distinction
have been translated into dozens of languages. between process quality and outcome quality,
However, no health care system uses these which makes it difficult to measure the success
measures to compare the condition of patients of reforms. While economists may assume that
before and after treatment by determining the goal of investments in health care is to
whether the HRQoL of patients has improved. improve population health, it is clear that there is
much evidence of failure and little evidence of a
Following problems with a gynecological public desire to measure success (for example,
surgeon's practice and outcomes, a UK insurer enhancements in the length or the introduction
(the British United Provident Association, more of HRQoL). This is because politicians and the
commonly known as BUPA) has been using public tend to focus on process, activity levels,
SF36 for some of its patients. It is thus able to and access, which when changed may or may
offer better consumer protection and to give not improve patient health. The sharp recent
feedback to the surgeons that it employs how increase in investment in the UK's NHS has
well they have performed relative to their peers given this issue more prominence and may
in terms of improving their patients' physical, eventually lead the government to introduce
social, and psychological functioning. BUPA HRQoL evaluation and contracting in the health
manage these data using the "six sigma"75 safety care system. Currently, the government plans to
engineering techniques; in other words, they evaluate all new Diagnostic and Treatment
focus on the tails of the distribution to learn how Centers (DTCs) using HRQoL.
the best surgeons succeed and how such
knowledge can be used to improve the The Economics of Frustration
performance of practitioners in the "poor" tail of
the distribution. They apply SF36 before and six The failure of the increased funding to realize
months after the procedure at an estimated cost more swift and significant changes in waiting
of �3 per patient, which is considerably less than times and other process measures of success led
the cost of a full blood test. to disillusionment in the government. When it
became clear that the public sector in general
BUPA surgeons, being NHS employees working and the NHS in particular was not using its
privately, are transferring this type of increased funding in a flexible and efficient
measurement into the public sector. To date, this manner to facilitate rapid improvements, the
is being used by clinicians but not by non- government launched a radical program of
clinical management. There is the prospect that change.
PCT contractors will be chosen not merely on
the basis of price and volume but also on the In 2003, it reintroduced Hospital Trusts, which
basis of their HRQoL measurement and practice had been introduced under Margaret Thatcher's
government76 and which Blair had abolished in
1997. In their new incarnation, these are called
73www.sf36.org
74www.euorqol.org
75www.sixsigma.com 76See Bloor, Maynard, and Street, 2000.
106
Increasing Investment in the UK-NHS: Some Policy Challenges
Foundation Trusts and are regulated intensively care a choice of five alternative providers �
by Monitor, the Independent Regulator of either in the NHS or in the private sector � with
Foundations Trusts.77 In addition, since April shorter waiting times. The government then
2005, the government has been incrementally pays the private providers for the care that they
introducing a system of price regulation with provide to NHS patients at national tariff rates
national tariffs (an English version of Diagnostic plus 15 percent from PCT funds earmarked for
Related Group pricing), with all elective care the specific procedures. In doing this, and by
being reimbursed at the set tariff rates. Those guaranteeing NHS finance for 5 years, the
hospitals that are deemed to be sufficiently government hopes to induce the private sector to
secure in their finances have been awarded develop sufficiently rapidly as to be able to own
Foundation status, one advantage of which is 15 percent of NHS provider capacity by 2008.
that all their activity is reimbursed at tariff rates. Currently, NHS utilization is very high, with
Thus, those providers with low costs and unused over 90 percent of the available bed stock in
capacity are finding it relatively remunerative to most hospitals in use. Demographic pressures
increase utilization and generate "surpluses." In and other factors (for example. the changes in
other words, if costs are less than tariffs, GP out-of-hours activity in 2004) mean that
hospitals that increase activity generate more emergency demand continues to grow, putting
surplus, or profit. pressure on elective capacity. The government's
response has been to invest initially in NHS
Also in April 2005, the government reintroduced Diagnostic and Treatment Centers (DTCs) and
GP fund-holding, another Thatcher innovation then in private sector DTCs. These units tend to
that the Blair government had abolished in 1997. be small and focused on specialized elective
This is now called "practice-level budgeting." procedures for which there are long waiting
There is some evidence that the Thatcher system times, such as hip replacements and cataract
of GP fund-holding reduced hospital admissions removals.
by a small but significant percentage (Dusheiko
et al, 2003). Given that the introduction in 2004 One possible effect of this investment strategy is
of the GP contract with its out-of-hours clause the separation of elective and emergency care,
may have increased hospital referrals, it is hoped with uncertain effects on cost structures. In the
that practice-level budgeting may provide early summer of 2005, the government
practices with incentives to retain patients announced the second tranche of its investment
wherever possible at the level of primary and in diagnostic and treatment capacity to increase
community care, thus reducing out-of-hours choice for patients by creating excess capacity.
hospital admissions. However, this will require The tranche of �500million will be targeted to
radical improvements in the initial structures the private sector to achieve its increased
being adopted. Hopefully, practice-level capacity target.
budgeting will be evaluated more thoroughly
than was GP fund-holding, which gave finite The government is investing to increase capacity
budgets and activity contracts to GPs and their in primary and secondary care both within and
practices. outside the public sector and is seeking to
increase patient choice in elective procedures so
In addition to this reversal of earlier policy, the that patients will have the option of five
Labour government is forceful in its advocacy of providers to select from by 2006. The
the merits of competition. One way in which it government sees the targeting of increased
has sought to create it is by adopting a five-year investment to private facilities as a catalyst to
plan to invest in alternative private providers to induce more flexibility and change in the public
create additional elective capacity to enable the sector. If the NHS provider does not act
system to meet waiting time targets and initiate a "smarter," then the private sector will erode its
policy of consumer choice. Under this policy, market. The NHS can either increase access and
GPs must offer patients who have to wait for improve quality or lose business to the private
sector. The government has stated that it is
prepared to make radical changes in NHS
77http://www.regulator-nhsft.gov.uk
107
Increasing Investment in the UK-NHS: Some Policy Challenges
management and capacity if it fails to improve. appropriate and cost effective care, and the
Whether it will be able to accept actual NHS continuing absence of measurement and
closures only time will tell. Furthermore, this management of patient-related health outcomes
policy is likely to fail if public and private (Appleby and Devlin, 2004 and Kind and
providers collude locally to agree market shares. Williams, 2004). The resistance of the medical
As ever, capitalists are the enemies of capitalism profession and major health care suppliers (such
and competition is difficult to create and sustain. as the pharmaceutical industry) to change is
based on commercial self-interest and political
Overview influence, and policymakers are going to have to
tackle these obstacles with determination and
The Labour Government of Prime Minister Blair vigor.
is involved in a major social experiment, which
has so far significantly increased access to health An important issue that is still being neglected in
care and may be improving the population's the health policy debate is whether such
health substantially. Nevertheless, it is wasting expensive and complex reforms as those in
some resources because of rent seeking by England are improving the health of the
powerful providers (Campbell, 1969). It is population in the most efficient manner possible.
unfortunate that there has been little evaluation Rapid increases in investment inevitably create
of this experiment and that it is only possible to short-term supply shortages and rents for
draw tentative lessons from it at this stage. providers, but even if this were not so, it is likely
There are undoubtedly observable improvements that in some areas of health care investment
in patient care as waiting times for elective (such as cancer care), "flat of the curve
procedures are being reduced significantly. The medicine" is being produced: that is, increased
government has taken a bold decision to spend investment brings little health gain. It is
more public health resources on increasing the possible that channeling the same amount of
share of private providers who can meet the care money into promoting healthy behavior by
needs of NHS patients. This has created a new educating the young and the poor (particularly in
interest among the private sector in the health improving their nutrition) would produce more
care legislative process and may prompt NHS population health improvements in the longer
providers in primary and secondary care to term, even in rich developed countries (Maynard
accelerate their own improvements in both and Sheldon, 2002). If such investments were
quality and volume of care. The choice of contemplated, it would be necessary for
market forces and competition as the central policymakers to have far more information
instruments of public sector reform, while novel, about the cost-effectiveness of the various
is unproven and risky but fascinating and will means by which such a policy could be
require the development of market rules (for implemented.
example, for bankruptcies, mergers, and anti-
trust) and careful regulation. This has yet to be Health care policymaking in the UK remains
put in place. hasty and based on a limited evidence base. As
the former President of The Royal College of
There is considerable evidence both of rent Physicians argued when he criticized the
seeking and acquisition and of continued long- Thatcher reforms, British policymakers "instead
term inefficiency in the delivery of patient care of making ready, taking aim, and firing, tend to
(Maynard, 2005). These inefficiencies include make ready, fire, and then take aim." As with
variations in medical practices, the delivery of Thatcher, so with Blair.
inappropriate care, the failure to deliver
108
Increasing Investment in the UK-NHS: Some Policy Challenges
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110
Re-Casting Canadian Federalism: Health Care Financing in the New Century
Joseph Wong
University of Toronto
Introduction mechanisms to ensure transparency and
accountability in how new health care dollars
Health care in Canada was in a state of crisis were to be allocated.
during the 1990s. Federal funding for health
care had dwindled throughout the decade. Despite some early skepticism among health
Relations between the federal government and policy watchers about the policy impact of the
the provincial and territorial governments had Romanow Report, the federal government
become increasingly antagonistic. The Canada quickly responded.79 By the end of 2004, the
Health Act � the federally imposed compact federal government had committed to adding
between the two levels of government approximately $30 billion of new funding to the
established in 1984 � was unraveling. The health care budget over the next 10 years.
provinces and territories were frustrated with the Considering that total public health spending in
federal government's (in Ottawa) insistence that 2001-2 amounted to $74.6 billion, this federal
the public principles of Canadian health care be pledge was not insignificant.80 Furthermore, the
maintained even though it was providing less federal, provincial, and territorial (FPT)
financial support than before and giving no governments agreed to develop new joint
assurances that it would ameliorate the fiscal monitoring and accountability mechanisms to be
situation any time soon. In other words, the phased in over several years. It is my view that
provinces and territories were doubly pressured the policy events of 2002 through to the fall of
by the countervailing principles behind the 2004 represent a new paradigm in Canadian
Canada Health Act and pressing fiscal realities. health policy in which long-term federal funding
Indeed, Canada's ailing national health care commitments have come to co-exist with a
system mirrored broader challenges in sustaining principled emphasis on accountability both
Canadian federalism. Negative public opinion between the two different levels of government
fuelled this discourse of crisis during the 1990s. and between each government and its citizens.
This paper endeavors to explain both why and
However, the situation changed between 2002 how these agreements were struck and to
and 2004. The November 2002 report of the appraise their impact on health policymaking
Commission on the Future of Health Care in and health care policy in the context of Canada's
Canada, commonly referred to as the Romanow changing federalism.
Report after its commissioner, former provincial
Premier of Saskatchewan, Roy Romanow, The paper is organized in six parts. The first
recommended that the federal government two sections provide overviews of
should inject an additional $15 billion into the intergovernmental relations and health care
health sector.78 It also recommended that the financing in Canada. Sections 3 to 5 examine
two levels of government introduce new the 2002 Romanow Commission Report, the
2003 Health Accord, and the 2004 Ten-year
Plan; they focus on the changing political
Thanks to David Cameron, Naoki Ikegami, Gregory dynamics between the federal and the provincial
Marchildon, Ito Peng, Richard Simeon, Joseph and territorial governments. Section 6 looks
White, and Linda White; their constructive comments inside the provinces, highlighting current reform
on earlier drafts of this paper were immensely initiatives in Ontario and Alberta, specifically in
helpful. Much appreciation to Ken Chan, Ruth the areas primary health care reform and waiting
Hawkins, Alan Hudson, Phil Jackson, and Michele
Weidinger of the Ontario Ministry of Health and
Long-Term Care for their insights. Thanks also to 79 Coyne, 2002 and from the medical profession's
Michel Brack and Victor Parchment for their research perspective, see Canadian Medical Association
assistance. Journal, 2002, p. 1199.
78All dollar amounts in Canadian dollars. 80Romanow Commission, 2002, p. 312.
111
Re-Casting Canadian Federalism:
Health Care Financing in the New Century
times reduction. Federal cash transfers for health increased by
almost 17 percent in the first fiscal year after the
The analytical portions of the paper are 2002 Romanow Report was made public (Table
structured around four general themes. I 1). Subsequent to the 2003 Health Accord,
describe them briefly here and will develop each federal cash transfers increased again, this time
theme more fully in the paper's conclusion. by over 20 percent, and continued to outpace
growth rates in provincial (in other words,
Federal Funding Commitment public) health expenditures by a considerable
margin. Federal cash transfers amounted to
Although the actual health implications of the nearly one-third of total health expenditures in
2002 Romanow Report and the 2003 and 2004 2004-2005, a marked increase over expenditures
funding agreements have yet to be observed, the in the mid-1990s when federal funds accounted
short-term financial consequences of these for only 16 percent of total health spending.
recent intergovernmental deals are quite clear.
Table 1: Federal Health (and Social) Transfers to Provinces/Territories, 2000-2005
2000-2001 2001-2002 2002-2003 2003-2004 2004-2005
Federal Transfer * 16000 18800 19100 22325 27005
Rate of Growth -- 17.5% 1.6% 16.9% 21%
Public Health Expend 68958 74590 79539 86034 91054
Rate of Growth -- 8.2% 6.6% 8.2% 5.8%
Note: * This figure includes social transfers in addition to all new "targeted" investments (the health reform fund, the
Romanow gap, waiting times reduction, medical equipment) and excludes federal tax points and equalization transfers.
Re-Casting Federalism maintain existing health benefits as well as to
increase productivity (including efficiency and
The 2003 and 2004 pacts for health care renewal accessibility) in health care provision. In this
effectively re-cast Canadian federalism in respect, these investments by Ottawa have been
practice. In contrast to more confrontational less transformative than initially anticipated,
modes of intergovernmental interaction during though the political optics of targeting
the 1980s and 1990s, Canadian federalism
moved towards what David Cameron and investment at popular mandates � waiting times
Richard Simeon refer to as "collaborative reduction, for instance � have produced
federalism." Under this new paradigm, important political payoffs to both levels of
jurisdictional authority in health matters is government.
shared between the two levels of government
and health policy goal-setting and, thus, the Political Uncertainty
mechanisms for intergovernmental
accountability are increasingly determined The 2003 and 2004 health care agreements were
collaboratively by the provinces, territories, and political deals, and, as such, their survivability is
the federal government in Ottawa.81 subject to the political uncertainties inherent in
democratic politics. In Canada, the elected
Unpacking "Investment" government of the day need not honor
intergovernmental pacts made by former
New federal commitments to health care administrations. Therefore, political uncertainty
financing were not intended to expand the scope and instability threaten the long-term financial
of existing services that are already covered by commitments agreed upon by both levels of
the Canadian Medicare system. Rather, new governments. Indeed, as I will argue in the
federal "investments" into the health care system concluding section of this paper, the present
have by and large been motivated by the need to moment of collaboration in Canadian federalism
is not the norm but rather an anomaly.
81David Cameron and Richard Simeon, 2002.
112
Re-Casting Canadian Federalism:
Health Care Financing in the New Century
Canadian Federalism: A Framework of constitutionally derived powers and authority
Analysis but also by the federal government's use of
policy instruments to compel (or coerce) the
The two levels or orders of government in behavior of the provinces and territories. For
Canada comprise the federal government in example, historically the federal government has
Ottawa and 13 provincial and territorial used its spending power on health to shape how
governments (10 provinces and three territories). the provinces and territories deliver health care
Jurisdictional authorities and the powers to their citizens.
afforded to each order of government have
historically been delineated in the Constitution. Federalism in Canada, however, is not just about
Section 91 of the Constitution Act outlines the top-down and bottom-up relations between the
powers of the federal government, while Section two orders of government. It is also about
92 covers the powers of the provincial horizontal relations between the individual
governments. This constitutional or de jure provinces and territories. Canadian federalism
clarity notwithstanding, the real dynamics of ensures political equality between each of the
federal-provincial-territorial (FPT) relations in provinces and territories, irrespective of any
Canada have been and continue to be fluid and demographic, economic, and political
politically contested. The axiomatic assertion differences among them. Fiscally, Ottawa pays
that each level of government entails out close to $10 billion per year in equalization
jurisdictional "watertight compartments" simply payments to the provinces to ensure fiscal
does not reflect federalist realities in Canada. In balance among the provinces. This in turn
practice, there is significant jurisdictional protects diversity among the sub-national
overlap between the two orders of government. jurisdictions, resulting sometimes in
In the area of health care, for instance, the "asymmetrical federalism."83 Quebec, for
provinces are responsible for the maintenance example, maintains its own public drug plan and
and management of heath care provision, while comprehensive child care program, while the
the federal government has general taxing other provinces and territories do not. Inter-
powers and is responsible for broadly defined provincial diversity and political autonomy are
"public health matters." Herman Bakvis and generally understood to be the strengths of
Grace Skogstad note that the two orders of Canadian federalism. Indeed, federalism works
government are in fact "highly interdependent." best in terms of policy innovation when
They go on to add that there "are very few areas provinces function as "laboratories" for policy
of policy where Ottawa or the provinces, change.
individually or collectively, can proceed without
bumping into the jurisdiction of another Politics along both the vertical and horizontal
government."82 axes of federalist arrangements is not static.
Where each government is situated on these axes
Given the realities of jurisdictional determines the various modes of interaction
interdependence among the provinces (and between itself and other governments. The
territories) and Ottawa, intergovernmental prevailing conventional wisdom regarding
relations in Canada are characterized by Canadian federalism notes two principal modes
continual power struggles and assertions of of interaction: cooperation and competition.
political autonomy. Federalism is political; it is Cooperative federalism is understood to be an
not simply a matter of public administrative arrangement in which governments cooperate in
wrangling. Lines of political contestation shared or interdependent policy areas, with the
among governments are drawn along vertical federal government playing a key leadership
and horizontal axes. The vertical axis captures role. Competitive modes of interaction, on the
the relationship between provinces (and other hand, are characterized by antagonistic
territories) and Ottawa. In this case, the intergovernmental relations in which the
relationship between the two levels of provinces show little deference to federal
government is shaped not only by mandates. In this conception of federalism, the
82Bakvis and Skogstad, 2002. 83See Rocher and Smith, 2003.
113
Re-Casting Canadian Federalism:
Health Care Financing in the New Century
two levels of government typically invoke the Health Care Financing in Canada
language of autonomy and authority when
competing over what are, at least It is a complete misnomer to characterize health
constitutionally, distinct policy responsibilities. care delivery in Canada as a coherent "system."
In reality, health care consists of 13 different
Observers have noted a new mode of provincial and territorial systems. These
intergovernmental relations that has recently systems are bounded, on the one hand, by
emerged: collaborative federalism. overarching public health principles, which are
Collaborative here refers to a mode of enforced by the federal government. As such,
interaction that is qualitatively more than just some similarities do exist among the provinces
cooperation and co-existence between the two and territories exist, including publicly financed
levels of government. Cameron and Simeon and universal medical insurance (rather than
(2002) define collaborative federalism to be "the individual payroll-based premiums), a mix of
process by which national goals are achieved, fee-for-service and global budget schemes used
not by the federal government acting alone or by for provider compensation, and a common list of
the federal government shaping provincial "essential" and, therefore, insured health care
behavior through the exercise of its spending services. However, inter-provincial differences
power, but some or all of the eleven exist as well. Provincial and territorial
governments and the territories acting governments design their own specific health
collectively."84 In this view of Canadian systems to reflect their jurisdiction's particular
federalism, the policy process (agenda-setting, health care priorities. Therefore, the
decision-making, implementation, output organization and delivery of health care in
evaluation, and policy feedback) involves Canada is relatively decentralized, even though
concerted and regular interaction between the the federal government plays a significant role in
orders of the government. The lines of policy financing health care from out of the federal
leadership run both ways, from the top down, as coffers. Certainly, the 13 health care systems
in the conventional understanding of cooperative operating in Canada are far from identical.
federalism, through equally as likely from the
bottom up. Relationships among provinces, Public health care in Canada originated as a
territories, and Ottawa are dynamic and change provincial experiment in Saskatchewan, with the
over time, even over the lifetime of a single introduction of public hospital insurance in 1947
policy debate. and then public medical insurance in 1962. The
federal government in turn enacted the Hospital
These conceptual (and variable) dimensions of Insurance and Diagnostic Services Act in 1957,
Canadian federalism � degrees of jurisdictional followed by the 1966 Medical Care Insurance
interdependence, both vertical and horizontal Act. These federal laws stipulated that every
axes, and variable modes of interaction � province was to implement a public medicare
provide the basis for a generic framework program by 1971 and that the federal
through which we can analyze government would fund 50 percent of the
intergovernmental relations in the context of provinces' health spending through direct cash
health care renewal. Moreover, they provide for transfers. The laws also mandated that the
us a roadmap with which to capture the provincial programs should: (i) provide
continually changing contours of Canadian comprehensive benefits coverage, (ii) be
federalism, both in terms of its politics and the available to everyone, (iii) be portable (across
processes of public policymaking. As the rest of provinces), and (iv) be publicly administered.
this paper will show, the dynamics of health care Aside from these broad federally mandated
financing in Canada have gradually moved away conditions, the provinces were free to innovate
from cooperative and competitive modes of in terms of policy. In other words, public health
intergovernmental interaction towards a more care in Canada � which Antonia Maioni suggests
collaborative (though still evolving) model of originated during an era "infused with a spirit of
federalism. negotiation and compromise" � was the product
84Cameron and Simeon, 2002, p. 54.
114
Re-Casting Canadian Federalism:
Health Care Financing in the New Century
of cooperative federalism.85 publicly administered. The CHA added a fifth
principle � "equal access under uniform terms
Federal commitments to this early inter- and conditions." From the perspective of the
governmental bargain were relatively short- federal government, the CHA prohibited
lived, however. Between 1968-9 and 1976-7, provinces from collecting out-of-pocket user
total federal cash transfers to the provinces fees and from allowing extra-billing by for-
consisted of no more than 37.7 percent of total profit providers. Ottawa defended its position
provincial health care expenditures, far short of by arguing that the CHA reflected Canadian
the promised 50:50 funding that had been norms and public opinion about how public
promised earlier on.86 From the federal health care should be provided. However, from
government's point of view, the open-endedness the perspective of the provinces (and of medical
of that early promise left it with few policy care providers), the CHA put a straitjacket on
instruments to control escalating costs. As a provincial and territorial health policymakers,
result, in 1977, the federal government especially given the federal government's threats
introduced the Established Programs Financing to withhold federal transfers in the event that
(EPF) federal transfer scheme. Through a mix any provincial or territorial government
of direct cash transfers and "tax point" financing contravened the principles of the 1984 act. As a
(amounts that the provinces and territories are federally imposed pact, the 1984 CHA was in
allowed to raise to fund health care through effect an instrument of "prohibitive federalism"
provincial taxation), the EPF scheme linked in the sense that its primary motivation was to
health and education transfers to GNP growth forbid certain policy initiatives by the provinces.
and put them on a per capita basis rather than on
the actual costs to administer these social Federal funding for provincial health care
programs.87 Re-distributive equalization continued to decrease into the 1990s. As Ottawa
payments were also introduced at this time to tightened its fiscal belt, it froze the size of cash
offset lower fiscal allocations to poorer transfers to the provinces in 1990. The cash
provinces and territories. In the aggregate, freeze continued beyond 1993 after the Liberal
however, provincial and territorial governments Party replaced the Conservatives in forming the
were fiscally shortchanged by the EPF scheme. federal government. Motivated in large part by
As Table 2 demonstrates, total federal transfers national fiscal deficits, Ottawa replaced the EPF
(cash and tax points) to provinces decreased program in 1995 with the Canada Health and
from 41.3 percent in 1977-8 to 32.1 percent in Social Transfer (CHST) scheme. CHST funds
1995-6. Moreover, direct cash transfers from the were allocated to each of the provinces and
federal government decreased proportionately, territories as a block fund, combining previously
bottoming out at 16.3 percent of total provincial separate transfers in social assistance, health,
health expenditures in 1995-6. and post-secondary education. The cash
component of federal transfers to the provinces
Provincial and territorial governments were decreased dramatically in three years from 16.3
further constrained fiscally and in terms of percent of total provincial health care
policy latitude when the federal government expenditures in 1995-6 to 9.8 percent in 1998-9.
passed the Canada Health Act (CHA) in 1984. By 2001-2, federal transfers to the provinces,
The CHA amalgamated the 1957 hospital including cash and tax points, amounted to only
insurance and the 1966 medical care insurance 27.5 percent of total provincial health spending.
acts and codified into legislation the federal Politically, the federal government portrayed the
government's guardianship role over five core CHST arrangement as a way of renewing
principles of health care provision in Canada. It "flexible federalism." As one observer put it,
re-affirmed Ottawa's insistence that health care however, "flexibility [wa]s seriously
must be comprehensive, universal, portable, and circumscribed by a reduced amount of money
moving from the federal to provincial/territorial
85Maioni, 2002 in Bakvis and Skogstad (eds), 2002,
pp. 90-91.
86Romanow Commission, 2002, p. 313.
87 Maioni and Smith, 2003 in Rocher and Smith
(eds), 2003.
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Table 2: Federal Funding for Provincial and Territorial Health Spending
during the EPF Era
Fiscal Year Total Federal Transfer as % of Provincial � Federal Cash Transfer as % of Provincial �
Territorial Health Spending Territorial Health Spending
1977-78 41.3 24.9
1979-80 43.3 26.1
1981-82 39.8 23.2
1983-84 38.3 23.4
1985-86 38.9 23.4
1987-88 37.7 21.2
1989-90 35.2 18.7
1991-92 31.2 16.8
1993-94 31.2 17.0
1995-96 32.1 16.3
government."88 Not surprisingly, provinces did renewal at the turn of the 21st century. Around
not buy Ottawa's pitch. 2000, a window of opportunity emerged for
concerted action among the federal and
Ottawa created the CHST scheme to relieve provincial/territorial governments. Several
some of the fiscal pressures that it faced in factors converged at the time, giving political
maintaining its financing commitments for impetus to new initiatives in health care and
social policy. At the sub-national level, health health financing. Interestingly, cost containment
policy authorities were forced to consider more and financial retrenchment were not on the
innovative policies for delivering and managing reform agenda, whereas federal re-investment in
health care. For the health system as a whole, health was.
however, the 1995 CHST reform deepened
Canada's fiscal crisis. Politically speaking, it The Impetus for Renewal
also de-legitimated the federal government's
leadership role, which in the past had been First, the discussion surrounding the health care
afforded to Ottawa because of its spending crisis was not confined to government policy
power. As a result, provinces and territorial elites but also involved the Canadian public,
governments renewed their efforts to challenge which had begun to demand change. Second, the
the federal mandates to maintain broad discussion centered on several issues regarding
uniformity (according to the 1984 CHA). political accountability that were central both to
Indeed, the 1995 CHST raised serious concerns citizens' frustrations and to political conflict
about accountability in health care spending and between the federal and provincial/territorial
provision and also about existing jurisdictional governments. As in many federal systems, the
arrangements and commitments between the two two levels of government had escalated the
levels of government. By the mid- to late 1990s, politics of blame avoidance, and there seemed to
the cooperative federalism that had been be little hope for any resolution in the near
established during the early postwar period gave future. This was understood to be unsustainable
way to a more competitive mode of interaction and unacceptable to Canadians over the longer
between Ottawa and the 13 provinces and term.89 Third, while the federal government in
territories. Canada portended to safeguard the core
principles of the Canada Health Act (in other
The 2002 Romanow Report words, public medicare), several provinces
nonetheless threatened to defect from the
The sense of crisis surrounding Canadian health national health care pact to experiment with
care that had percolated throughout the 1990s private sector alternatives, administrative re-
ultimately set the stage for policy reform and scaling, and extra-billing mechanisms. With less
funding coming from Ottawa, provinces
88Jennissen, 1997 in Blake et al., eds., 1997, p. 225.
See also Prince, 2000, Cohn, 1996 and Rice, 1995. 89 Marchildon, 2005.
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increasingly felt that there was little to compel large part to its broad consultative mandate.
them to adhere to federal mandates on health Romanow's work also gained a great deal of
care organization and delivery. attention because it resonated with prevailing
Canadian values and norms surrounding publicly
Finally, and perhaps most importantly, the financed health care. Regardless of its policy
federal government enjoyed a sizable fiscal substance, the Romanow Report was particularly
surplus at the end of the 1990s. At the 2000 important in funneling the policy agenda for
First Ministers Meeting (of the Prime Minister subsequent reform debates between the two
and the 13 provincial and territorial Premiers), levels of government.
the federal government agreed to raise the CHST
base to $15.5 billion over the subsequent five The Romanow Report was unveiled in
years (through to 2005-6), in large part to make November of 2002. Although the report
up for federal funding gaps incurred throughout comprised 47 different funding and
the 1990s. Furthermore, Ottawa agreed to inject organizational recommendations, three broad
an additional $20 billion in federal transfers over themes emerged. First, the Romanow Report
the same period. Two billion dollars from the stressed the idea that reform was to "buy
CHST was earmarked for early childhood change." New funding from the federal
development programs. In addition, the federal government was to be more than just a short-
government created a separate $1.5 billion fund term cash infusion into the ailing system;
for investments in medical equipment and health instead, the additional funding was to be used to
information technology, plus an $800 million facilitate innovations in health policy and
Primary Health Care Transition Fund. In organizational change. Second, the report's
exchange, provincial and territorial governments funding recommendations targeted specific
agreed, at least in principle, to begin developing health care priorities, which would hold
a system for health performance reporting.90 In provincial and territorial governments, along
sum, political urgency, exhausted federal with Ottawa, accountable for how the new funds
relations, and fiscal surpluses in Ottawa gave were allocated. The report stressed the need to
impetus to concerted efforts from both orders of devise mechanisms for comparable reporting
government for health care renewal and reform. and performance measures, building on the
agreements established at the 2000 First
The Content of the Romanow Report Ministers Meeting. Third, the Romanow Report
sought to repair Canadian federalism, saying that
The Royal Commission on the Future of Health in "the Commission's view, those charged with
Care in Canada, headed by Roy Romanow, the the governance of the health care system need to
former provincial Premier of Saskatchewan, was restore a level of mutual respect and trust that
created with the encouragement of Romanow has been missing in recent years, especially in
himself and by order of the federal government the relationship between the federal government
in the spring of 2001. The Commission's work and the provincial and territorial
lasted 18 months and involved several weeks of governments."91 Thus, the Romanow report
public hearings and expert workshops. It looked to reinvigorate the spirit of cooperative
received approximately 11,000 letters and emails federalism.
from citizens, in addition to over 13,000
completed on-line survey workbooks. Although The Romanow Commission emphasized the
several other health reform efforts were need for long-term and stable funding from the
launched at around the same time � such as the federal government. The Commission
Senate Report on health authored by Senator recommended that the CHST block funding
William Kirby and the Premier's Advisory mechanism (established in 1995) be replaced by
Council on Health in Alberta � the Romanow a dedicated Canada Health Transfer (CHT)
Commission received the most attention from scheme. According to the Commision's report,
the general public and from health policymakers the federal government would have to allocate at
in Ottawa and the provinces. This was due in least $15.3 billion to the CHT by 2005-6 that
90Tuohy, 2002. 91Romanow Commission, 2002, p. 46.
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would be designated for the provinces and The First Ministers were scheduled to meet in
territories. Furthermore, the CHT base would be early 2003 to negotiate the terms of a new
adjusted yearly to reflect real growth rates in Health Accord. As alluded to above, the
health care expenditures. The Romanow Report Romanow recommendations inadvertently set
also recommended that federal cash transfers for the agenda for the Ottawa meetings. For
health should equal at least 25 percent � instance, Prime Minister Jean Chr�tien, while
effectively a cash funding floor � of total health lauding the Romanow Report, immediately
spending for insured services mandated by the warned that the federal government was not
Canada Health Act. Additional federal funds going to be able to fulfill all of the report's
totaling $8.5 billion were to be allocated over a funding recommendations. On the day that the
two-year period starting in 2003-4 for the Romanow Report was unveiled, the Prime
following short-term priorities: Minister remarked: "We could find some money,
probably not as much as Mr. Romanow is
� Rural and RemoteAccess Fund � $1.5 billion recommending."92 Chr�tien also made it clear
� Diagnostic Services Fund � $1.5 billion that the federal government was not about to
� Primary Health Care Transfer � $2.5 billion sign and hand over 13 blank checks to the
� Home Care Transfer � $2 billion provincial and territorial governments.
� Catastrophic Drug Transfer � $1 billion
The provinces similarly dug their heels in
By the report's calculations, this new federal politically shortly after the Romanow Report
funding for health care (over current forecasts) was made public. Ontario's Premier, Ernie
would equal $15 billion by the end of fiscal year Eves, intimated that while, the provinces
2005-2006. To ensure that these funds would be welcomed new funding, the share allocated to
allocated by the federal and provincial/territorial Ontario was still too small. Quebec stated that it
governments according to these targets, the intended to opt out of any agreement in which
report argued that a sixth principle � Ottawa intruded upon the province's
accountability � should be added to the Canada management of health care services in any way.
Health Act. The Commission thus Alberta's Premier, Ralph Klein, similarly
recommended the creation of a Health Council rejected the notion of any conditions or strings
of Canada, a forum for federal and being attached to new funding from the federal
provincial/territorial collaboration and sustained government. Indeed, his was not a minority
dialogue, specifically pertaining to evaluating view. Most of the provinces opposed the
health care performance and constructing creation of the Health Council of Canada on the
national standards and benchmarks. The Health grounds that it encroached upon provincial
Council, as envisioned by the Commission, autonomy and would in effect create another
would report annually to the public on the layer of bureaucracy in what was already an
performance of Canada's health care system. overly managed health care system.93
Reactions to the Romanow Report All governmental stakeholders found problems
with the recommendation that funding from the
The Romanow Report, while expansive in federal government should target certain health
breadth and detail, effectively focused the policy care priorities. Some suggested that the targets
agenda on two inter-related core issues: were too vague and that it would therefore be
increased federal funding and new mechanisms too difficult to develop comparable measures of
to ensure accountability. In doing so, the performance. At the same time, others,
Romanow recommendations went beyond fiscal primarily the provincial and territorial
tinkering; they endeavored to re-affirm and then governments, contended that the targets were too
re-cast the federalist pact underpinning health specific and thus posed inflexible constraints on
care and health financing. Indeed, the how federal funds could be allocated. Both
immediate response by provinces, territories, interpretations of proposed funding targets � too
and the federal government uniformly centered
on the prospects of new dollars and the strings
attached to those dollars. 92Cited in Fraser, 2002, p. A1.
93Mickleburgh, 2002, p. A4.
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Re-Casting Canadian Federalism:
Health Care Financing in the New Century
vague or too specific � cut to the core of the Council of Canada and on the introduction of
Romanow Commission's insistence that performance evaluation indicators, which the
accountability be a condition for additional federal government had drafted in late January
federal funding. Indeed, it was unclear as to of 2003. Prime Minister Jean Chr�tien laid out
whom the provincial governments were to be the federal position clearly when he stated:
accountable. Tensions between funding and "Accountability, it's a deal breaker, no doubt
accountability animated the dialogue among about it."95
provincial and federal health policymakers right
up to the February summit. There seemed to be some rapprochement among
the federal and provincial-territorial
The 2003 Health Care Accord governments on the eve of the February 4-5
meetings. Public opinion in Canada favored
Federal and provincial health ministers met in increases in federal health spending and Ottawa
December of 2002 to lay out an agenda for the conceded that it needed to play a bigger role in
February meeting. It was clear that there was financing health. Ottawa also suggested that it
little consensus among the provinces at that time was willing to negotiate the terms of the creation
about how to proceed with health care renewal. of Health Council of Canada. For instance, the
For example, while most of the provincial and federal government indicated that voting on the
territorial governments agreed that new federal council would favor the provinces and territories
funding should be given without conditions, with Ottawa having a minority vote.96 The
Saskatchewan balked at such a hard-line federal government would not lobby to have a
position. When the Premiers met in late January veto on the council. Furthermore, Ottawa
in Toronto, they hoped to craft a more unified agreed that performance evaluation indicators
position. Their efforts, however, were derailed would be designed collaboratively by federal,
from the get-go. Before their meetings, the provincial, and territorial authorities and that
federal government leaked information to the provinces could allocate some portion of their
media regarding its fiscal position for the new federal funds into areas outside the targeted
upcoming February summit. Although Ottawa priorities, thus giving them some flexibility. The
did not disclose exact dollar amounts, the federal provinces, meanwhile, believed that Ottawa was
government made it clear that the provinces and taking seriously their demands for more federal
territories should lower their expectations about funding. Pre-summit reports indicated that the
how much federal funding was going to be put federal government was considering offering the
on the table. The Premiers were furious at provinces nearly $24 billion over five years in
having been preempted by Ottawa. They new health care financing.97
viewed the "leak" as a political power-play by
the federal government to undermine the already The Content of the Accord
tenuous unity among the provincial and
territorial leaders.94 Tensions in The February 4-5 meetings were tense and
intergovernmental relations were running high acrimonious. Ottawa's offer of a conditional
by early February. $12 billion over three years was much less than
what the provinces demanded, and indeed
Again, the key issue going into the 2003 meeting expected given the Romanow Report's
was Ottawa's plan to make provinces and recommendation that new federal funds should
territories accountable for how federal funds approach $15 billion over three years. The
were to be allocated. On the one hand, the provinces initially rejected the proposal, but they
provinces demanded more federal funding but
with no strings attached. On the other hand, the 95Cited in Laghi, 2003.
federal government insisted that provincial 96It was decided in December of 2003 that the Health
accountability be the foundation for any new Council would comprise 27 members: one
federal funding agreement. Ottawa focused its representative from each of the ten provinces and
efforts specifically on the creation of the Health three territories, an elected independent chair, and 13
non-governmental representatives selected and
nominated by the two levels of government.
94Clark, 2003. 97Laghi, 2005.
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Re-Casting Canadian Federalism:
Health Care Financing in the New Century
were forced to acquiesce � grudgingly � at the health care spending, aimed specifically at
eleventh hour when Prime Minister Chr�tien primary health care, home care, and catastrophic
issued a "take-it-or-leave-it" ultimatum to the drug coverage.
Premiers. Ottawa made it clear that it was not
going to move on its funding proposal. Any side The provinces and territories, not surprisingly,
deals with specific provinces or territories were were disappointed by the amount of new federal
similarly off the table. funding agreed to in the 2003 Accord. Indeed,
the provinces and territories accepted the Accord
The provinces were successful, however, in only under conditions of political duress. Seven
pressuring the federal government to create a of the ten provincial Premiers were facing
dedicated Canada Health Transfer scheme reelection that year, and therefore they could not
immediately (for fiscal year 2004-2005) to politically afford to reject new federal money, no
replace the CHST mechanism that had been matter how underwhelming Ottawa's proposal
implemented in 1995. The provinces (minus seemed at the time. Essentially, the federal
Quebec and Alberta) also agreed to establish the government guaranteed $10 billion in new
Health Council of Canada, with assurances from funding over three years, with an additional $2
the federal government that the provincial and billion depending on Ottawa's fiscal situation at
territorial health authorities would be involved the end of the 2003-4 fiscal calendar. The
in developing performance evaluation indicators provinces and territories had expected
and benchmarks. To that end, the provinces also approximately $24 billion over five years.
assented to federally mandated targets for new
Table 3: 2003 Health Accord Proposed Spending
Investment Amount Fiscal Year(s) Duration
Increase to CHST $9.5 billion FY 2003-2008 5 years
Romanow Gap added to CHST $2.5 billion FY 2003-2004 1 year
Health Reform Fund * $16 billion FY 2003-2008 5 years
Diagnostic/Medical Equipment Fund $1.5 billion FY 2003-2004 1 year
Health information technology $600 million FY 2003-2004 1 year
Other investments ** $1.6 billion FY 2003-2009 6 years
Other investments (II) *** $1.3 billion FY 2003-2008 5 years
Aboriginal health $1.3 billion Unspecified
Hospital research $500 million Unspecified
Notes: * Targeted for primary health care, home care, and catastrophic drug coverage
** Other "health accord initiatives"
*** Other budget initiatives.
Of this three-year $10-12 billion commitment, equipment as part of its national strategy for
$2.5 billion was to be disbursed as an immediate reducing waiting times.
cash infusion to make up the short-term so-
called "Romanow Gap". Over the next five The 2003 Health Accord was successful in so far
years, the federal government also agreed to as it secured more funding from the federal
spend an additional $16 billion (of which government, albeit less than anticipated by the
funding for years one to three would come out of provincial and territorial governments. The
the $12 billion allocated from the Health creation of the CHT furthermore ensured that
Accord) toward a Health Reform Fund, federal commitments to health care renewal
disbursed on a per capita basis and focused on were longer-term and presumably more stable
primary and home care and catastrophic drug than in the past, as emphasized by the Romanow
coverage. The provinces and territories were Report in 2002. However, many core issues
given the responsibility for ensuring that 50 remained unresolved.
percent of Canadians have round-the-clock
access to primary care health facilities by 2011. Some analysts suggested that the amount of
In addition, Ottawa created a $1.5 billion fund money that Ottawa committed was in fact far
for investing in diagnostic and medical less than the federal government claimed, an
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Re-Casting Canadian Federalism:
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interpretation that resonated among provincial federal conditionals attached to the new funds
and territorial leaders. They cited several and the development of countrywide
reasons for holding this view. First, a significant accountability measures. As is typical in
portion of the "new" funds had already been Canadian federalism, both Ottawa and the
accounted for by federal fiscal commitments provincial/territorial governments politically
from 2000.98 Second, the way in which Prime postured throughout the run-up to the fall
Minister Chr�tien forced provincial and meeting.
territorial representatives at the 2003 summit to
accept Ottawa's proposal raised questions about After having met in July of 2004, the provincial
the political legitimacy of the Accord. Many and territorial Premiers collectively pitched a
observers noted that, despite the additional proposal for a new national pharmacare
funding commitments from Ottawa, the 2003 program, a scheme that would cost the federal
Accord did not repair or renew government approximately $10 billion per year.
intergovernmental relations; in fact, most agreed They hoped that by offsetting the costs of drug
that the February meetings exacerbated federal, coverage, the provinces and territories could
provincial, and territorial tension. To be sure, shift their limited fiscal resources to other health
territorial Premiers essentially walked out of the priorities outlined in the 2003 Accord. The
meetings. The Premiers of Quebec and Alberta federal government rejected the provinces'
expressed their opposition to the conditions that proposal in August. Even Roy Romanow
had been placed on new federal funds and cautioned against the idea of a national
withdrew from participating in the Health pharmacare program. He lauded the proposal in
Council. Third, it was unclear at the conclusion principle, but argued that in the short term the
of the 2003 meetings exactly how accountability federal government was not in any fiscal
measures were to be negotiated by the two position to fund such an ambitious scheme.
orders of government and implemented Federal funds were not to be used to expand the
thereafter. Timelines were established and all existing scope of insured services.
governmental stakeholders accepted the need for
standardized comparable indicators. However, Ottawa attempted to take control of the renewal
the extent to which the federal government or agenda by setting the terms of the ensuing
their sub-national counterparts would take the debate over federal investments and the
lead in formulating these performance measures conditions put on those funds. Paul Martin
and benchmarks remained undefined. campaigned in early 2004 on a health platform,
promising voters $9 billion in new funding in
As was the case before the February 2003 order to renew Canada's health care system.
meetings, tension remained at the center of This promise carried over into the fall after Paul
intergovernmental conflict. Many provincial Martin became Prime Minister.99 Furthermore,
and territorial leaders agreed to the deal in the the federal government focused its policy reform
end because of political pressure from their efforts on reducing waiting times, a proposal
constituents back home and, more importantly, that was popular with both the electorate and the
in anticipation of coming federal elections and a provincial governments. Specifically Ottawa
new Prime Minister. highlighted its "five-in-five" plan, which aimed
to reduce waiting times in five key areas �
The 2004 First Ministers Meeting cancer, cardiac surgery, cataracts, diagnostic
imaging (MRIs and CTs), and joint replacements
A First Ministers Meeting was scheduled for � over the next five years. This was to be
mid-September of 2004 to revisit many of the achieved by enabling the purchase of new
unresolved issues left over from the 2003 diagnostic equipment and dedicated resources to
summit. It was thought at the time that the new clear existing backlogs.
federal government led by new Prime Minister
Paul Martin would be more amenable to hearing Although the provinces and territories agreed
and addressing the provinces' concerns about with Ottawa's desire to reduce waiting times,
98See, for instance Ibbitson, 2003. 99Fagan, 2004.
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they were nonetheless concerned about clause for the CHT was also put into place,
excessive meddling by the federal authorities in meaning that federal transfers for health care
setting performance standards and benchmarks would reach over $30 billion by fiscal year
for the provinces. Just days before the 2013-14. From the perspective of the provinces
September meetings, the federal government and territories, the 2004 Ten-Year Plan ensured
injected some flexibility into the process, saying that they would receive new federal funds and
that, while national benchmarks for waiting more importantly it signalled a long-term
times reduction needed to be established, these commitment on the part of the federal
benchmarks would be "a standard for which government to spend more on health care.
[provinces and territories] can aim, rather than a
target they have to hit."100 The provinces and Of the $18 billion in new investments promised
territories also showed some moderation by by the federal government, $5.5 billion was
dropping their pharmacare proposal. Not earmarked for a Wait Times Reduction Fund to
surprisingly, they immediately turned their be disbursed to the provinces and territories over
attention back to questions of new federal 10 years and on a per capita basis. Despite
funding. Prime Minister Martin proposed $13 Ottawa's earlier insistence that the provinces and
billion over six years, with an escalator of 5 territories should be held accountable for how
percent per year. The provinces and territories they allocated the targeted funds, the Ten-Year
counter-offered with a request for $36.5 billion Plan effectively did away with any explicit
over six years. Globe and Mail columnist conditions to be imposed by the federal
Murray Campbell put it best when he wrote that government. The strategy for reducing waiting
the 2004 First Ministers Meeting was likely to times that was discussed at the meeting
be a "national bicker fest."101 demonstrates this point clearly. The federal
government's Ten-Year Plan, for instance, noted
The 2004 Ten-Year Plan that "jurisdictional flexibility" was to be a core
"principle" in the First Ministers' action plan to
Campbell was absolutely correct in his forecast. facilitate "access to timely care." The document
The September 14-15 meeting of the First further stated that the provinces and territories
Ministers again centered on how much new "commit to achieve meaningful reductions in
funding the federal government was offering and waiting times in priority areas such as cancer,
what strings would be attached to the funds. heart, diagnostic imaging, joint replacements,
However, despite moments of acrimony among and sight restoration... recognizing the different
the two levels of government, the First Ministers starting points, priorities and strategies across
did agree to a Ten-Year Plan to strengthen health jurisdictions." In terms of accountability
care in Canada. measures, the plan made provinces and
territories responsible for establishing
The provincial and territorial governments in the "comparable indicators of access" by December
end accepted Ottawa's proposal for increased 2005. Benchmarks or targets for "medically
federal funding of $18 billion over six years, acceptable waiting times" were to be jointly
even though it was roughly half of the amount developed by the federal, provincial, and
that they had asked for going into the meeting. territorial ministers of health over the course of
The federal government re-affirmed its 2005, and each jurisdiction was to establish its
commitment to making up the short-term own timelines for reaching those benchmarks by
Romanow Gap with an immediate injection of the end of 2007.102 In this way, the emphasis on
$3 billion between 2004 and 2006. Ottawa also flexibility and on intergovernmental
agreed to create a new CHT base of $19 billion collaboration was a prerequisite for the
beginning in the fiscal year 2005-6, which was development of performance measures and
almost $5 billion more than the allocated benchmarks. Moreover, provinces and territories
transfer for 2004-5 ($14.2 billion), an increase of were no longer accountable to Ottawa per se but
more than 30 percent. A 6 percent escalator rather to their own citizens and for their own
timelines. This was an important political
100Laghi 2004.
101Campbell, 2004. 102 Health Canada, 2004a, pp. 2-3 [emphasis added].
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Re-Casting Canadian Federalism:
Health Care Financing in the New Century
breakthrough.
Table 4: 2004 Ten-year Plan, Spending Proposals
Investment Amount Fiscal Year(s) Duration
New Canada Health Transfer (CHT) base * $19 billion / year FY 2005-2014 9 years
Additional transfer ** $500 million FY 2005-2006 1 year
Romanow Gap added to CHT $3 billion FY 2004-2006 2 years
Wait Times Reduction Fund (I) $4.5 billion FY 2004-2010 6 years
Wait Times Reduction Fund (II) $1 billion FY 2010-2014 4 years
Medical Equipment Investment $500 million FY 2004-2005 1 year
Aboriginal health $700 million Unspecified
Notes: * Base at $19 billion for FY 2005-2006, 6 percent per year thereafter.
** Targeted for home care and catastrophic drug coverage.
Given that a number of side deals were also measured against a fiscal standard.105 The
concluded at the 2004 meeting between the purpose of equalization payments is essentially
federal government and specific provinces, the to raise the fiscal capacity of poorer provinces to
meeting was more broadly inclusive of diverse the level of a set national standard. In fiscal year
provincial and territorial concerns than the 2003 2004-5, eight (of ten) provinces qualified for
Accord had been. For instance, Prime Minister equalization payments, amounting to
Martin offered a side deal to Quebec that approximately $9.7 billion in federal transfers.
affirmed the province's place within the
Canadian federation and recognized its distinct As Table 5 demonstrates, smaller provinces with
health care program. In a separate communiqu� less fiscal capacity received more total federal
from the Ten-Year Plan, the federal government transfers (per capita) than did the larger
recognized that "Quebec will apply its own wait provinces such as Ontario and Alberta.106
time reduction plan, with the objectives, Disparities between the provinces and the
standards and criteria established by the relevant territories have been even more striking, given
Quebec authorities."103 In addition, Quebec the limited fiscal capacities of Canada's three
would maintain its own pharmacare program, territories. The federal government committed
over and above the federal initiatives regarding approximately $1.8 billion for extra territorial
catastrophic drug coverage. With respect to financing in the fiscal year 2004-5.107
Canada's aboriginal communities, the federal
government held a special meeting of First Recent adjustments to the equalization payments
Ministers and Aboriginal leaders in mid- scheme and the territorial funding formula
September 2004, during which Ottawa agreed to reflect a long-term financial commitment by the
create and finance a $700 million Aboriginal federal government to the provinces and
Health Transition Fund.104 territories, not unlike its renewed commitments
in the specific area of health care transfers. In
The Ten-Year Plan for health care renewal
indirectly set the stage for subsequent
adjustments to the provincial Equalization and 105 The fiscal standard is the average fiscal capacity
Territorial Financing Formula (TFF) schemes; of Quebec, Ontario, Manitoba, Saskatchewan, and
these were finalized one month later in October British Columbia.
2004. Equalization payments from Ottawa to 106 The Department of Finance, Government of
qualified provinces began in the 1970s to offset Canada, Website (www.fin.gc.ca/fedprov/eqpe.html).
fiscal disparities among the 10 provinces. Accessed March 10, 2005.
107
Payments were (and are) calculated according to For the fiscal year 2004-5, Nunavut received $722
each province's revenue generating capacity as million through the federal TTF scheme, or about
$24,000 per capita; the Northwest Territories received
$633 million or $14,960 per capita; and the Yukon
received $455 million in federal transfers, or
approximately $14,000 per capita. Health Canada,
Government of Canada, Website (www.hc-
103Health Canada, 2004b. sc.gc.ca/english/hca2003/fmm/fund_territ_bk.html).
104Intergovernmental Conference Secretariat, 2004 Accessed March 10, 2005.
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Re-Casting Canadian Federalism:
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October 2004, Ottawa set a new funding floor of remainder of the 2004-5 fiscal year. Federal
$10 billion for equalization payments, and $1.9 equalization payments to the provinces were set
billion for territorial funding effective for the
Table 5: Total Major Federal Transfers to Provinces, 2004-2005 (per capita)*
Province Transfer, per capita, in Fiscal Capacity (1999-2000) **
descending order Index Average = 100
Prince Edward Island 2 930 67
New Brunswick 2 739 71
Nova Scotia 2 455 74
Newfoundland 2 449 61
Manitoba 2 428 80
Quebec 1 757 85
British Columbia 1 383 99
Saskatchewan 1 332 91
Ontario 1 322 108
Alberta 1 321 142
Sources: The Department of Finance, Government of Canada, Website (www.fin.gc.ca/fedprov/eqpe.html).
Accessed March 10, 2005.
1Stephen Barro, "Macroeconomic versus RTS Measures of Fiscal Capacity: Theoretical Foundations and
Implications for Canada", Institute of Intergovernmental Relations, Working Paper 2002 (7), Queen's
University, 2002, pp. 5-7.
Notes: * Includes CHT, CST, Health Reform Transfer, and Equalization
** Fiscal Capacity based on `representative tax system'. In Canada, the RTS Index is calculated from
different tax revenue bases. For 1998-1999, 61 percent of the RTS index was based on weighted
measures of personal income tax, general sales tax and property taxes.
to increase to $10.9 billion and federal territorial Meeting was an unequivocal and somewhat
funding to $2 billion in the following year. unexpected success. The acrimonious shadow
From 2006 through to 2010, equalization cast by the heavy-handedness of the federal
payments for both provinces and territories are government and the deep-seated
to be adjusted by a 3.5 percent annual escalator. intergovernmental conflict that came out of the
Furthermore, in October 2004, the federal 2003 Accord was mitigated in 2004. As the
government initiated a review of the provincial Globe and Mail columnist John Ibbitson put it,
and territorial equalization payment schemes, the 2004 agreement "was a triumph for
looking at ways to integrate provincial/territorial Canadian federalism. With all its flaws,
GDP and health expenditure growth rates into imbalances, encumbrances, this country's
the existing equalization formula rather than political system can work, by achieving
relying solely on per capita disbursements.108 consensus rather than imposing solutions."109
For instance, demographic profiles (in other Several factors explain why such a bargain
words, the age of the population), key factors in emerged at this particular moment.
the allocation of health care resources, are not
considered presently in the calculation of The Romanow Report of 2002, despite its many
equalization payments. recommendations for new financing
arrangements and broader organizational
How the Deal Was Done changes, effectively funnelled the health policy
debate to only a few key issues. The report
In terms of actual policy reform, the 2004 Ten- highlighted two fundamental cleavages for
Year Plan was scant on details. When seen as a governmental stakeholders: new federal
political bargain over longer-term federal commitments set against new measures for
funding, however, the 2004 First Ministers accountability. Therefore, the political effect of
the report � and its impact in ensuing policy
108 Office of the Prime Minister, Government of negotiations � was to narrow the scope of the
Canada, Website (www.pm.gc.ca/eng/news).
Accessed March 10, 2005. 109 Ibbitson, 2004.
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Re-Casting Canadian Federalism:
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policy agenda and to prevent "policy static" there had already been significant convergence
from interfering with or diverting attention away among governmental stakeholders regarding the
from the critical and doable policy initiatives at broad mandates of any new health deal. Both
hand. To be sure, by the time the September the federal and provincial/territorial
2004 meetings commenced, the provinces had governments, along with voters, recognized that
taken their proposal for a national pharmacare Ottawa desperately needed to inject new federal
plan off the agenda, and both federal and funds into the health system; the question was
provincial actors had focused their attention on how much. Both levels of government similarly
questions of funding and conditionality. recognized that new funding needed to be
Moreover, private sector alternatives (for targeted, at least broadly. In fact, the provinces
example, extra billing and user fees) along with had already begun to restructure primary health
broader imperatives for cost containment were care, reduce waiting times, and re-organize
similarly off the agenda. To all intents and home care prior to the 2002 Romanow Report.
purposes, policy static was filtered out of the As one observer at the 2004 meetings recounted,
discussion agenda throughout the summer of every Premier, irrespective of his or her partisan
2004 leading up to the First Ministers Meeting. affiliation, spoke of the importance of reducing
waiting times and of increasing access in the
In political terms, Prime Minister Martin had to five key areas identified by the federal
get a deal done. His was a minority government, government in response to political demands
and the Liberal Party's hold onto power was from the general public. Simply put, "targeting"
tenuous at best. Moreover, Martin had waiting times reduction was a deal done long
campaigned in the spring of 2004 on a platform before the 2004 meetings had even
that featured health care renewal as one of its commenced.110
center-pieces. Martin also needed to shed the
Chr�tien legacy in federal-provincial relations The key point here is that the 2004 deal was
left over from 2003. Unlike Chr�tien, for made possible in large part because the
instance, Martin was willing to cut a side deal conditions and targets outlined by the federal
with Quebec to ensure the province's principled government were already seen as priorities by
inclusion in the Ten-Year Plan. citizen groups and provincial and territorial
health policymakers. These were not, de facto,
The provinces and territories also wanted to get federally imposed conditions at all. Indeed, the
a deal done, specifically with respect to securing provinces' and territories' opposition to federal
long-term federal health funding. The creation conditions was a political tactic used to leverage
of the inter-provincial Council of the Federation their bargaining position vis-�-vis Ottawa over
� an initiative headed by Quebec and Ontario in the latter's long-term funding commitments
2003 � made it possible for the provinces and rather than an opposition based on principle.
territories to present a united front against
Ottawa. Ontario's Premier Dalton McGuinty Provincial Health Reform Initiatives
skillfully crafted a consensus among the
provinces, especially after the federal The 2003 Health Accord and the 2004 Ten-Year
government jettisoned the provinces' proposal Plan were, at their core, funding agreements
for a national pharmacare program, and it between Ottawa and the provincial/territorial
seemed that Ottawa enjoyed the negotiating governments. They were also political deals and
upper hand prior to the 2004 meetings. Quebec's as such, contained relatively little policy
Premier Jean Charest was equally skillful in substance. This naturally fuelled skepticism
selling the federal proposal to his constituents among some observers. Senator Michael Kirby,
while at the same time crafting an asymmetrical the author of the 2002 Kirby Report on health
deal that was agreeable both to Ottawa and the care in Canada, offered his own critical appraisal
other provincial governments. of the 2004 meeting: "The debate focused on
Most important was the fact that the provinces, 110 Thanks to Dr. Alan Hudson � the Wait Times
territories, and Ottawa were never that far apart Reduction Strategy Lead at the Ministry of Heath and
in their respective policy positions, despite Long-Term Care in the Ontario Government � for
appearances to the contrary. Put another way, making this point.
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Re-Casting Canadian Federalism:
Health Care Financing in the New Century
money because it is easy for the first ministers to organized exclusively outside the RHA system,
talk about money and appear to be making with physician services accounting for 18
progress. It also enables them to avoid the percent of provincial health spending in 2004-
politically explosive issues of restructuring the 5.112
health care system."111 The talk of money,
specifically more money, made good political As a part of the 2000 federal-provincial
sense. On the other hand, others offered a more agreement, Ottawa created an $800 million
sanguine take on the 2003 and 2004 meetings, Primary Health Care Transition Fund, which
arguing that the federal government committed
to new long-term funding arrangements and was used in Alberta to establish its provincial
more importantly, agreed to a measure of Primary Health Care Capacity Building Fund.
flexible policy space within which the provinces The principal objective of the fund was to
and territories could continue to innovate in provide round-the-clock access to primary care
reform from below. services, a target that was agreed upon by both
orders of government. The Local Primary Care
The policy grunt for care renewal on the ground Initiative (LPCI) was one of the projects that
remained, as before, with the provincial and emerged out of the fund.
territorial authorities. As alluded to above, many
of the initiatives that the provinces and In December 2003, the Alberta Medical
territories were experimenting with in primary Association, the Ministry of Health and
health care, waiting times reduction, and home Wellness, and the nine RHAs forged an eight-
care reform pre-dated the recent funding year trilateral funding agreement. Physicians
negotiated a fee increase as part of this deal.
agreements. However, while in the past, the Furthermore, the agreement earmarked $100
efforts of provinces and territories health care million over three years to fund the creation of
restructuring had to be effectively "mortgaged" LPCIs, a plan to integrate the delivery and
over the longer term because of then existing purchasing of primary care within the existing
fiscal constraints, the 2003 Accord and the 2004 RHA structure. An LPCI is essentially a
Ten-Year Plan provided them with the necessary provider-purchaser network. RHAs enter into
funds to "buy change" in the nearer term. contracts with primary care physician groups
that provide primary care for an agreed upon list
The Local Primary Care Initiative in Alberta of services on a round-the-clock basis. The
precise composition of the LPCI (in terms of
The 2002 report of the Premier's Advisory providers) is flexible and is supposed to reflect
Council on Health in Alberta argued that local needs and priorities. Physicians are
reforming the delivery and financing of primary compensated either through a fee-for-service
health care first required that changes be made scheme or an alternative relationship plan (a
to the existing regional health authorities (RHA) salary). Participating physicians also receive an
system. Hospital and acute care services in additional $50 for every patient enrolled in an
Alberta are organized and managed along LPCI network. The LPCI program is intended
regional jurisdictions, and in 2004-5 regional to improve coordination between primary care
health authorities accounted for nearly 60 and hospital services (and to reduce any overlaps
and redundancies), to facilitate greater access for
percent of the province's health spending. RHAs patients, and to integrate the entire chain of
purchase hospital care on behalf of patients. services from the family physician to post-
Presently, Alberta's nine RHAs are funded by operation care in conjunction with Alberta's new
the Ministry of Health and Wellness through a
per capita formula adjusted to reflect
demographic variables and the flow ("import- 112
export") of services across regional jurisdictions. See 2004/2005 Regional Health Authority Global
Funding: Methodology and Funding Manual
Until recently, primary care services were (Government of Alberta, Ministry of Health and
Wellness, September 2004); Government of Alberta,
Website (www.health.gov.ab.ca/regions/index.html).
111Kirby, 2004. Accessed March 8, 2005.
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Re-Casting Canadian Federalism:
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waiting times registry initiative.113 In this the-clock care), and exchange information
respect, the LCPI initiative is primarily about within each the team and with local hospitals.
organizational change. Each FHT must register with the MOHLTC
either as a non-profit organization or as a
Family Health Teams in Ontario corporation. Unlike the Alberta model, where
provider compensation (purchasing) is paid by
The Ontario Ministry of Health and Long-Term the decentralized regional health authorities,
Care (MOHLTC), in an effort to increase access providers in FHTs will continue to be
to care, has been similarly re-organizing primary compensated by the MOHLTC through a
health care delivery at the local level. There is capitation formula, a complement-based
an emerging consensus among health policy formula, or individual salaries. Similar to the
officials that effective delivery in Ontario Alberta initiative, however, the Ontario FHT
requires more coordination and a fuller program intends to increase coordination among
integration of existing services. As it is now, different services, increase patients' access to
primary health care delivery is organizationally care, and expand the flow of patient information
decentralized, which many argue means that within the team, thus delivering services more
there is no discernible "system" for delivering efficiently. The ministry has offered start-up
primary care delivery in Ontario. With the funding to prospective FHTs, and it expects to
creation of Local Health Integration Networks have launched 45 teams by April of 2005.114
(LHINs) from the summer of 2004 onwards,
health policymakers began looking for ways to Waiting Times Reduction in Ontario
connect disparate providers and services. The
LHINs are to replace the existing District Health In large part because of political and media
Councils in April 2005 as the primary unit of pressure, the Ministry of Health and Long-Term
medical care planning at the sub-provincial Care (MOHLTC) in Ontario has committed to
level. reducing waiting times in five key areas �
cardiac care, cancer surgery, sight restoration
Which services to integrate and how to integrate (cataracts), diagnostic imaging, and joint
them are two of the key questions that Ontario replacements. These are also known as the "big
health policymakers are currently considering. five.". A contributing factor to long waiting
In the fall of 2004, the Ontario MOHLTC hosted times in Ontario and, more importantly, to the
workshops and launched several surveys of inefficient management of waiting times is the
health care stakeholders (including the general lack of surgical and clinical data available to
public and providers) to establish planning health decision-makers within the Ontario
priorities for integrating the spectrum of health MOHLTC and to front-line health care
care services. Primary care provision emerged providers. Consequently, there are no
as a high priority for both citizens and providers systematic performance indicators and thus few
alike. checks on systemic efficiency in the allocation
of surgical or diagnostic resources. Moreover,
Beginning in late 2004, the MOHLTC began the lack of data (and indicators for such data
laying the groundwork for establishing Family collection) undermines efforts to coordinate
Health Teams (FHT), which would essentially access and clinical priority setting (such as
re-organize primary care delivery. Each FHT is which cases should go first and which cases
to integrate and coordinate services among a should go where). At present, physician
network of primary care providers, comprising a decisions to treat and refer patients to specific
family doctor, a nurse practitioner, a registered hospitals are, for all intents and purposes, made
nurse, a dietician, and a pharmacist. "blind."
Establishing an FHT is voluntary on the part of
providers, though each team must provide Ontario's waiting times reduction strategy has
comprehensive care (according to a mandated three parts. First, the MOHLTC has begun to
list of services), expand access (ideally round-
114 Ministry of Health and Long-Term Care,
113Comm, 2003. Government of Ontario, 2004a.
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Re-Casting Canadian Federalism:
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collect data in six-month intervals, creating a required procedures.117
new data flow (the time between "decision to
treat" and "treatment") from the surgeon's office Conclusion
through the hospital board and ultimately to the
ministry. Second, new federal investments � The significance of the health policy events of
such as from the dedicated Wait Times 2002 through to the fall of 2004 cannot be
Reduction Fund established at the 2004 First overstated. Although there remains considerable
Ministers Meeting � have been used to clear out skepticism on all sides of the political spectrum
waiting-list backlogs by purchasing new and among myriad stakeholders regarding the
equipment and by increasing the volume of future of Canadian health care � as there always
surgical procedures. In late 2004, the Ontario will be in an area as politically contested as
government allocated $107 million for waiting health � the 2002 Romanow Report, the 2003
times reduction, of which $26 million targeted Health Accord, and the 2004 Ten-Year Plan have
surgical backlogs alone.115 The number of MRI nonetheless produced significant changes in both
exams performed in Ontario is also expected to the politics and policy of health care in Canada.
increase by nearly 20 percent between 2003-4 In this conclusion, I focus on four key aspects of
and 2005-6.116 Third, Ontario's strategy Canada's recent efforts at health care renewal.
involves organizational change. As Alan
Hudson of the ministry points out, waiting times
are not just a symptom of funding gaps from the Federal Funding Commitment
federal government but also a function of
irrational "access management." To facilitate First and foremost, the 2003 and 2004
organizational change, planners of Ontario's agreements resulted in long-term federal funding
Wait Times Reduction Strategy have adopted the commitments specifically earmarked for health.
Saskatchewan model, which was originally As we know, federal investments in health had
imported from the Cardiac Care Network of dwindled from the late 1970s and into the 1990s.
Ontario during the mid-1990s. The ministry has The Established Programs Financing scheme
set up purchase agreements with hospitals in (EPF) and later the Canada Health and Social
which the hospitals provide specific Transfer program (CHST) allowed Ottawa to
surgical/diagnostic procedures for a fixed price essentially pass the buck to increasingly cash-
over and above each hospital's overall budget. strapped provincial and territorial authorities.
The purchase agreements stipulate, however, Ottawa desperately attempted to frame the deal
that hospitals must provide in-house data to the as flexible federalism, though in reality
ministry, thus allowing the government to provincial and territorial governments were left
evaluate each provider's efficiency (and cost), without the fiscal capacity to effect any real
their capacity, and their waiting lists. This data health care improvements, having to be
is then to be channelled into centralized innovative just to maintain their existing levels
registries and waiting lists, which will be made of health provision. There was simply not
accessible to the public and to physicians. The enough money to spend flexibly.
flow of information thus will be centrally
disbursed to all stakeholders, while actual Public opinion began to challenge these
clinical decision-making and priority-setting are arrangements during the late 1990s, and the
to remain in the hands of medical professionals. 2002 Romanow Report re-oriented the
The government's intention is to refer patients to "governmental agenda" towards health care
providers (hospitals) through a centralized renewal.118 Indeed, regardless of one's
information clearing house, which will in turn interpretation of Romanow's broader normative
maximize allocative efficiency on the basis of message, as an agenda-setting mechanism, his
clinical need and providers' capacity to perform 2002 report effectively narrowed
intergovernmental debates to the inter-related
115 Ministry of Health and Long-Term Care, 117Thanks to Alan Hudson of the Ministry of Health
Government of Ontario, 2004b. and Long-Term Care for clarifying Ontario's waiting
116 Ministry of Health and Long-Term Care, times reduction strategy.
Government of Ontario, 2005. 118Kingdon, 1995.
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Re-Casting Canadian Federalism:
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issues of federal funding and accountability. provincial and territorial Ministers of Health,
This funnelling effect, combined with a sizable along with parallel meetings of ministry
federal fiscal surplus at the end of the 1990s, bureaucrats, have facilitated inter-provincial
resulted in a large injection of federal funds, and policy learning and policy adaptation across
with the 2004 Ten-Year Plan, a federal jurisdictions. The fact that Ontario is adapting
commitment that is supposed to last until fiscal Saskatchewan's waiting times reduction strategy
year 2013-14. suggests that "leaders" and "followers" in health
policy innovation can emerge from anywhere
The federal government's health (and social)
transfers to the provinces remained flat prior to and that collaboration between the two orders of
the fiscal year 2003-2004 (see Table 6). government and among provinces is the engine
However, in the first year after the Romanow of health policy change and innovation.
Commission recommended that Ottawa take on
a larger role in financing health care, federal When it comes to making federalism work, what
transfers to the provinces increased markedly, by can we learn from Canada?
an average of 17 percent growth across the
board. The provinces also felt the fiscal impact First, the 2004 agreement among the First
of the 2003 Health Accord immediately, as they Ministers re-cast federalism and health policy
received an average 20 percent increase in the innovation away from past practices of
fiscal year 2004-2005. Moreover, new sources "prohibitive" federalism and towards a more
of targeted funding from Ottawa � for medical positive federal-provincial-territorial pact.
equipment, the health reform fund, the Although the 1984 Canada Health Act (CHA)
Romanow Gap, waiting times reduction, and was rhetorically framed as a national affirmation
public health (and immunization) � accounted of core Canadian values and principles in health
for a sizable portion of federal transfers. In care, politically speaking, the federal
Ontario, for instance, targeted funds equalled 36 government intended the CHA to prohibit the
percent of the province's dedicated Canada provinces and territories from enacting certain
Health Transfer in 2004-2005. policies. Specifically, the CHA forbade
provinces from institutionalizing mechanisms
Re-Casting Federalism: Lessons from Canada? for parallel private sector care for extra-billing
by for-profit providers. The 2004 pact between
The 2003 and 2004 funding agreements the two orders of government was
fundamentally altered the politics of health care fundamentally different, however. The 2004
Ten-Year Plan was motivated by a mutual desire
policymaking in Canada. These two deals, to meet agreed goals and objectives (in other
combined with the powerful normative appeals words, round-the-clock access to primary care,
embedded in the 2002 Romanow Report, moved reductions in waiting times, home care, and
health care policymaking closer to a catastrophic drug coverage) and less by the need
collaborative model of federalism. For instance, to prohibit certain policy innovations (as it was
the conditions attached to the new federal funds in 1984).
have been relaxed considerably, especially with
the convergence of federal and provincial Second, the idea of accountability in federalism
priorities in health care reform. In the area of had changed by 2004, which altered the political
waiting times reduction, benchmarks and targets and policy dynamics between Ottawa and the
are to be developed through intergovernmental provincial/territorial governments.
collaboration over the course of 2005. They will Accountability in the 2004 agreement was
not to be imposed unilaterally by the federal understood to be less about provincial and
government, as the provinces initially feared in
2002.119 Moreover, regular meetings of the
should first establish a proposal for targets and then
119The main issue presently is whether or not Ottawa present this to the federal government in subsequent
should be at the negotiating table from the very meetings. Thanks to Ken Chan of the Minister's
beginning. Some provinces � Quebec, Alberta and Office (Ontario Ministry of Health and Long-Term
British Columbia � maintain that the provinces Care) for pointing this out.
129
Re-Casting Canadian Federalism:
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Table 6: Federal Health (and Social) Transfer to Provinces, 2001-2005 (by province; $ millions)
Newfld P.E.I. N.S. N.B. Quebec Ontario Man. Sask. Alberta B.C.
2001-2002
CHST Base 306 82 555 455 4479 6147 698 607 1411 2503
Supplement 17 4.5 30.3 24.2 238 380 37 33 98 135
Med Equip 9 2.3 15.2 12.2 119 190 19 17 49 66
Health Ref -- -- -- -- -- -- -- -- -- --
� TOTAL 332 88 600 491 4837 6717 753 656 1557 2704
2002-2003
CHST Base 323 86 589 473 4690 6706 728 616 1543 2784
Supplement 8.4 2.2 15 12 119 191 18 16 50 67
Med Equip -- -- -- -- -- -- -- -- -- --
Health Ref -- -- -- -- -- -- -- -- -- --
� TOTAL 331 89 604 485 4809 6897 747 633 1593 2851
2003-2004
CHST Base 334 90 611 490 4890 7048 758 666 1664 2710
Supplement 25 6.6 44.8 35.8 354 577 55 48 149 200
Med Equip 8.4 2.2 15 12 118 193 18 16 50 66
Health Ref 16.4 4.3 29.6 23.7 237 387 37 31 100 131
� TOTAL 384 103 701 562 5599 8204 868 762 1962 3107
(+16%) (+16%) (+16%) (+16%) (+16%) (+19%) (+16%) (+20%) (+23%) (+9%)
2004-2005
CHT Base 219 58 397 318 3190 4628 495 421 1107 1774
Supplement 33 9 59 47 471 775 73 63 199 264
Med Equip 16 4 30 24 235 387 36 32 100 133
Health Ref 24 6 44 35 354 582 55 47 150 197
Rom Gap 16 4 29 24 236 388 37 31 100 131
Wait Time 10 3 18 15 148 242 23 19 63 82
Pub Health 2 1 4 3 31 50 5 4 13 17
CST 140 37 253 203 2037 2971 316 269 713 1133
� TOTAL 461 123 834 669 6702 10024 1039 886 2446 3731
(+20%) (+19%) (+19%) (+19%) (+20%) (+22%) (+20%) (+16%) (+25%) (+20%)
territorial accountability to Ottawa and more policy space within which to pursue their
about governmental accountability and particular health care priorities and to implement
responsiveness to citizens generally, reflecting their context-specific reform strategies. The fact
provincial and territorial priorities that both levels of government and, to a certain
specifically.120 extent, the general population agreed on which
priorities were most pressing helped to reinforce
This conceptual and political development was these accountability/responsibility
not insignificant. It compelled Ottawa, for commitments.121
instance, to accommodate greater flexibility in
the allocation of federal funds within provincial Third, the recent 2003 and 2004 agreements
and territorial jurisdictions. From the highlight how intergovernmental pacts that are
perspective of the provinces and territories, the goal-oriented rather than solution-based can
new emphasis on public accountability rather promote national standards in health objectives
than on their governmental accountability to (such as in the 1984 Canada Health Act) while
Ottawa provided them with more political and also allowing for a diversity of solutions among
120As Ken Chan from the Ontario Ministry of Health
and Long-Term Care puts it: Accountability "goes
beyond fulfilling our responsibilities to the federal 121Thanks to Dr. Phil Jackson of the Ontario Ministry
government; it is about fulfilling our platform and of Health and Long-Term Care's Public Health
commitment to the people of Ontario." Division for emphasizing this point.
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Re-Casting Canadian Federalism:
Health Care Financing in the New Century
sub-national jurisdictions.122 Provinces and policy motivations that lie behind these
territories need the legitimate space and investments.123 Investments in health can: (i)
resources with which to address local priorities expand the scope of benefits beyond current
and to implement strategic plans. Thus, levels, (ii) maintain (or return to) pre-existing
federalism works best when federal funds are levels of health care provision, or (iii) increase
combined with collaborative efforts among the productivity of provision in terms of
governments towards fulfilling national goals efficiency, quality, equity, and accessibility.
and principles. On the flipside, federalist policy
innovation is circumscribed when goals are a Recent federal investments into Canadian health
priori trumped by the federal imposition of have not been about expanding the bundle of
nationally prescribed means. This is amplified benefits already provided by the public system.
in federal systems where sub-national The 2002 Romanow Report was quite explicit in
jurisdictions are diverse in their respective this regard. The report's recommendation for
social, economic, and demographic profiles. new federal funding were essentially to plug the
Therefore, goal-oriented federalism requires that holes in what the Commission (and others) saw
policy objectives be defined broadly. For to be Canada's sinking Medicare ship. In terms
political actors, this sort of breadth and of policy, many saw the 2002 Report as a
flexibility facilitates political consensus-building reinforcement of the status quo, albeit a more
over policy "first principles" among the two financially stable one, in health. Nevertheless,
orders of government. For jurisdictional the Romanow Report was crucial in alerting the
policymakers (for instance, bureaucrats), such general public to the federal government's
breadth allows for some latitude in policy design waning responsibility for health care financing
and innovation towards meeting agreed upon and also in initiating a broader discussion on
objectives. governmental accountability in health care
provision. In these important ways, the 2002
Finally, the Canadian experience in health care report set the stage for subsequent rounds of
renewal offers an important cautionary note. In intergovernmental negotiation.
negotiating and establishing common health
objectives, governmental stakeholders must Unlike the 2002 Romanow recommendations,
ensure that the standards and benchmarks of however, the 2003 and 2004 federal health
health care performance reflect national health agreements put more emphasis on "buying
goals and not the lowest common denominator change" in the health sector and on increasing
agreeable to federal, provincial and territorial productivity in health care provision. To be
governments. Put another way, ingenuous goal- sure, new sources of capital investment (in other
setting in the first place is crucial in order to words, dedicated investments in human capital
stem purely politically instrumental incentives development and medical equipment) account
for meeting scaled-down benchmarks. To for a significant share of new federal transfers to
compromise the exercise of effective benchmark the provinces and territories. Provincial health
setting in the interests of political expediency policymakers have also begun to initiate
may come ultimately at the cost of national organizational reforms in primary care delivery,
health. the networking of care providers more generally,
and reducing surgical waiting times in order to
Unpacking "Investment" increase the accessibility and efficiency of
health care provision. Yet, as in 2002, there was
Overall, the increase in federal spending has little intergovernmental discussion about
amounted to a new wave of "investments" in expanding the scope of pre-existing benefits.
Canada's health care system. However, it is Proposals for a national pharmacare program
important to define exactly what these new and for more comprehensive long-term care
investments are and, accordingly, what they are coverage, for instance, were shelved because of
not, and also to untangle the myriad political and federal fiscal constraints.
122 Thanks to Richard Simeon for clarifying this 123 I am indebted to Joe White for clarifying this
point. point.
131
Re-Casting Canadian Federalism:
Health Care Financing in the New Century
a surprising but welcome anomaly in the
What then motivated these specific "investment" continued evolution of Canada's
decisions? How did government decision- intergovernmental relations.
makers rationalize this particular allocation of
investment resources? In 2003 and 2004, for Intergovernmental agreement over the 2004 Ten-
both the federal and provincial/territorial Year Plan ultimately depended on the political
governments, the key objective, short of skills and personalities of Prime Minister Paul
privatizing the health care system in toto, was to Martin, and Premiers McGuinty (Ontario),
increase productive efficiency through Charest (Quebec), and Klein (Alberta). The
organizational change (such as in primary health acrimony associated with the 2003 Accord
care reform). This strategy, however, meant that compared with the goodwill associated with the
the general public was unlikely to notice any 2004 Ten-Year Plan, for example, reflected
tangible or measurable improvements, especially differences in leadership styles between Jean
in the short term. Politically, then, making Chr�tien and his successor as federal Prime
organizational changes to increase efficiency Minister, Paul Martin. Chr�tien had been less
would not win back the public's confidence in willing to compromise with the provincial and
the governments' ability to manage Canada's territorial premiers in 2003 than Martin was to
public health care system. Because of this, forge side deals with Quebec and aboriginal
addressing the waiting times issue, for instance, leaders in 2004.
became a key governmental objective, and as
such, there have been significant new policy Still, the political basis of the 2004 agreement
initiatives (in other words, organizational was, and remains, precarious. The 2003 and
reform) and more importantly visible 2004 health care financing deals are not
investments (in other words, explicitly targeted guaranteed beyond the term of the current sitting
transfers) aimed at reducing waiting times. Each government. Given the weak hold that Martin's
province has purchased new diagnostic minority government has in the national
equipment (such as MRIs and CT scanners) and legislature, it is not inconceivable that his party
spent more resources to clear surgical backlogs. will be defeated in the next general election.
As alluded to above, this particular policy area, There is no safeguard that the next government
while comparatively low on health in Ottawa will honor the funding agreements
policymakers' list of priorities, emerged as one reached in 2003 and 2004.
of the critical benchmarks for evaluating both
the federal and the provincial governments' Finally, it needs to be stressed that Ottawa's
performance in health care reform. Thus, what fiscal surplus at the end of the 1990s was the
investments were made in 2003 and 2004 was supply-side impetus behind the recent health
determined in part by what was doable fiscally care financing deals. There are no guarantees
and in part by what was politically expedient, that the federal coffers will remain as full over
especially in the near term. the next decade. Cynics will therefore rightfully
point out that social policy programs, and the
Political Uncertainty politics of collaborative federalism that underpin
them, run more smoothly in times of fiscal
Effective federalism entails effective political surpluses. History has shown us that, under
deal-making. The centralization or conditions of fiscal deficits, funding
decentralization of policy authority and fiscal commitments for social programs, and
capacity are not simply matters of public especially for expensive ones such as health, are
administration. Rather, they are about politics. the first to be clawed back. Indeed, as the
As such, any compromise in a federal system is Canadian case demonstrates, in times of fiscal
subject to the vagaries and uncertainties of restraint, the already thin line between
politics. To be sure, the present moment of productive federalism and the political game of
collaborative federalism in Canada is not the blame avoidance becomes razor thin.
norm. Indeed, to most Canadians, the present is
132
Re-Casting Canadian Federalism:
Health Care Financing in the New Century
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Phillips, Susan (ed), 1995. How Ottawa Spends
134
Summary of the Discussion
Joseph White
Case Western Reserve University
Commentary relatively more than the increase in spending.
The period during which the Canadian federal
This session opened with the presentation of two government was promoting the idea that new
papers by Alan Maynard and Joseph Wong that spending would somehow increase efficiency
described the experiences of two countries � the fits this definition. This can be called investment
UK and Canada � in increasing spending on for productivity.
their health care systems. Their presentations
raised some intriguing questions, including what This second meaning may approach an ordinary
exactly constitutes the concept of investment understanding of what "investment" by firms or
and whether "investment" is any different from individuals is supposed to accomplish � an
"increased spending." increase in production. However, that is not in
fact what all capital spending does. Often,
One conclusion could be that there is no capital spending is necessary to replace
difference. Perhaps "investment" is a better depreciated plant. In that situation, investment
label than "spending more" because: is necessary largely to maintain current levels of
services; the failure to "invest" would lead to
� Investment sounds better than consumption fewer or lower-quality services in the future. In
to anybody in the budget or evaluation short, if we conceive of investment as any
business capital spending, then whether this will lead to
� It promises benefits in the future as well as increased production is likely to depend on the
in the present previous history of capital spending. If the plant
� It suggests that there will be value for has been depreciating, new capital spending will
money � a "return" � in a way that look like a total spending increase but will in
"spending more" does not. fact just maintain current levels of service.
Then, relative to previous years, "investment"
By this definition, "investment" would not will seem to increase spending to no obvious
involve any obvious economic standard for effect, yet it may be quite necessary. Clearly
evaluation. Some extra output might be some advocates in both the UK and Canada
expected in return for the investment, but there think that some spending increases were
might not be a clear standard for how much necessary simply to make up for previous
extra output should be realized from the extra depreciation; Alan Maynard is generally
spending. This can be called investment as skeptical of spending increases for the reasons
labelling. given in his report, yet he suggests that there
were some genuine needs. So this can be called
Alternatively, one might expect "investment" to investment for deferred maintenance.
increase the productivity of a health care system
beyond its previous level. For example, Evaluating These Different Types of Investment
advocates claim that "investment" in
information technology will improve quality and There are probably other purposes of
control costs in ways that will eventually allow investment, but these three should be enough to
systems to produce more of whatever good that show the complexities involved in evaluating
they produce per unit of money spent than they expenditures. In some cases, the standard for
are producing now. "Investment" in information investment as labelling may be political, for
technology in particular looks less like example, if politicians decide to spend more and
"consumption" than other spending does the voters approve of this decision, then the
because money is not being spent directly on decision is appropriate. There are, of course,
providing health care. So by this standard, one many economists and other analysts who do not
would expect production to increase by like "politics" and presume that politicians
135
Summary of the Discussion
spend "too much," but as a matter of public services be the measure? Or cures? Or
finance, it is inappropriate to make that some measurement of amelioration (QALYs
assumption. At a minimum, only a quite right- again)? In other words, we not only do not
wing economist would say that governments that know how to compare hip replacements to
have surpluses cannot choose to reduce those cardiac surgery, we are not sure exactly what
surpluses in order to buy valued public an increase in spending on hip replacements
consumption, as was the situation in Canada. is supposed to buy. To put this another way,
Similarly, it is unreasonable to object to voters even if we know we want cures or
choosing to pay extra taxes to cover the cost of amelioration, we may only know how to buy
the spending, as in the UK. In both these cases, services that are ostensibly supposed to yield
one could argue that, if the voters re-elect the these outcomes. Then what?
government that decided to spend more, then the
"investment" was successful � end of story. 4) A lack of agreement on the extent to which
amenities and convenience should be
Now consider investment for productivity. This considered part of the product. If people
appears to be the default standard for health have less frightening and alienating
service researchers and economists. However, it experiences in the hospital because the
involves a wide range of difficulties that Alan nursing staff is nicer, even if there is no
Maynard discusses and that help to explain why measurable difference in post-operative
provincial policymakers in Canada were not mortality, is spending that improves patients'
particularly interested in standards set by Health hospital experience "unproductive?" What
Canada. Among these problems are: about waiting times � should they matter
and how much? And who should get to
1) The lack of a metric with which to compare make such judgments? If a better
different services. In the classic formulation experience is something most voters want,
of the problem, is an increase in cardiac do health services researchers have a right to
surgery or hip replacements more dismiss that?
"productive?". Many scholars have been
promoting QALYs for a couple of decades 5) The fact that there are long causal chains
now, and in the UK, the NICE process does from any "investment" to any result. Maybe
apply QALY logic to some new coverage spending on information technology will
decisions, but it seems fair to say that this eventually lead to fewer medical errors and
thinking has had at best only a limited effect the development of treatment guidelines that
on health care systems.124 increase value for money. But the odds that
anything of the sort could occur within the
2) A lack of agreement on the object of time frame being applied for evaluating
productivity. Alan Maynard has argued that recent Canadian and British spending
the point of investment should be increases are close to zero. Over the longer
improvements in the health of the term, it will be very hard to untangle the
population. As he notes in his report, effects of information technology from the
however, what seems obvious to economists effects of other developments.
may not be so to others. I do not think the
improved health of the population is the In short, even if we were to agree on the
purpose of national health care/insurance investment for productivity standard, evaluating
systems. I will return to this question later. it would be quite difficult. Yet Alan Maynard's
3) A lack of agreement on how to paper provides an interesting sideways answer to
conceptualize and then measure productivity that problem by identifying outputs that are at
even at the individual patient level. Should best very weakly linked to production. If extra
spending results in providers receiving higher
124 I was more skeptical in the original draft that I incomes for doing the same work as before, this
shared with Alan Maynard, Joseph Wong, and Naoki would not qualify as extra productivity by much
Ikegami; in response to comments from Alan of any standard (but see below).
Maynard and Pauline Rosenau, I will give QALYs
more of the benefit of the doubt. This brings us to investment for deferred
136
Summary of the Discussion
maintenance. From one perspective, the arguments are legitimate, even if also self-
difference between investment for deferred serving. There can be little doubt that some of
maintenance and investment for productivity is the political pressures that led to the increased
an illusion. In each case, more will be produced "investment" in the UK and Canadian health
with the investment than without. The only care systems involved versions of deferred
difference is that the effect will be less visible maintenance claims.
when the spending is for deferred maintenance
than for productivity because levels of Lessons for Whom? The Problem with
production may not increase from year to year. "Population Health"
But visibility should make a big difference for
the purposes of both evaluation and politics. As Let us imagine for the moment that we could
nobody can measure how production would draw lessons from the UK and Canadian
otherwise have declined, it is hard to assess the experiences with "investment" and that those
effects of the work done to make up the decline. lessons would be of use to other policymakers.
In addition, if voters do not benefit visibly from What might they want to learn about?
the spending, then they may not be convinced
that it was worthwhile (which, of course, is why I mentioned earlier that measuring whether
the maintenance was deferred in the first spending has increased the health of the
place).125 population is not the right standard for judging
investments. By that I mean it is not the right
Although the concept of maintenance can be standard for voters or for politicians, nor is it the
applied most obviously to capital plant, it can right standard for most policy analysts. Yet it
also be applied to human capital. Someone who might be the right standard for decision-makers
wanted to justify the use of spending increases at the World Bank. The reason is the Bank's
to raise the salaries of Canadian physicians or concerns are different from those of ordinary
nurses might argue that caregivers otherwise citizens or politicians in a "rich democracy" (the
might respond by moving to the United States. term is Hal Wilensky's simpler version of
So higher pay would be an investment in "Advanced Industrial Democracy").
maintaining their participation in the Canadian
health care system. Alternatively, if higher Why do we have national health care/insurance
spending were used to hire more nurses, then systems? Does anybody vote for them, and did
this might reduce burnout among the existing national political leaders from Bismarck onward
nursing staff, thus keeping them as part of the work to create them in order to increase
system. Again, this would be a form of human "population health"? The answer is yes, but
capital conservation. only to a minor extent in that some leaders
wanted to make sure that their nation's potential
It should be obvious that the value of arguments soldiers were able-bodied. Yet basically national
in favor of deferred maintenance is especially health care/insurance systems have been pursued
difficult to assess. First, this requires making and adopted because of concerns about equity
guesses about what would have happened and social peace. They are not created and
otherwise. Second, when arguments are made in operated explicitly to raise population averages
favor of deferred maintenance in the area of in health status. They are created and operated
human capital, they are often extremely self- to provide a socially acceptable level of medical
serving and accompanied by all sorts of political services to all individuals. Voters do not care
manipulation. However, sometimes when calls about population health as much as they care
for investment are made simply to prevent the about their own access to medical care. Nobody
health system from going into decline, these ever died of short life expectancy, while lots of
people can die or suffer pain from inadequate
125 On the other hand, if investment is spent on medical care.
making facilities more attractive, then the public
might perceive an improvement that health Hence, political support for national health
researchers would not. So deferred maintenance care/insurance systems derives from two beliefs.
might be valued by the public for the "wrong" The first is that access to medical care when in
reasons! need is an extremely significant aspect of one's
137
Summary of the Discussion
life chances. The second belief is that, while it mean that technological advances do not
is acceptable to distribute lots of life chances automatically translate into similar service
unequally, significant differences in access to expectations across all countries. "Technology"
medical care when in pain or danger are simply does not automatically drive health care costs up
indecent, an unsupportable inequality. This at similar rates across all rich democracies. If it
belief may derive from the seriousness of did, there would be similar rates of use in all
consequences, or the immediacy of the countries and similar costs, whereas in fact there
consequences, or an ability to imagine the are significant differences. Nevertheless two
consequences. In all these dimensions, access to kinds of pressure make it difficult for any of
medical care is very different from issues such these countries to resist adopting these new
as the size of a pension or even the kind of services.
education provided. Hence, while every system
has inequalities, support for some decent social The first pressure comes from the fact that
minimum has resulted in substantial equity in all wealthier people within any country can afford
rich democracies other than the US. to buy private health care. To the extent that
people can get private care of a supposedly
I do not think anybody should seriously doubt higher standard, this creates an equity concern
that this equity concern is one reason for the that may force managers of the public health
"investment" policies in Canada and the UK. In system to make a service available if it is already
each case, the government feared that some available in the private sector. The second
individuals would use their private options in pressure comes from international comparisons.
such a way that would make them far better off It is not so much that policymakers (never mind
than their fellow citizens, that this would be very citizens) look to other rich democracies for new
visible, and that the majority of the population ideas but that in particular circumstances, there
would even prefer (somewhat) higher taxes (on can be direct competitive pressures.
somebody) than to increase inequality in this
way. For example, the Canadian government benefits
from the fact that the difference between the US
But limiting inequality is only one part of the and Canadian health systems has become a point
political pressure for higher health care spending of fundamental national pride and identity in
(under any circumstances, whether this spending Canada. Yet physicians can fairly easily move
is called "investment" or not). The other source to the US to practice, the American media are
of pressure is the development of notions about widely prevalent in Canada, and lots of
what "necessary" care involves. "Necessary," as Canadians spend significant parts of the year in
health services researchers will tell us, need not the US. As a result, the public exerts pressure
mean "effective" or certainly "cost-effective." on the government to make the Canadian
Instead, it is a social expectation, a compound of standard of services resemble the American
beliefs about effectiveness and decency. For (Medicare beneficiary) standard. Citizens in the
example, the concept of "necessity" as defined UK did not have a similar reference group in the
in the United States probably includes an past, but the development of the EU has made
expectation of two-bed rooms for hospital the possibility of patients going to other EU
patients instead of the old open-ward structure, countries for treatment a real concern, and the
whereas in other countries the accepted standard difference in access to services an
includes more beds in a room. The standard of embarrassment to the Labor government.
"necessary" nursing care and hotel services is
reportedly much lower in Japan than in other Thus, there are several likely motives for the
countries. It is clear that the definitions of those governments of the UK and Canada to have
services that are "medically necessary" and of increased spending on health services regardless
"appropriate levels of amenity", and that of any concern for population health � notions of
therefore should be subject to social sharing and equity, national pride, and comparisons with the
norms of equity, can vary from country to standards that prevail in other countries. Indeed,
country. I strongly suspect that the fact that both the UK
and Canada have neighbors that spend more and
These and other kinds of national variations deliver more services (to those who are served)
138
Summary of the Discussion
helps to explain why these are the two cases of care/insurance systems, then the Bank's
"investment" that have arisen and are being decision-makers should pay attention to the
discussed at this seminar. possibility that violating notions of equity can
have nasty consequences for any governments
From this perspective, the relevant lessons to being advised by the Bank. This should be a
draw about the impact of the investment would particular concern in nations that have some
not include its impact on public health. Instead, history of broadly distributed medical care (for
the relevant lessons would involve whether and example, in Eastern Europe and in some of Latin
under what circumstances greater spending America).
actually translates into what the public views as
greater equity either within a country or between Lessons for Rich Democracies from the Case
its own citizens and those of the reference Studies
country or countries. I think that is the right set
of questions for policymakers in other rich From the standpoint of policymakers in rich
democracies who want to learn from the current democracies, the first lesson from these papers is
British and Canadian experiences. For example, that they are about investment as labeling or as
Japanese policymakers might use the deferred maintenance at least as much as they
information from this session to reflect on the are about investment for productivity. Thus,
possible consequences of new investments in the they should be evaluated for what they are,
Japanese health care system on political support which means their effect on perceptions of
for the health care finance system and for equity rather than for any visible effects they
themselves. may have had on population health.
The World Bank's decision-makers are more If those are the real issues, then the papers have
likely to be interested in which of its many some quite useful findings. For example, both
potential investments in any given country will papers make it clear that what the public really
cause the greatest improvement in national well- cares about are outputs that are less significant
being? The Bank's decision-makers usually to analysts, particularly waiting times. The
seem to define national well-being in material argument made by analysts that reduced waiting
terms and usually care more about averages than times do not necessarily increase the quality of
equity. Therefore, they may legitimately care care is not of great interest to patients. For
more about the population's health than, in my them, equity in access to services is the crucial
view, national policymakers in rich democracies. issue because they feel that having to wait 18
months for a service (especially when their
In that case, I fear that these papers will not tell cousin in Cleveland or Brussels was treated
the Bank's decision-makers much that they do within three) just is not fair. Not surprisingly,
not already know. Rich democracies are very politicians tend to pay more attention to patients
different from the countries that the Bank is than to analysts.
supposed to serve, and their governments have
to adopt policies for many different purposes Joseph Wong's Canada paper seems to indicate
and with far different resources. Most rich that measuring outputs and outcomes (other than
democracies, have done most of the important waiting times) does not get much support
public health spending, so they do not face (except from analysts). This is completely
having to choose between providing universal understandable given that, as we have
medical services and improving public health established, increased spending should create a
indicators in the same way as policymakers in presumption that the government is increasing
the Global South do. In any event, the equity, and measurement is more likely to give
investments in Canada and the UK are highly bad news than good on that front. If there is a
unlikely to tell the Bank much about the wisdom political argument for measurements, it is a
of investing in Morocco or Zambia or even "who gets the credit" argument. Because the
Argentina. national government in question wants to be able
to make a credible claim that its spending
At the same time, if I am right about the reasons increase is causing services to increase, it wants
why nations have adopted national health
139
Summary of the Discussion
to be able to measure results in the provinces. I was not at all surprised by the lack of evidence
However, when put to the test, even the of results in Canada, for two reasons. First, the
government might figure out that it is better to "investment" is far too recent to have had any
be safe (unmeasured) than sorry (measured and obvious effects yet. Second, in any federal
found wanting). Moreover, in the Canadian system, there is a primary rent-seeking
case, one of the major reasons for increasing opportunity, namely that the provinces may use
spending was to reduce the chance that the new national funds to replace their own.
provincial governments might decide to opt out National policymakers in Canada who seek
of the equity constraints created by the Canada "results" from their investments are in an even
Health Act. If the spending has that result, then worse position than are their counterparts in the
it is successful regardless of any effect it may UK. Yet, as I mentioned, if the real purpose of
have on actual medical services. national "investment" is to enforce the Canada
Health Act's equity goals, then what provincial
Alan Maynard's UK analysis provides a series of governments or providers really do with the
extremely cogent warnings about the risks that money is not so important.
rent-seeking (actually, rent-appropriation, not
just seeking) will reduce the increase in services Policymakers who are considering making
(never mind in population health) that new "investments" in their health care systems could
spending will buy. Health care systems are no do worse than to give careful thought to the
different from other government programs or, issues of both rent-seeking and equity.
for that matter, market activities in that it is
possible to throw more money at them than they The Discussion
can use productively without substantial waste.
Good examples of this are American federal The discussion in this session had three
spending on the "drug war" in the 1980s or on components. After each paper was presented,
telecommunications in the 1990s. It is very there was a period when participants could ask
difficult to monitor how the money is spent and questions about its contents. Then, after both
perhaps even more difficult to know in advance papers had been presented and a break, there
how it should be spent. Moreover, the was an open discussion of themes raised by both
"adequacy" of services is to some extent a papers.126
perception on the part of voters that is based on
the extent to which physicians have been Discussion 1: Alan Maynard's Paper
complaining publicly. To that extent, even the
"waste" in the form of increased rents to medical One theme in the discussion of Alan Maynard's
providers may be perceived as "success" by paper was why the British government decided
voters who hear fewer (or less vociferous) to expand the National Health Service (NHS).
complaints from the medical community. Given Regardless of the substantive reasons, what
these difficulties, governments can be expected political considerations caused the government
to focus on outputs that the public thinks it to make that decision at that time, reversing
understands and are relatively easy to measure decades of much more stringent policies?
(and manipulate) like waiting lists.
Alan Maynard emphasized four factors: some
Given my skepticism about measuring results, I embarrassment at comparisons to the health
was actually pleasantly surprised by the degree systems of other Western European countries;
of success that Alan Maynard reported in his
account of events in the UK. I may be more
favorably impressed than he is because I care a 126I prepared this summary based on both my own
bit more about things like waiting lists and notes and notes kindly provided by the conference
public perceptions of amenities. I also may have secretariat. I would like to thank Naoki Ikegami and
even lower expectations than he does. Yet I also the secretariat for their hospitality and help, and all
found his enumeration of the rent-seeking participants in the conference for providing a
problems to be particularly useful for thinking discussion that made summarizing the contents a
about the difficulties of managing spending pleasure.
increases (or any spending) in any system.
140
Summary of the Discussion
real deterioration of plant and facilities (what I measures by the main private insurer, BUPA,
have called the "deferred maintenance" and had reported that the NHS was beginning to
argument); pressure from the medical profession use similar measures. Responding to Naoki
to raise standards; and the fact that the budget Ikegami, Alan Maynard explained that these
and the economy of the UK were in unusually evaluations were being used less to sanction
good shape. providers than to identify outliers who could be
counselled and urged to adjust their practices.128
Loraine Hawkins and Heinz Rothgang Manfred Huber suggested that, when guidelines
mentioned some other catalytic events. Loraine exist, it is likely to take some time for providers
Hawkins referred to accidents or scandals that to change their behavior, so one should not
heightened the already substantial public expect to be able to observe results quickly.
concern about the quality of the NHS. Heinz Alan Maynard responded that physicians in
Rothgang mentioned that the European Union England in fact have been responding very
Court of Justice had issued a ruling about rights quickly to new incentives that link their behavior
to health services that seemed to say British to their fees. One reason is, with GPs mainly
citizens who had to wait too long in the NHS practicing in groups, any doctor who does not
should be able to get NHS-paid services in other meet targets and so reduces the income of his or
member states. And Loraine Hawkins her colleagues is likely to be pressured by those
emphasized that the Chancellor of the colleagues to improve his or her performance.129
Exchequer, Gordon Brown, publicly pushed for
more spending as part of his own political Of course, the problem with any standard is that
competition with the Prime Minister. This the targets themselves might not be appropriate.
meant that the institution that normally put up Alan Maynard's assessment was that, despite of
obstacles to spending in any system (the the well-known difficulties, there are some
Treasury) was supporting spending, which made pretty good guidelines for some medical
it difficult for Prime Minister Blair to refuse. conditions, particularly for chronic conditions.
A second theme was how the budget was Discussion 2: Joseph Wong's Paper
allocated and how the extra spending might be
evaluated.127 In response to a query from Peter
Berman, Alan Maynard said the funds were
allocated proportionally to the local purchasers, 128This emphasis on outliers is similar to the use of
who then decided how to use them. In that profiling in various other situations, such as how
sense, the decisions were decentralized except spending records are used to identify outliers among
that the central government provided significant German physicians � though in the extreme this can
direction in the form of requirements to hit be linked to payment reductions in Germany. In
particular service targets and to fund specific Wendy Edgar's presentation the following day, she
initiatives in the form of contract provisions for argued that guidelines were being used the same way
providers. in New Zealand.
129Pressure from other members of a group can be
In our discussion of how to evaluate spending, seen elsewhere. For example, I once interviewed a
Naoki Ikegami suggested that it might be member of a 13-physician pediatric practice within
difficult to evaluate outcomes at the provider Kaiser Permanente's Washington, D.C. organization.
level because that would require adjusting for He explained that the physicians took turns taking
the level of risk for each provider's set of calls in the hospital. (In the US, care in the hospital
is normally supervised by a physician who also
patients. In his talk, Alan Maynard had practices in the ambulatory sector; so a physician
described the use of performance evaluation might be called into the hospital at night to see
patients, and someone from a practice will have to
127 Note that Alan Maynard's paper on visit each hospitalized patient in the morning.)
implementation, and therefore the discussion, focused Hence, other physicians would notice if one doctor
on England. The decision to expand spending, seemed to hospitalize patients unnecessarily, and
however, applied to all four "nations" within the since that would mean extra work for the other
United Kingdom, so to Scotland, Wales, and physicians, they tend to pressure such colleagues to
Northern Ireland as well. be more careful about hospitalizing patients.
141
Summary of the Discussion
As with the discussion of the first paper, the first which there is ostensible agreement, such as
questions raised in this discussion involved reduction of waiting times.
politics. What was the pressure for privatization
in Canada, to which the spending increase This part of the discussion concluded with two
seemed to be a response? The upshot of this other questions. First, why is there no general
discussion was to say that there was pharmaceutical benefit under Canadian
ideologically based pressure for privatization, Medicare? One reason is that it costs a lot to
particularly from the Premier of the province of provide such a benefit, and neither the federal
Alberta, Ralph Klein. However, this was clearly nor the provincial governments have been
not a position held by a majority of politicians in willing to add the expense to their budgets. Also
the country. Instead, other provincial premiers there is a lot of private cover anyway (for
threatened to defect from the Canada Health Act example, through employer-provided
(by allowing extra-billing or private cover) as a supplemental insurance). Recently, the
political tactic in an attempt to push the federal provinces did call on the Commonwealth to
government to increase the amount of funding it sponsor a universal pharmaceutical program
would provide to the provinces. with substantial national contributions, but this
was in essence a bargaining tactic, an excessive
A second issue was what was supposed to be demand meant to be bargained away and make
done with the extra money. What were the the remaining (large) demand for extra funds
priorities? Joseph Wong emphasized that look more modest.
waiting times were the issue that captured public
imagination and to which the largest allocation The second question was raised by Peter
of money was allocated. There were some other Berman, who asked about the new ruling by the
smaller, stated priorities, such as reform or Canadian Supreme Court. In this ruling, the
improvement of primary care and of care for Court decided that waiting lists in Quebec are so
aboriginal populations. However, most of the long that they violate the right to health care (as
new funding was not allocated for any specific stated in Quebec's Charter of Rights) and,
purpose. therefore, that the national ban on private
insurance for services allegedly covered by the
John Campbell suggested that both papers were government was unconstitutional in Quebec.131
about changes in tax-based systems. The While the "right" involved is only stated in the
discussions both at this point and after the break Quebec charter, Joseph Wong replied that the
suggested that these systems are likely to receive ruling is a concern both because it involves a
larger increases or decreases in spending than huge leap in judicial activism and because the
systems with more dedicated financing (such as Court's logic left a lot to be desired.132
sickness fund contributions). Both Canada and
the UK, for example, had reduced their health Discussion 3: Both Papers
spending quite severely before the current period In the open discussion, the first theme raised was
of significant increases.130
131
Yet Canada and the UK, while similar in their The plaintiff's claim was that it should be possible
ability to change their financing trends quickly, to buy private insurance for services, since they were
appear to differ in their ability to implement not in fact available in an acceptable way through the
substantive changes. Joseph Wong emphasized province's health insurance system. The Court held
that, because Canada has a federal political that the "prohibition on obtaining private insurance...
is not constitutional where the public system fails to
system and the UK does not, it is much harder to deliver reasonable services." For an interesting
get the Canadian provinces to use the money in discussion of the logic and implications of this ruling,
any particular way. In fact, they have not even see Ted Marmor, "Supreme Ironies," TIME Canada,
agreed on benchmark standards for goals on June 20, 2005, p. 35.
132 If the Court's reasoning had been stronger,
130 Also, Sweden's tax-funded system remains activism might have seemed more attractive. But of
probably the most impressive example of dramatic course judgments about reasoning involve
cost control, reducing spending sharply as a share of preferences about policy; the plaintiffs might
GDP over several years. welcome activism, at least until the next case.
142
Summary of the Discussion
the fact that politicians have cited public concern had already argued that waiting times might be
about long waiting times as one reason for more prominent than more systematic health
increasing spending. Health policy analysts tend outcomes in part because waiting is more visible
not to be concerned about long waiting times. than those outcomes.
Yet, as John Campbell pointed out, even where
waiting times take an entirely different form, Another issue about waiting is the extent to
they are what the public complains about. In which this problem can be solved by money as
Japan, the complaints focus on the time that opposed to by changing how care is delivered
patients have to spend waiting in the outpatient and what incentives are offered within the
departments of hospitals for ambulatory care. system. Both Joseph Wong and Alan Maynard
Since such services tend to be run on a first- emphasized that organizational factors might be
come/first-served basis rather than through an more important than money.135 Organizational
appointment system, their complaint is that they change, however, is difficult to effect. It
show up at 9 am and have to wait until noon or 2 requires that people in the organizations change
pm. their behavior, which they often resist, and it is
hard to devise good systems even when people
Michael Reich argued that waiting times shape are willing to cooperate. Moreover, spending
popular perceptions of quality even if they do increases are a much more visible response to
not change outcomes. So they are a measure of demand for change than a reorganization would
consumer satisfaction, and this raised the be, so increasing spending is a more viable
question of whether consumer satisfaction is an response to pressures to "do something" about
output that we should care about. William Hsiao the waiting list problem.136 Soonman Kwon
responded that, since consumers are voters, their pointed out that in any system physicians are
views are going to affect health policy decisions likely to think that the proper solution to a
whether analysts like it or not. He reemphasized problem is to spend more, adding that this is
a point made in earlier sessions, which is that certainly how it works in Korea. In Korea,
there are three basic standards for evaluation:
health outcomes, consumer satisfaction, and
financial protection for individuals from the 135 One example of how to change how care is
costs of treatment for illness.133 delivered would be to create better appointment-
scheduling routines or to make GPs aware of how
Loraine Hawkins cautioned against assuming busy various consultants are so the GPs could steer
that waiting times and "consumer satisfaction" patients to the more available consultants. One
are both entirely separate from health example of misplaced incentives is the fact that
outcomes.134 Peter Berman pointed out that specialists in the UK have the option of seeing
both Canada and the UK are countries in which patients in their private practices for which they are
citizens were already doing pretty well in terms paid a version of their salary for providing service in
of population health and financial protection. He the public sector. This arguably creates an incentive
also suggested that politicians might emphasize for them to do less work in their public practice and
waiting lists and (supposedly) consumer to tell patients that they can jump the queue if they
satisfaction because priorities at any moment in choose to pay privately. Another example, this time
any system are not based on the inherent relative from the US, involves ambulatory surgical centers.
importance of issues but on the extent to which These freestanding centers can provide surgery and
they are most visible at the time. Michael Reich aftercare faster for elective surgeries than a major
hospital can because, among other reasons, any major
hospital has some of its operating theatres pre-empted
133 I think "consumer satisfaction" is too narrow a by emergencies. This cannot happen in a surgical
way of stating the second concern, which I think center as these entities do not provide emergency
involves perceptions of equity as much as personal care. Hence a family friend of ours chose to have her
utility, as I explain above. breast cancer treatment at a suburban facility owned
134My personal view is that the amount of time any by the Cleveland Clinic rather than at the Clinic's
individual spends with a painful or unpleasant renowned hospital center.
condition looks like an outcome to them, so the 136 Unless no money is available, in which case
whole idea that waiting times are unrelated to quality policymakers are likely to announce a reorganization
of care and outcomes should be questioned. initiative!
143
Summary of the Discussion
waiting times per se are not an issue. Certainly, middle, advised by experts but at least somewhat
for the uninsured in the US, "waiting times" are dependent on the public? Manfred Huber
not defined as the major problem. The main reported that Health and Finance Ministers in
problem is the inability of some people to access their private deliberations do agree that cost-
any services at all. effectiveness is important, and he defined the
problem as how to "educate" the public to think
A third theme in this general discussion was how so too. I suggested that the Canadian case is an
evaluation is used in policymaking. Alan example of this problem but that it also shows
Maynard had criticized the NHS for its continual the countervailing pressure imposed on
disinterest in evaluation, for its habit of "Get politicians by the public's views. Thus, in the
Ready, Fire, Aim." He mentioned in his talk that early stages of the discussion of a spending
when some evaluation measures were suggested increase, there was more emphasis on targets
to Prime Minister Blair, Blair's immediate and standards and value for money than
response was that it could backfire on the eventually emerged in the final agreement
government.137 John Campbell pointed out that between the federal government and the
policy analysis and evaluation in the United provinces. Joseph Wong agreed with this
States generally has a conservative effect, summary of his story and added that it is simply
because it highlights problems, which makes it hard to set up evaluative standards in a political
harder to pass legislation.138 Manfred Huber system where everything is interpreted as part of
argued that systems nonetheless should want to a competition between officials of each of the
evaluate their own performance, so two levels of government. In other words,
policymakers should ensure the existence of provincial officials want standards they can
good information systems. easily meet while federal officials worry that
they will be too easy and so not change
I pointed out that in practice it is easier to provincial behavior.
evaluate the potential application of new
technology, whether procedures or drugs, than of Alan Maynard had explained at one point that, in
ongoing activities (and is more likely to the UK, hospital managers could lose their jobs
happen). There are two reasons for this. First, if they did not reach targets. So the key issue
in the case of new technology or drugs, the here was that standards and measurements affect
object of evaluation is more discrete and easily peoples' interests, whether the person in
defined (as opposed to, say, "how we should question is a hospital manager in the NHS, a
treat diabetes"). Second, if the evaluation leads provincial premier in Canada, or Tony Blair.
to a decision not to apply the new technology, They all know it, and act accordingly. And, as
then it will not take away anything that is Berman added, it is also very hard to find
already being used. Alan Maynard emphasized examples where one could make "uncontestable
that systems should evaluate their existing statements based on evidence" about the proper
activities but agreed that the vast majority of the use of funds. If it is important "there will be
new evaluations in England (through the NICE three strong and well-financed sides on the
process) has involved new technology. Another question."
aspect of this subject is who really cares about
evaluating the cost-effectiveness of Our discussion concluded by returning to the
expenditures. We agreed that the public does question of what we (and our societies) want
not see things in these terms whereas economists health systems to accomplish. Heinz Rothgang
and health services researchers (and probably emphasized the difference between positive and
bureaucrats) usually do think in these terms. But normative evaluation. Alan Maynard reiterated
what about politicians who are stuck in the his (normative) emphasis on outcomes, saying
that underlying his whole presentation was his
137See also the comments on evaluation in Canada in skepticism about spending on health care. This
my commentary. skepticism derives in part from his belief that,
138 The classic description of this dynamic is for the same money as the current NHS increase,
contained in Henry J. Aaron, Politics and the one could get a lot more health improvements in
Professors: The Great Society in Perspective
(Washington, DC: The Brookings Institution, 1978).
144
Summary of the Discussion
other ways, for example, by spending more on concerns. Thus, home health care has long been
child nutrition.139 sold as a cheaper way to provide care than
nursing homes (and, conversely, has been
Talking about us (the group) as much as about resisted by some budget experts out of concern
systems, Heinz Rothgang suggested that that demand for home health care is potential
economists seem to put more faith in experts or immensely larger than demand for nursing home
to expect a larger role for experts in care).
policymaking than political scientists do. Thus,
we pay more attention to health outcomes while Third, evaluation is difficult for purely
political scientists seem more willing to allow substantive reasons (it is very hard to craft
systems to evolve according to public useable guidelines in most situations) and
preferences. While there is probably some truth because it is normally politicized. Interests are
to that, the economists in this group in particular at stake, and it is hard to overcome that fact with
held a broader range of views about the purposes objective evaluation because evaluation usually
of health systems than another group of does not have enough analytic power. I
economists might. therefore would warn policymakers in Japan or
elsewhere against expecting much in the way of
Conclusion: Implications for Other Topics savings from emphasizing benchmarking and
guidelines.
What did this discussion suggest for other topics
considered at this seminar? Most obviously, it Finally, the fact that the populations of the UK
highlighted the fact that the general question of
what health spending is for is fundamental, and Canada had other nearby health systems
whether the subject in question is what to cover with which to compare their own influenced the
and the extent of user charges as in the first demands they made for their own systems raises
session, long-term care as in the second, or an issue that applies to policymaking in many
reforming the Indian and Chinese systems in the other countries. In the US, it seems to apply in
concluding session. To some extent, where one reverse in that many Americans think that the
stands on this basic question depends on one's US explicitly should not adopt any policy that
perspective including one's job and training. As has been adopted elsewhere.140 As for Japan,
a result, the difference between the position of which lacks any obvious comparison country,
public health professionals and economists (who some Japanese policymakers tend to believe that
emphasize population health statistics) and the any problem that occurs elsewhere simply
public (who tend to focus on access to and cannot happen in Japan. One very unfortunate
equity of medical services) probably exists in example of this syndrome involved the failure of
virtually all situations.
140
Second, there is the question of the effectiveness Some American policy analysts � obviously
of increasing spending versus reorganizing. For including the ones at this conference -- tend to look
example, re-creating rural health clinics in China abroad, but arguing that the US should copy foreign
practice is not feasible politically. American political
might greatly improve health indicators without culture includes a strong strain of belief that the
increasing spending by very much. Advocates United States is inherently different and better than
of home health care have long argued for this as all other countries � the "last, best hope of mankind"
a way to reorganize long-term care away from � implying that other countries should copy the US
the nursing home model. However, as that rather than the other way around. This view dates to
example shows, even reorganization arguments the origins of the United States as a country founded
tend to be substantially influenced by budget by people who were escaping the problems of
Europe, and then populated by immigrants fleeing the
misery of their homelands to pass through the
139As I mentioned in my commentary, knowing this "golden door" mentioned in the poem inscribed on
about Alan Maynard's beliefs leads me to think that, the Statue of Liberty. The current US President
when he acknowledges a need for deferred represents an extreme example of that view, and the
maintenance in the UK, they must really need the fact that he got re-elected shows that it is pretty
money! attractive to a portion of the electorate.
145
Summary of the Discussion
the Japanese government to protect the supply of knowledge of health systems in neighboring
blood treatment products for hemophiliacs from countries put pressure on politicians in the UK
contamination by the HIV virus.141 and Canada to increase health spending, and the
Nevertheless, our own discussion revealed that Supreme Court of Canada's decision in the case
ideas about both what works and what should be about private insurance for Quebec. This means
expected from health systems can be affected by that, at a minimum, it is important to have
what people believe about systems in other accurate understanding of what those systems do
countries � whether the Korean experience is an and how they work. I hope that this discussion
example of how cost-sharing might work in and the seminar as a whole has contributed to
Japan, the clear evidence that widespread that understanding.
141 See Eric Feldman's chapter in Feldman and
Ronald Bayer eds., Blood Feuds: AIDS, Blood, and
the Politics of Medical Disaster (New York: Oxford
University Press, 1999).
146
Chapter 4: Social Security in Rapidly Industrializing Nations
Health System Issues, Challenges, and Options: Reflections on China, India, and Kerala
Kottilil Mohandas
Sree Chitra Tirunal Institute
for Medical Sciences and Technology
Background greater than ever before. The rate of progress is
such that almost every day another new drug or
The health systems of India and China are very treatment or a further advance in medicine and
interesting cases, not only because of their health technology is announced (WHO, 2000).
ability to influence the health outcomes of a Yet, for a state that promised to provide
large majority in the world due to their huge universal health care though the public health
populations, but also because their stories care system, India has allocated only a meagre
present a fair amount of evidence on "what to do fraction of public resources to health care.
and what not to do" in the health sector. India's Ambitious plans were made for the health
health system has been running through rough system, but the government did not make
weather for quite some time and at this moment, enough resources available to fulfil even the
needs a radical progressive transformation if it is minimum commitments made in the initial plans
to improve the well being of its population. and even this low level of resources came down
Soon after Independence, India's national substantially in successive plans. It is time that
planners committed themselves to developing policymakers put health care high on their
the country and its people within a socialist agenda and greatly increase the budget
framework, and health was an obvious allocation for the health care sector and for
component in this process. The country's post- monitoring the performance of public and
Independent plans and policies on health care private health care providers and the differences
were much influenced by visionaries like Bhore in access to and use of care by the different
whose committee on Health and Development in socioeconomic groups.
India made the primary care approach the
bedrock of Indian health care system. The As for China, its health system during Chairman
committee laid down the principle that access to Mao's rule served as a model for developing and
primary care is a basic right and that the ability low-income countries for how to provide
to pay or any other socioeconomic consideration egalitarian and low-cost health care to a vast
should not be a barrier to accessing care. population. The period from 1950 to 1970 was
characterized by significant achievements in
Since then, the country has made tremendous China's population health indicators despite the
progress in such important health outcomes as population's low-income levels. Making
increased life expectancy at birth and reduced primary health care the cornerstone of the health
infant and maternal mortality rates and death care delivery system helped China to attain far
rates in general. However, these achievements better health indicators by the early 1970s than
are not so significant when we compare them could be expected given the country's stage
with the achievements of other countries at a of economic development (World Bank,
similar stage of economic development. 1994). The government's commitment to
Internationally, demand for health care has been equity for all citizens and to ensuring the near
undergoing tremendous changes, while the universal availability of adequate food, education,
resources needed to finance these services are housing, jobs, and accessible and affordable
health care services also contributed to this
The author wishes to acknowledge the invaluable achievement (Yang et al, 1991).
contributions of Mr. S. K. Godwin and Mr. B. Arun,
PhD scholars (health economics), at every stage of The philosophy that had governed the
the preparation of this paper.
147
Health System Issues, Challenges, and Options:
Reflections on China, India, and Kerala
government's attitude to public services level, and county hospitals at the upper level.
(planning as the principal agent of economic The Maoist model of medicine relied on political
growth and the market as a supplementary part) mobilization and patriotic health campaigns in
was reversed in the late 1970s when China began support of the public health and community
its transition into becoming a market economy. medicine approach to health care. In rural areas,
This heralded a series of profound changes in mass mobilization encouraged communities to
the organization and delivery of rural health care help to improve environmental sanitation,
services in China. The concomitant economic increase immunization rates, and prevent
changes that followed the reforms, including diseases. The authoritarianism of the regime with
changes to the political structure of the health its powerful bureaucracy that mandated universal
service and the internal problems of the Co- access to low-cost health care controlled the
operative Medical Service (CMS), contributed to training and job assignments of medical
the rapid decline of the system. As a result, personnel and caused many of the public health
there is hardly any disagreement among scholars programs to be highly effective in achieving their
that any economic reforms that have put objectives. However, after the reforms in the
unquestioned faith in the market have not had a early 1980s, the CMS, which had provided cost-
positive impact on equity in health care in most effective health care to a vast majority of rural
countries. population, went into a rapid decline. The later
disappearance of the collectives led to the
The present paper is an attempt to understand closure of welfare funds, which had been the
the Indian health care system in terms of its main source of financing for the CMS. Since
equity and efficiency in the post-Independent there is another paper in the same session that
period. Any discussion on the health services of discusses the Chinese health care delivery
China or India would be incomplete if we failed system in more detail, any further discussion on
to take a look at the Indian state (equivalent to China in this paper is superfluous.
province) of Kerala, which has carved its own
way in the health care field. Therefore, we also Health in Post-Independent India: A Loser in the
discuss the Kerala health care delivery system to Public Policy Agenda
try to understand what is possible even within
these adverse conditions. Soon after India achieved Independence from
the British Empire in 1947, the country's
Issues and Challenges policymakers, especially Jawaharlal Nehru, had
ambitious plans for the country's future, which
Chinese Health Services in Transition was evident in his speeches to the public and in
the Constituent Assembly. He acknowledged
China has had a lot of success in the health care to be a major component in
development of preventive medicine, public "eradicating poverty, inequities, and diseases."
health, and socialized services, whereas India The Indian National Congress was fully in favor
has lagged behind. The basic structure of the of providing free care to all of the population
Chinese health system that evolved during the through the states (Narayana, 1983). Each Five-
command economy era consisted of a Year Plan reiterated the government's intention
comprehensive health insurance and health to provide high-quality, community-centered
delivery system mainly funded by the state and health care at the lowest possible cost.
organized according to an administrative However, this never materialized in practice and,
hierarchy. The Cooperative Medical Services although there was much criticism of the
(CMS), which operated under the collective inability of the government to provide care to
communes, provided services like primary, all, there was no real attempt to understand the
preventive, and some curative care. The CMS factors that lay behind this failure (Narayana,
was organized into a three-tier structure 1983). Rather than a proper plan on health care,
comprising the barefoot doctors at the primary the Indian government had established a range
level, township health centers at the secondary of ad hoc committees that had issued some
148
Health System Issues, Challenges, and Options:
Reflections on China, India, and Kerala
guidelines that were not clear in their objectives. 4) The media in post-Independent India did
Wit hindsight, it would appear that some of the not emphasize the role and the
factors responsible for the failure of the Indian responsibility of the state in providing
government to achieve universal health care are: the kind of services that the population
wanted and deserved. For example,
1) According to the Constitution, health Dr�ze and Sen (2000) reviewed a range
care was the responsibility of the states of articles in a national daily newspaper
and, in the absence of a strong national in 2000 and found that health care issues
policy emphasizing the importance of were hardly ever covered.
health care, this meant that different
states assigned a different degree of The result is that health care in India is
importance to providing health services. increasingly becoming seen as the responsibility
Thus, the states also differed widely in of individuals and not of the state. This trend
terms of the amount of resources that certainly does not augur well for the health
they allocated to the health sector, which status of the population, particularly as the
resulted in wide inequities in the health sector is facing many practical problems
distribution of public health care. Health on top of its lack of funding.
outcomes in many states were very poor
at the outset, and the lack of adequate The Daunting Challenge of Ensuring Equity and
resources made the situation even worse Efficiency
as time went on.
2) The development strategy of the Indian health care is often dubbed as pro-rich
national government was heavily and pro-urban as the majority of health
oriented towards industrializing the institutions, both public and private, are
economy, which demanded huge amount concentrated in urban areas. The burden of
of resources. This reduced the amount health care in India is inversely related to
that was available to allocate to health t h e economic status of the household; the
care. The First Plan gave only 3.3 poorer the household, the more prone it is to
percent of its designated resources to receive inadequate and expensive care (Visaria
health care, and unfortunately, this low and Gumber, 1994 and Gumber, 1997). Their
percentage has been dropping ever since already thin household budgets are stretched
and now hovers at around 1 percent of by having to pay out-of-pocket payments for
the Plan funds (Government of India, the treatment received by the sick family
2002). Rather than increasing the member, and this is compounded by the loss of
distributional equity among the that family member's income while he or she is
population, it has increased inequity by ill. While private household out-of-pocket
making employment less elastic. expenses constitute more than 80 percent of total
3) The state has never attempted to health expenditure in India, government
intervene in the provision of private expenditure on health is less than 17 percent,
heath services not only in the hospital which is one of the lowest levels in the world.
sector but also in other critical areas Only 0.16 percent of population have private
such as the pharmaceutical industry or health insurance, which is, in any case, tends to
the medical equipment industry. Also, be available only in urban areas. Social
medical education was not oriented insurance covers only another 2 percent of the
towards meeting the main health care population, mainly though the Central
needs of the rural population but took a Government Health Scheme (CGHS) and the
disease-centric approach with an Employees State Insurance Scheme (ESIS).
emphasis on Western orthodox medicine
that was not accepted by the rural Studies reveal that out-of-pocket payments for
population. health care in India are highly regressive, and it
is clear that it will not be possible to reduce the
149
Health System Issues, Challenges, and Options:
Reflections on China, India, and Kerala
Indian poverty rate without tackling the issue of these diseases is exorbitantly costly and often
how health care is financed. India's health care require long-term care, which will put a strain on
system is currently market-based in that the health system. The social transition involves
diagnoses and drugs are treated much like any the rising expectations of the population about
other commodity (Dr�ze and Sen, 2002). In the quality of care, which causes costs to rise
comparison with other countries shows that even further. Fresh challenges including
India's health care system is most privatized in HIV/AIDS, the resurgence of diseases that were
the world. Even in the so-called capitalist earlier thought to have been eradicated (such as
industrialized countries, the state is heavily tuberculosis), and drug resistance to some
involved in financing and providing health care. diseases add to the woes of the health sector in
The involvement of the state is necessary at India.
minimum to deal with problems like the spread
of communicable diseases, which the private Urban Health System
sector has no incentive to tackle because of what
the economics literature calls "market failure." Urban Health Services: Not Much to Cheer
As a result of the lack of state involvement in Health conditions in urban areas are different
the health sector, India has failed to control than in other areas of India. They are
communicable diseases, despite the availability more often a consequence of factors outside the
of cost-effective and relatively simple health system, including a lack of decent
technologies. These diseases, the treatment and housing, poor sanitation, noise and air pollution,
prevention of which have very high positive and unsafe drinking water. A majority of the
externalities, still constitute more than half of urban poor work in the informal sector, which is
the disease burden (as measured by DALYs) in characterized by self-employed and low-paid
India. While the country has implemented workers with no fixed employer-employee
measures to reduce mortality and enhance life relationship or statutory social security
expectancy at birth, the challenges thrown up by protection. In addition, the presence of risk
the ongoing health transition have important factors such as pollution and poverty make the
implications for the public health structure and urban poor more vulnerable to diseases. The
population health in the country. The high rate of growth of the urban population
demographic, epidemiological, and social and the consequent increase in the slum
changes involved in this transition are likely to population has strained infrastructure and
change the outcomes of any health policy caused health problems (Gupta and Mitra,
actions, increase the costs of treatment, and 2002). Slums constitute about 22 percent of the
increase pressure on the health system to deliver total urban population and are characterized by
satisfactory care. The main element of the poor living conditions and a lack of proper water
demographic transition is that the elderly and sanitation facilities, making the urban poor
constitute an increasingly high proportion of the vulnerable to a host of diseases (Dilip and
population. This is going to increase the cost of Duggal, 2004). So any strategy designed to
medical care in the sense that the elderly tend to influence urban health outcomes will have to
be ill more than younger people. For example, incorporate these non-biomedical factors into
several studies have revealed that high levels of consideration. Wide disparities exist between
health expenditures in certain households is and within the ranks of the poor especially in
explained by the number of elderly members in terms of caste and gender. Social exclusion
the family (Narayana, 2001). This change is increases the vulnerability of the poor to ill-
happening in conjunction with epidemiological health and violence. As a result, the urban poor
changes in which non-communicable diseases face higher risks of getting sexually transmitted
(including cardiovascular diseases, diabetes, infections and HIV/AIDS and of being in poor
neoplasm, and neurological disorders) now reproductive health. Workers in the informal
constitute an increasing proportion of the burden sector do not get any health care benefits as
of disease. The treatment and management of insurance coverage in India is heavily skewed in
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Health System Issues, Challenges, and Options:
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favor of the upper and middle class and the patients attending public hospitals may also
employees working in the formal sector. So face large indirect costs including, for example,
when these informal workers fall ill, especially the cost of any medicines that they may have to
when they have to be hospitalized, not only do purchase from the private sector or bribes for
they have to pay the high medical fees out hospital staff. Since a large number of patients
of their own pockets in the absence of any who use health services in the urban India are
formal risk pooling mechanism but they also from rural areas, they may have to spend money
lose out on their daily earnings. So although the on transportation charges and lodging as well.
urban poor have more access to health facilities Since the cost of treatment in the public sector
than their rural counterparts, the higher average indirectly influences the cost of treatment in the
cost of these health services makes them just private sector, the increased user charges in
as disadvantaged as their rural counterparts. A public hospitals may also be a reason for costs
very large number of people cannot even afford going up in private hospitals.
to access the "free" government services
because of the opportunity costs involved such Statistics clearly show that the bed population
as forgone income and the price of ratio is higher in urban areas than in rural areas
transportation. Instead, they depend heavily on and that there has been no significant decline in
poor-quality services provided by local these disparities over time (Duggal et al, 1995).
unqualified practitioners. Despite this, poor This regional imbalance is present both in
households tend to spend nearly one-fifth of the government-run public sector and in the
their income on medical treatment. These are private sector. Public spending on health care
the critical factors in explaining why the urban is also disproportionately higher in urban areas.
poor are living in poverty. Although the urban population has better access
to health care facilities than their rural
How "Free" are Urban Public Health Services? counterparts, there is widespread inequality
between the poor and the rich within urban
It is often believed that the publicly provided areas, even though the proportion of those living
health services are free of charge. However, in poverty appears to be declining. The density
especially in recent times, almost all the state of providers in urban areas is much higher than
governments have either introduced or increased in rural areas. The urban health system in India
user charges for these services. Thus, the consists of medical colleges, middle-level
patients seeking care are charged both explicitly government hospitals, maternity homes,
and implicitly. The explicit charges mainly take dispensaries, hospitals and dispensaries run by
the form of user fees. Estimates by Krishnan the ESIS, many private practitioners, and
(1995) show that, in the rural sector, fewer than private hospitals of varying size and variety.
3 percent of patients in Haryana and Punjab and Although urban areas have better health
only about 7 percent in Uttar Pradesh get free indicators than rural areas, survey- based data
treatment as inpatients in hospitals. Even fewer has shown wide inequalities in access to
numbers receive free treatment in the urban services e v e n within urban a r e a s . The
areas than in the rural areas in all states. Of urban health care system is primarily curative
rural patients, 70 and 54 percent receive free in nature and tends to lack primary health care
treatment in Jammu and Kashmir and Tamil workers (Jay Satia et al, 1999). The NSSO
Nadu respectively. This proportion is 46 percent survey reveals very high rates of use of the
in Orissa and Rajasthan, and 34 percent in West private sector for both inpatient and outpatient
Bengal. In other states, it varies between 12 and care in urban areas (NSSO, 1998). According to
17 percent � Andhra Pradesh (12.2), Gujarat the survey, 20 percent of patients seeking
(15.97), Karnataka (16.78), Kerala (15.08), and outpatient care in urban areas used the public
Maharashtra (16.71). In urban areas, 47 percent sector, while the equivalent figure for inpatient
of patients in Tamil Nadu and between 6 and 12 care was 43 percent (see Tables 1 and 2).
percent in Gujarat, Karnataka, Kerala, and
Maharashtra receive free treatment. Of course
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Table 1: Public-Private Sector Use of Outpatient Care, All-India
(Percentage distribution)
Rural Urban
1986-87 1995-96 1986-87 1995-96
Share of Public Sector 25.6 19.0 27.2 19.0
Share of Private Sector 74.5 80.0 72.9 81.0
Private hospitals 15.2 12.0 16.2 16.0
Private doctors 53.0 55.0 51.8 55.0
(Private practitioners)
Others 5.2 10.0 2.9 7.0
Total 100.1 99.0 100.0 100.0
Sources: Sen et al, 2002, NSSO, 1992, Statements 13R and 13U, pp 67-68, Statement 2R and 2U, pp
53-54. NSSO, 1998, Table 4.10, p22; Table 4.16, p28.
Table 2: Public-Private Sector Use of Inpatient Care, All-India
(Percentage distribution)
Rural Urban
1986-87 1995-96 1986-87 1995-96
Share of public sector 59.7 45.2 60.3 43.1
Share of private sector 40.3 54.7 39.7 56.9
Others 1.7 0.8 1.2 0.6
Total 100.0 99.9 100.0 100.0
Sources: NSSO, 1992, Statements 13R and 13U, pp 67-68, Statement 2R and 2U, pp 53-54. NSSO,
1998, Table 4.10, p22; Table 4.16, p28.
Although most people consult private private practitioners and teaching hospitals are
practitioners for minor illnesses, they depend on better (Renu, 1995).
public facilities for acute illnesses that require Some micro-level studies have lent empirical
hospitalization and for maternal care (Yesudian, support to the NSSO's conclusion that a
1999). However, a recent study of the pattern of majority of urban residents use the private sector
use of municipal health services in Mumbai for both inpatient and outpatient care. For
showed that a majority of households in all example, in places like Mumbai, the municipal
socioeconomic groups used the private sector for corporation has not been able to expand its
both minor and chronic ailments. There are medical infrastructure to cover the suburbs,
probably several reasons for why public services which ultimately led to private facilities
are used so little, including the large number of emerging in those areas in response to that
different agencies that run public health unmet need (Yesudian, 1999). Where public
facilities, the absence of any proper coordination facilities did exist in Mumbai, the higher levels
among them, and the resulting inefficiency. of services tended to be used more than the
Some other factors that might be responsible for lower level services because they were
this pattern are inconvenient opening times, long perceived to provide services of better quality in
waiting times, the non-availability of medicines, terms of manpower and supply of drugs
and the feeling that the services provided by (Yesudian, 1994). This has often over-burdened
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Health System Issues, Challenges, and Options:
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these higher-level facilities, leading them to health care providers in urban areas do not follow
become inefficient and causing their quality to any norms either with regard to the use of
slide. At that point, the private practitioners in physical infrastructure (such as the amount of
the vicinity are available to provide personalized space per bed or the provision of certain utilities)
care immediately (Renu Garg, 1995). So we can or the structural aspects of care (what medical
see that the model of health care in urban areas and paramedical personnel they employ or what
is heavily dualistic, in which the rich can afford services they offer). The important problems
the health care necessary to extend their lives cited by these studies are a lack of physical
whereas the poor are barely able to survive. standards, inadequate space within hospitals (a
majority of nursing homes are substandard, most
The general increase in health care demand of them being housed in tiny flats), the absence
coupled with the inability of public hospitals to of trained personnel (especially qualified
provide adequate medical services has nurses), a lack of labor rooms in maternity
accelerated the growth of the private health homes, poorly lit and dirty wards and beds, and
sector in India. The demand-supply gap for the failure to keep records of diseases, births,
public health care delivery is large and growing, and deaths (Nandaraj and Duggal, 1997 and
and this gap is increasingly being bridged by Muraleedharan, 2001). This has led to the
private health care institutions. The general medically unjustified use of technology and the
increase in personal income levels and the existence of a complex network of arrangements
corporatization of care in urban areas have between the physicians in the government
turned health care into a commodity like any sector, the private hospitals, and local diagnostic
other, available only to those who can afford to centers. These types of mutual arrangements
pay for it. The urban health care industry is have a definite bearing on the cost of care since
booming, with a host of private hospitals most payments are made by patients out of their
offering state-of-the-art services for the rich and own pockets on a fee-for-service basis. This
the middle class. The increasing availability of complexity makes it extremely difficult to frame
advanced medical technologies has increased policies to regulate private health facilities.
demand for these services. The changes in Even in areas where private provision seems to
disease patterns due to the epidemiological be theoretically harmless, there are many ways
transition, the easy availability of financial in which this market works against the
resources, and the easing of import restrictions consumer, such as the asymmetry of information
have all contributed significantly to this rapid between the provider and the patient and a lack
influx of medical technology. of recorded information about the incidence and
outcomes of treatment. In such chaotic markets,
This increase in the private health sector has the user is helpless (Berman, 1997), and
given rise to some problems. These include the competition by itself is a poor efficiency-
fact that the private sector has no profit incentive enhancing device, especially when the consumer
to get involved in disease prevention, that they is unable to judge the quality of the services
tend to over-charge, that they induce being offered (Dr�ze and Sen, 2002).
unnecessary demand for certain services, and
that there is no genuine quality assurance Rural Health: A Pathetic Plight
mechanism to govern their operation. The
private sector is so heterogeneous that it ranges Although this paper deals with urban health
from large corporate hospitals to small five-bed services, it might be helpful to have a quick look
nursing homes and from solo practitioners with at the situation in the rural health sector before
questionable qualifications to practitioners who we move on to question of what happened to the
have medical degrees in indigenous medical Indian health services in the 1990s. According
systems but also practice modern medicine. It to the National Sample Survey Organization
also includes diagnostic centers offering data, more than 53 percent of the rural
numerous services. Various studies have population (Table 1) have their health care needs
established that the vast majority of private met by private practitioners (NSSO, 1998).
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Health System Issues, Challenges, and Options:
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Although rural areas are poorer than urban ones care services is forcing the poor to seek care
and absolute poverty dominates in rural areas, from the private sector, even if they would
some private practitioners do exist in the rural prefer to be treated at public sector facilities
areas. There are other estimates that 1 million (Dilip and Duggal, 2002). A recent analysis has
illegal practitioners are managing 50 to 70 revealed disturbing details about Indian public
percent of primary consultations in rural India health expenditure in the 1980s and 1990s. For
(Misra et al, 2003). Their existence is often a example, the share of health expenditure in the
result of the non-availability and inaccessibility major states fell significantly in proportion to
of public health services of decent quality, and total government expenditure from 6 to 7
these practitioners are somehow meeting the percent in the 1980s to just over 5 percent in the
unmet needs of the rural residents. However, 1990s (Selvaraju, 2001). In real per capita
existing data sets do not adequately answer such terms, public expenditure on health has
important questions as what types of private increased, but the distribution of resources
providers exist in rural areas and how much they among primary, secondary, and tertiary care
are used by each different income group. does not accord with national policy as the
allocation for primary and secondary care is
Several studies have confirmed that the main growing more slowly than the allocation for
determinant of the establishment of private tertiary care. Also in many states, the growth in
practice are the purchasing power of the local health expenditure was fully absorbed by the
consumers (Baru, 2000). Since health care is salary bill, leaving little left over to finance
often a necessity, even the poor tend to over- development activities, maintenance, drugs, and
commit their resources, and this becomes the other consumables. This situation is very
source of the livelihoods of these practitioners. alarming with regard to the quality of care, user
Other reasons for the popularity of the private satisfaction and use, and the performance of the
medical practitioners in rural areas are that they system. While there had been a steady
dispense medicines that are culturally expansion in the number of facilities at least
appropriate (though not necessarily effective) until the mid-1980s, there is widespread
and that they accept fees in instalments and even evidence that quality has deteriorated
on credit. This is an indication of the dire state substantially in recent years. Many health
of the health sector in the rural areas of India centers are in desperate need of repairs,
(which is where the majority of the Indian poor physicians and supporting staff are either not
live), characterized by a lack of choice and the available or not accessible, drugs are available
potential for exploitation by unregulated private only occasionally, and facilities are
providers. characterized by inconvenient opening times and
an absence of privacy. Meanwhile, this period
Indian Health Care Scenario in the 1990s of decline in investment in public health
infrastructure in the 1980s and 1990s has led to a
A Changing Landscape steady increase in the growth of the private
sector (Narayana, 2001), which may be reducing
The health care sector in India has changed access to health care in poorer regions and states
during last two decades as the private sector in India (Krishnan, 1995). This growth is
has come to play a growing role in manifesting itself as the expansion of existing
providing both inpatient and outpatient facilities, the establishment of new ones, and
care (NSSO, 1998). The decline in the use of investment in buildings, equipment, diagnostic
public health care services is mainly a function facilities, and plush surroundings (Narayana,
of the decline in public health investment 2001).
during the same period (GOI, 2001). The
private sector is not only used by the Increasing Cost of Treatment: Equity in Access
upper and middle classes alone but also by Suffers Further
the poorer classes (Dileep, 2002). Studies have
shown that the non-availability of public health An analysis by Sen et al (2002) contains some
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Health System Issues, Challenges, and Options:
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interesting findings on the cost of seeking care in from private health services, and this happened
the 1990s. For example, with regard to seeking even in poorer states. The biggest fall in use of
outpatient care, the difference in cost was only 5 the public sector for outpatient care has been in
percent less in the public sector than in the private the public hospitals whose share decreased
sector in rural areas and while it was 8 percent from 22.6 to 15 percent in the urban areas
lower in urban areas. However, with regard to between mid 1980s and the mid-1990s (NSSO,
seeking hospital care, the difference in 1998). Compared with the mid-1980s, the
expenditure was 129 percent and 213 percent less costs of both outpatient and inpatient care have
in the rural and urban public sector hospitals risen in both rural and urban areas. A study
respectively compared with the private sector. by Sen et al (2002) revealed that between
Although use of public hospitals varied 1986-87 and 1995-96 outpatient costs per illness
considerably across states, public hospitals episode in rural areas went up by 142 percent in
provided an important alternative to the private the private sector and 77 percent in the public
sector and at significantly lower cost. Inequality sector. In urban areas, private outpatient costs
between the rich and poor in their use of in- increased by 150 percent compared with 124
patient care was also considerably less percent in the public sector. The urban-rural
indicating that even the middle classes could not price differential for outpatient care rose from
afford the price of inpatient treatment. This may 1.04 in 1986-87 to 1.10 in 1995-96. The trends
be a reason for the continuing popularity of in the costs of in-patient care between 1986 and
public sector for inpatient services in the 1980s 1996 are more dramatic. Average costs
and 1990s. spiralled by 436 percent in rural areas and by
320 percent in urban areas (Table 3).
In the 1990s, large numbers of people were
forced to leave the public sector and seek care
Table 3: Average Expenditure on Medical Care: All-India, A Comparative Picture,
1980s and 1990s
(Rs per illness episode/hospitalization)
Rural Urban Urban-Rural
Ratio*
Outpatient care 1986- 1995- Percent 1986- 1995- Percent 1986- 1995-
87 96 change 87 96 change 87 96
Public sector 73 129 77 74 166 124 1.01 1.29
Private sector 77 186 142 80 200 150 1.04 1.08
Total 76 176 132 79 194 146 1.04 1.10
Private: Public Ratio 1.05 1.44 1.08 1.20
@
In-Patient Care
Public sector 320 2080 549 385 2195 470 1.20 1.06
Private sector 733 4300 486 1206 5344 343 1.64 1.24
Total 597 3202 436 933 3921 320 1.56 1.22
Private: Public Ratio 2.29 2.07 3.13 2.43 -- --
@
Notes: @Measures the private-public differential in average expenditure.
*Measures the urban-rural differential in average expenditure
Sources: NSSO, 1992, Source Table 11.00, p S-516, Statement 6, p 59.
NSSO, 1998, Table 4.19, p32; Table 4.21, p33.
The spiralling costs of inpatient care were also sector compared with the private sector in
particularly evident in institutions in the public both rural and urban areas. Between 1986-87
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Health System Issues, Challenges, and Options:
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and 1995-96, the private-public cost ratio for performs better than its urban counterpart,
outpatient care increased from1.05 to 1.44 in rural which is not the case in many other states. The
areas and from 1.08 to 1.20 in urban areas. For kind of social development that occurred in
inpatient care in contrast, the private-public cost Kerala (a high physical quality of life despite
ratio actually fell from 2.29 to 2.07 in rural areas low rates of economic growth) has been
and from 3.13 to 2.43 in urban areas (Sen et al, described as the "Kerala model" although it has
2002). This narrowing of the public-private increasingly become fashionable to disown the
expenditure ratio may partially explain why same even by its own parents. In effect, Kerala
patients have abandoned public services in favor has offered something new in the area of health
of private ones. Studies by KSSP (2000) of care delivery, which can be called "good health
Kerala and Prabhu and a few others showed that at low cost."
the proportion of spending on treatment by
households inthe poorest income groups had risen Is the "Kerala Model" Vanishing?
sharply between the 1960s and the 1990s.
Although these studies are silent on the quality Even before the Indian states began to be run by
of care as a factor in this total expenditure, they elected governments in the 1950s, there was a
do present evidence of rising expenditures and strong foundation of public health services in
increasing inequity in medical spending by the Kerala (Kutty, 2000). This led the policymakers
population of these states. of the new state to accept that health care had to
be an important component of the social
The Kerala Health Care System - the development of the population. The socialist
Trailblazer governments that took power in the early days
made tremendous efforts towards reducing
Kerala's health system is a very interesting case poverty and other forms of inequality by not
in that it has produced improving social and only by investing in health services but also by
health outcomes even while the state has been introducing land reforms and educational
experiencing comparatively low income growth. reforms. They did this partly as a result of
This has caused the State of Kerala to be pressure from the public in the form of popular
described as a trailblazer in the area of social debates in the press, public opinion as expressed
and human development in India. The success through electoral politics, and public rallies and
of Kerala's health system is due to its strikes. This was reflected in the increased
accessibility to the people of the state in three resource allocation to the social sectors, thus
dimensions � geographical, economic, and making per capita public health care spending in
social. The state government ensured that health Kerala the highest in the country. For example,
services were physically accessible by the annual compound growth rate of government
improving the transportation system connecting health expenditure for the period (at current
the interior areas of the state and encouraging prices) was 13.04 percent, and this expenditure
the establishment of many health care was growing by 12.45 percent. The
institutions by both the public and private government's increasing allocations to the health
sectors in rural areas. It ensured financial sector continued until at least the mid-1980s.
accessibility by enabling public health services This is also the period in which there was the
to provide more and better services, thus largest increase in public sector hospital beds
minimizing the extent to which patients had to (Table 4).
resort to expensive private sector care. At the
same time, the progressive social organizations
in the state played a vital role in ensuring social
accessibility by means of effective political
participation and increased literary and
awareness programs. The rural health system
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Health System Issues, Challenges, and Options:
Reflections on China, India, and Kerala
Table 4: Growth in Number of Government Beds in Kerala
1961 1971 1986 1996
Year
Number of 13000 20000 36000 38000
Beds
Source: Kutty (2000)
However, after this period, the state inadequate resources and reduced efficiency,
government's allocation to the health sector which have led to a decline in the quality of
began to decline, and after the mid-1980s, the care. This is happening at a time when the cost
expansion of the sector began to slow down of health care is increasing at a rate much higher
substantially. There were at least two main than that of general commodities due to the
reasons for this decline in public resources for increasing availability of expensive diagnostic
health care. First, the state economy went into technologies (Varatharajan, 2004). By the mid-
decline with the stagnation of both the 1990s, the fiscal crisis had assumed such serious
agricultural and industrial sectors, which caused proportions that the government's checks
state government resources to shrink even as its bounced because of the paucity of funds in their
commitments increased substantially. By the accounts. Nor was the government able to pay
late 1980s, capital expansion in the health sector the suppliers of medicines and consumables for
had come almost to a standstill and the recurrent hospitals (Varatharajan, 2004). Since that time,
budget, while still going up, was almost there has been a virtual halt to the creation of
completely dominated by salaries, leaving little new health care infrastructure, and maintenance
money available for supplies and equipment. As of the existing structures has also suffered a set
could be expected, the quality of care in the back in the last decade. This has put an
public sector went down, and the private sector increasing financial burden on patients because.
exploited this opportunity by expanding.
While government revenue stagnated compared
The second reason why public resources for the to its expenses, health care was not affected
health sector decreased was that the public in much. However, analyses have shown that the
general and the political parties in particular no increased budget allocation for health care in
longer put health care at the top of their agendas. recent times was spent on increased salary
Political discourse in the state had become much expenditure and not on maintenance or drugs
more preoccupied with matters of "power and supplies. Also, the changes in the delivery
politics" including those related to caste and system put a tremendous financial burden on the
community issues. The media, which had population because of the higher costs of
played a critical role in the past in promoting treatment. Some estimates from the state show
funding for the social sectors, failed to keep the that the poor spend 40 percent of their income
pressure on the political parties on these social on health care, an almost five-fold rise between
development issues. This has allowed the state 1987 and 1996, while the rich had to spend only
government to let health care services slip down around 2.4 percent, almost the same proportion
its list of priorities. as they were spending in 1987 (Kunhikkannan
and Aravindan, 2000). Besides, national-level
Achievements Shaken data highlight the fact that the state has one of
Thus, the Kerala "model" public health care the highest level of user fees for public health
system is facing serious problems, including services in the country, which must be having a
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Health System Issues, Challenges, and Options:
Reflections on China, India, and Kerala
negative effect on the affordability of health care play in offering the elderly a hassle-free
(Peters et al, 2002 and Government of India, existence at the end of their life. This may mean
2002). There is no exemption mechanism, providing them with better social security
which means that few of the poor can afford to arrangements (Kerala has a better track record in
access public health care any longer. this respect than the rest of India but not by
international standards), free public health care
The picture on the pattern of diseases in Kerala for those over 60 or 65, and/or more extended
is complex. Diseases that tend to affect the poor care units attached to health facilities.
such as TB, malaria, and other infectious
diseases coexist with a rising incidence of non- Some scholars feel that a tolerably efficient and
communicable diseases and injuries as a result almost equitable public health service often
of the state's premature epidemiological serve as an important competitive factor in how
transition. Leaving aside the debate on the private hospitals determine their treatment
methodology of morbidity measurement in the prices. In an analysis of NSSO data, Krishnan
state for the time being, 142 health surveys reveal (1995) reached the conclusion that however high
that the state has high morbidity at 110 per 1,000 the charge in government hospitals may be, the
population but with generally low mortality. price in private hospitals will be even higher.
However, the prevalence of morbidity among He further pointed out that one of the
the elderly is disturbingly high at 234 per 1,000 considerations that private hospitals take into
population with chronic ailments accounting for account in determining their inpatient charges is
the major share (in 1995-96). The to add a mark-up over and above the cost of
hospitalization rate in Kerala is also quite high treatment in government facilities. Public
compared with other Indian provinces. Once hospitals act as "shock absorbers" for a large
again, there is a higher level of hospitalization majority of people who incur catastrophic and
among the elderly who have a prevalence of 155 impoverishing medical expenditures. High user
per 1,000 while the average for the state is 68 charges based on the principle of cost pricing
per 1,000 (in 1995-96). may have both indirect and direct effects on the
efficiency and equity of health service provision
This has important implications for the care of in the state as well as on access to and use of
the elderly. First, as the elderly have higher health services.
hospitalization and morbidity rates, they need
more medical care, which can put a heavy The inequity that crept into the system slowly
burden on their household's finances. For but steadily has given rise to issues of grave
example, one study (Narayana, 2001) has found concern. The belated realization by the state that
that the presence of an elder member in a the centralization of the decision-making process
household explains its high health care might be one reason for the inefficiency of
expenditure. Second, since a large number of governance and management as well as for the
old people are economically dependent on inefficiency and rising inequity of the public
others, the care they get is often sub-optimal. health care sector led to a paradigm shift in
Evidence for this assertion can be found in the thinking. Policymakers began to embrace a
many studies of how household decisions are decentralized development philosophy based
made, which have shown that the intra- upon the needs and aspirations of local
household allocation of money and time varies communities.
depending on the age, sex, and social status of
the household member. In other words, women, Political Decentralization -The New
children and the elderly tend to lose out. Development Rhetoric
Clearly, the state or any other third party with a
pure non-profit motive has got a vital role to Decentralization, if implemented effectively, is a
mechanism capable of changing governance at a
142 See Kumar, 1993 and Panikkar and and Soman, fundamental level and can be an engine of
1984 for better insights on this issue. change especially in rural areas. Ideally,
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Health System Issues, Challenges, and Options:
Reflections on China, India, and Kerala
decentralized structures are geared towards highest priorities (Nayar, 2001).
achieving national goals while responding to
local needs. In principle, the central government However, for the last few years, there have been
would provide the maximum possible resources several major hurdles that have prevented
and other technical expertise to regional and decentralization from being implemented
local governments, which in turn would be effectively in the state. These include the timing
responsible for responding to and meeting its of the allocation of funds, conflicts of interests
community's needs (Segall, 2003). Effective among the people, politicians, and bureaucracy,
democratic decentralization requires some of the the inability of the local political leadership to
important following elements: (i) devolving convince health service policymakers at the
adequate resources to lower levels of national level, and a lack of clarity about the
government; (ii) giving functional and financial roles of the panchayat in the implementation of
autonomy to all levels of government; (iii) state-level and central government programs.
requiring that these funds are used in accordance Bureaucrats at the national level usually resist
with a democratically decided and pre-specified any erosion of their power, and this is a
development plan, and (iv) building the continuing problem for Kerala. Notwithstanding
capabilities of regional and local governments to these problems, the decentralized political
use resources effectively and transforming civic structure has facilitated progressive changes in
culture to encourage democratic participation many sectors.
by people at the grassroots (Chandrasekhar,
2004). Action Plan for Health Financing in Kerala
within the Decentralized Government
Decentralization - the Kerala Way Structure
The media have depicted Kerala's experiment From the above discussion, it is clear that access
with decentralization as an alternative to health care in Kerala is severely limited by a
development model for developing countries in lack of a financing mechanism that takes into
the face of globalization. It has also been seen account the disease priorities of the population.
as a new development paradigm in which Tax-based financing, community financing, and
participation is to prevail over pressure group social insurance are the major alternatives that
politics. are feasible in the Kerala context. The
decentralized government has to play a key role
Political decentralization as it has evolved in in both organizations as well as in mobilizing
Kerala departs from the model outlined above in resources especially from taxes and community
several important ways (Issac, 2000). The financing. Tax based financing is likely to be
decentralization process was converted into a the most feasible option because the other
mass movement within a broad legislative mechanisms have been found to be less effective
framework in the state. It has also followed a in meeting health care needs. Although
pure bottom-to-top approach, which in practice government spending on health in Kerala is
means that the local population is empowered to higher than in other states, it still accounts for
discuss, decide, and implement programs on less than 1.25 percent of the state's GDP.
their own. Because of previous land reforms in Overall, the state needs to increase this
Kerala, the lower socioeconomic groups are allocation as both the state and the central
freer to participate in this decision-making than governments have elastic and buoyant tax
their counterparts in other states who are revenues. Moreover, tax-based resource
severely restricted by their dependence on their allocations have been shown to enhance the
landlords. As for the health sector, an analysis efficiency and equity of health services. As for
of the development reports prepared by a few user fees, they cannot be raised any more as they
panchayats in the state shows that the local are already at higher levels and it is certainly not
populations view issues related to health care, feasible to introduce them at the level of primary
especially preventive care, as one of their care. Since estimates reveal that majority of out-
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Health System Issues, Challenges, and Options:
Reflections on China, India, and Kerala
of-pocket health care expenditure (more than 50- any payment obligations. The larger the number
60 percent) is spent on ambulatory care, it ought the citizens who participate, the better the check
to be possible for a well-functioning public on different types of fraud.
health services with a strong emphasis on the
rural and urban primary and curative care to Kerala's specific advantages include a literate
reduce the financial burden on patients. The population, a high level of public participation,
strength of the state is that it is already doing better administration and governance because of
well with regard to equity and efficiency decentralization, and a relatively empowered
compared with other states. Community health female population. The financial situation of the
insurance or any other insurance usually fails local self-governments is relatively satisfactory.
because administering small cases is costly for However, the obvious constraints of LSGs
the insurers who do not generally cover high should be borne in mind. For example, major
probability events like ambulatory care. So decisions cannot be left to their sole discretion
pumping fresh resources into regulating private as this may lead to a loss of direction. They may
practice would go a long way towards helping not also be able to function as independent units,
patients to access and afford care. The as this might result in geographically poor and
decentralized government of Kerala has a vital underdeveloped areas suffering even further
role to play in looking after the management The decentralized governments cannot also be
aspects and ensuring the quality of care by expected to deliver all levels of care,
ensuring the timely and uninterrupted supply of particularly, specialist tertiary care.
drugs and medicines, maintenance of facilities,
and other important components of recurrent Conclusion: Whither Health Care Financing?
expenditure.
This analysis of India's health services in
As for the funding of inpatient care, the picture general and the Kerala health system in
becomes more complex because there is a need particular has shown that the country has a long
for more public and private facilities. In the way to go in achieving acceptable levels of
formal sector, where around 10 percent of the health outcomes. The available data show that
state's workforce is employed, patients may be the Chinese health system, which used to be
covered by the existing social and group seen as an encouraging example for many other
insurance mechanisms, and the need here lies in developing countries, seems to have faltered in
increasing the efficiency of the providers and the recent years. As for India, although
organization. Community financing could be an policymakers after Independence planned to
important way to reduce expenditures on build a strong foundation for an egalitarian
catastrophic illness for people in rural areas and health care system, its implementation has fallen
in the informal sector. Community financing far short of this goal. However, there is no
schemes organized by LSGs with a community dearth of ideas as well as success stories in the
risk rating can be a complementary financing country. The stories of Kerala and, more
method. All the individuals in a respective recently, of Tamil Nadu and Himachal Pradesh
panchayat area can be members by paying a have shown that wherever there has been public
nominal premium per month. These schemes pressure coupled with progressive state action,
can cover both secondary and tertiary care up to there have been tangible and encouraging results
a certain amount and can include costly on the ground.
outpatient care as well. Two years is a good
period of time for piloting the project, and five To bring about sustainable improvements in the
years is appropriate for full-fledged health status of their populations, both China
implementation. The household has to be the and India are going to have to reduce their
minimum unit for entering the scheme to avoid reliance on household financing and ensure that
adverse selection and the question of intra- in future a large share of the health system's
household allocation of resources as much as budget comes from the state and from
possible. The poor have to be fully exempt from employers. Since the market often fails in the
160
Health System Issues, Challenges, and Options:
Reflections on China, India, and Kerala
health sector, effective state action is essential to medicines. The drug procurement and delivery
ensure efficiency. However, it is not enough to system in India needs a thorough overhaul, and
solve financing issues alone; broader issues like the country can learn from the experiences of the
human resources management and the structure State of Tamil Nadu in this respect. As for the
and content of medical education may also need State of Kerala, its past achievements are indeed
a fresh look. Revising the current "essential satisfying, but a lot more needs to be done in the
drug strategy" that takes into consideration the future. As health and health care are integral to
changing epidemiological and demographic the survival of the individual, inequities in
profile of the country (as has been done by access to health care based on ability to pay or
WHO) may increase access to essential any other factor will undoubtedly affect the
health of the population and the development of
the nation itself.
161
Health System Issues, Challenges, and Options:
Reflections on China, India, and Kerala
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163
Summary of the Discussion
Peter Berman
The World Bank and Harvard University
Following the presentation of the two papers, operated health care system intended to provide
there was a wide-ranging discussion about the universal coverage of a fairly comprehensive
two country cases � China and India � and the package of benefits. However, as of today, there
broader issues that they raised. are few examples of such systems that have been
sustainable in developing countries.
The Importance of Providing Health Social
Security in Rapidly Industrializing Countries The papers on India and China provided
different examples of the development and
The participants were in agreement that subsequent decay of such systems. In China, the
providing health social security in rapidly state initially succeeded in delivering services
industrializing countries is vital. The discussion that achieved substantial and widespread health
examined this question from two key improvements. However, since the Chinese
perspectives. First, whatever approaches are government decided to embrace market
taken by China and India to provide health care economics on the advice of the Cato Institute, it
to their populations will have global economic gradually began to limit the extent to which
ramifications. Both countries are rapidly these services were financed from the public
emerged economic powers that increasingly budget even as health expenditures as a
compete with the more established industrialized percentage of GDP increased and few health
countries. The rising costs of health social improvements were achieved. Today, while
security in the more advanced countries are most health care is still delivered by the
increasingly threatening their economic government, health facilities function largely as
competitiveness. Similarly, the ways chosen by quasi-private entities and are largely financed by
newly industrializing nations to provide health private, out-of-pocket spending. Joseph Wong
care will affect their ability to compete with the noted that the Chinese may tolerate social
wealthier economies either negatively or inequality if it is merit-based but not if it is
positively. based on unfair economic policies.
Second, both India and China, by dint of their In India, ambitious goals to develop a national
size and relatively low income levels, have health service were set in the early years of the
major effects on global welfare outcomes in independent state. However, the state never
terms of both health and financial protection. provided sufficient financing to develop these
The World Bank recently estimated that India's services. Even in Kerala, which historically had
progress in achieving the Millennium a strong state commitment and many early gains
Development Goals for health and poverty in health indicators, economic realities have
reduction will largely determine the world's undermined these ambitious goals. Today, the
success in achieving these goals. And as this health care systems in India in general and in
session's featured papers made clear, there are Kerala in particular are largely privately owned
currently high levels of household out-of-pocket and financed by household out-of-pocket
spending on health in both countries, which is a spending.
major cause of impoverishment.
The experience of both countries suggests that it
The Unsustainability of Past Efforts is difficult for state-oriented health care
strategies to succeed in liberal and pluralistic
Most countries in the developing world have developing countries. Both China and India are
followed similar patterns in providing health now having very significant problems providing
care to their populations. The dominant financial risk protection to their populations, as
international model has been of a national health unexpected increases in health care expenses are
service � a tax-financed, government-owned and emerging as one of the main causes of rising
164
Summary of the Discussion
household impoverishment. While China's John Campbell and Joseph White raised
overall health achievement currently exceeds questions about precisely what problem needed
India's, both countries face significant to be solved � the problem of increasing access
challenges in maintaining health gains as well. to care or providing effective financial risk
protection? The necessary strategy in each case
Ways Forward? was likely to vary widely. For example,
increasing access to care might require the
The discussion then focused on alternative ways existence of a well-run basic health care service,
to provide health services and financial risk whereas providing effective financial risk
protection and to ensure consumer satisfaction. protection would require more sophisticated risk
pooling and purchasing systems. But John
In China, the government has recently Campbell wondered whether a widespread or
recognized that there is an urgent need to universal insurance system was even possible in
address the deterioration of the health system in societies with such high levels of inequality?
terms of its ability to provide widespread
benefits. However, the government also Participants also noted the importance of the
increasingly accepts the realities of market strategic decisions that are being taken today for
conditions. William Hsiao noted that under the future of health in these countries. Michael
these conditions in China health care inflation Reich, Soonman Kwon, and others noted the
has exceeded economic growth by a wide issues of "stickiness" and "path dependence."
margin. Shaoguang Wang noted that even the Michael Reich expressed the opinion that it was
more affluent are struggling in the new system. not possible to envisage going back to the pre-
This gives an impetus to the argument that the reform ways of doing things. Naoki Ikegami
state should play a bigger role in raising wondered if, once providers became accustomed
financing and regulating and guiding the health to higher earnings, this could ever be reversed.
system, while making use of market-based How the governments of China and India
mechanisms such as financial incentives to try to balance the roles played by the state and the
improve outcomes. William Hsiao also noted private sector in health is likely to have an
that local authorities have recently had some impact far into the future. Shigeru Tanaka linked
success in providing care to rural populations at this issue with how to ensure that a market-
very modest costs. based system is fair and allows equality of
access to care. William Hsiao stressed the need
In India, the health system has not yet been seen for a two-tier system in China, one based on
as a high priority for the state, and government social insurance for urban areas and the other
funding for health care remains very limited. based on community pre-payments for rural
Some Indians are now arguing for returning to a areas.
model in which the state is responsible for health
social security, even though in urban areas of One interesting issue was the difference between
India, there is a thriving and dynamic private India and China in terms of the amount of
health sector that looks to international sources political attention each government was giving
of technology and even patients. One strategy to health sector issues. What makes leaders
that is currently being developed, especially in recognize a problem that needs their attention?
Kerala, is decentralization � giving greater Is it easier for clear and effective strategies to
control to local authorities over government emerge under more authoritarian regimes than
health care � as a way to increase its positive under more democratic ones?
impact.
165
Chapter 5: Summary and Interactions of the Key Points
Practical Issues in Priority Setting in Health Care
Wendy Edgar
Ministry of Health, New Zealand
As a public servant working for the that a simple list of services was not sufficient
Government in New Zealand, I am always because it was too black and white, it would
conscious that health funding is finite. The rapidly become out of date as new
health sector in New Zealand receives a technologies and treatments developed, and it
defined annual allocation of funding and must implied a guarantee of access to any listed
achieve the best possible outcomes from that service regardless of a person's health need or
funding. Therefore, priorities must be set. clinical ability to benefit. The NHC
recommended that the government should
These brief remarks will focus on two aspects develop "qualified lists" based on evidence of
of priority setting, with practical examples clinical benefit rather than a simple list of core
services.
from New Zealand but with generic issues in
mind. The two aspects are the resource Although different from the original task set
allocation process and setting priorities on the for the NHC, the government accepted the
delivery side. committee's advice not to adopt a list approach
but instead to define or qualify the terms of
The Resource Allocation Process � "Core access to services that are already funded and
Services" provided. The NHC was given additional
funding of NZ$4 million over three years to
Some countries identify the services to be work closely with clinicians and service
covered by health funding by drawing up a list funders to define when services should be
of "core services." However, these countries publicly funded - that is, in what clinical
usually fail to devise a priority list of services circumstances the services would be
taken out of context of the clinical situation. beneficial, who should receive the services
Even cosmetic surgery, seen as a low priority first, and how long they should have to wait.
by many people, should be publicly funded in
certain clinical circumstances (for example, for After the three-year pilot phase from 1993 to
people who have suffered severe facial 1995, responsibility for developing guidelines
disfigurement). The state of Oregon is the best was devolved to an independent organization,
known example of a jurisdiction that has taken the New Zealand Guidelines Group, which
the list approach, but in Oregon, the list is works with clinicians, academics, other
supported by guidelines that define clinical experts, and consumers. The Group takes the
factors for access to the condition-treatment cost-effectiveness of interventions into account
pairs in the list. as well as their clinical effectiveness in
devising the guidelines. The government
In New Zealand, the National Health continues to fund the development of the
Committee (NHC)143 advised the government guidelines a decade after the NHC
recommended this approach and advised
against a simple list of core services.
143The National Advisory Committee on Health and
Disability (NHC) was set up by the New Zealand Two examples of New Zealand service
Government in 1992 to advise the government on the
health and disability services that are a high priority
for public funding. It is a highly credible body, made
up of leading health professionals, academics, and charged to lead the discussion on setting health
representatives of communities and consumers, priorities.
166
Practical Issues in Priority Setting in Health Care
guidelines follow.144 mildly raised blood pressure. Thus, the NHC's
original advice is still current today.
Guideline for the Management of Mildly Guideline on Population Screening for Prostate
Raised Blood Pressure Cancer
Raised blood pressure has been regarded as a The advent of the Prostate Specific Antigen
disease that must be treated. The guideline (PSA) test has led to growing calls for a
recommends a different approach for mildly national prostate cancer screening program,
raised blood pressure � that it should be even for men without symptoms. However,
regarded as one of a number of risk factors for the PSA test can result in false positives and
heart attack or stroke. Making a decision false negatives, requiring patients to undergo
about treatment would then require a doctor to further examinations including biopsies to get
assess all risk factors and to estimate each a definitive diagnosis. People without cancer
individual's total risk of stroke or myocardial may be needlessly worried, and there are risks
infarction. The guidelines recommend taking associated with the further examinations.
the same approach to decisions about how to
manage raised blood lipids.
The guideline clearly recommends further
The guideline contains a very simple risk chart examinations for men with symptoms. It also
(see Figure 1). Doctors use the chart to discuss acknowledges that prostate cancer remains an
treatment options with their patients, informed important public health problem in New
by an understanding of the absolute five-year Zealand.
risk of a cardiovascular event.
However, after weighing the risks and benefits
Younger patients with a low risk of such an of a national screening program for men
event may choose to reduce their weight, get without symptoms, the guideline states "there
more exercise, stop smoking, and reduce the is still no conclusive evidence to demonstrate
amount of salt and fats in their diet in whether screening for prostate cancer reduces
preference to going on medication mortality or morbidity, and there is significant
immediately. This approach has obvious potential for harm. The National Health
benefits including involving patients in their Committee does not currently support
own wellness, limiting pharmaceutical use in population-based screening for prostate cancer
clinically appropriate circumstances, and or opportunistic screening using PSA or digital
thereby reducing costs. The patient's condition rectal examination for asymptomatic men in
is monitored regularly to assess whether the New Zealand. Men considering a PSA test
treatment decision needs to change. need to be fully informed of the potential risks
of prostate screening and be provided with
There was some controversy about this advice. detailed information about its limitations, the
First published in 1992, the guideline was possible diagnostic and treatment choices, and
revised in 1994 after some practitioners outcomes."145
expressed concern about the recommended
approach. During the revision process, all This advice is also controversial, and the
views were reviewed in a public process, and National Health Committee has undertaken to
eventually the review panel confirmed the review the guideline regularly in the light of
original advice to take a total risk approach to any new evidence.
144A significant number of other guidelines have
been developed or adapted in New Zealand. These
are accessible at the following websites:
http://www.nhc.govt.nz and www.nzgg.org.nz. 145 National Health Committee, Prostate Cancer
Screening in New Zealand: Report to the Minister of
Health, NHC, Wellington, April 2004.
167
Practical Issues in Priority Setting in Health Care
Figure 1: Risk Chart of Cardiovascular Event
168
Practical Issues in Priority Setting in Health Care
If a man insists on being tested for PSA despite with beta blockers, replacing the pre-
questionable grounds, this is allowed but the guideline preference for ACE Inhibitors,
patient has to pay for the test. In the case of and calcium channel blockers
some practitioners who are not convinced of � Whether incentives are put in place to
the risks or harm of screening, compliance encourage primary care practices to adhere
with the guideline is an issue. However, there to the guidelines (such as budget-holding
is a consumer pamphlet that gives clear for pharmaceuticals, where a primary care
information to patients, and with that and the practice manages an annual allocation of
guideline for health professionals, an informed funding for all pharmaceutical needs of the
discussion can take place between patient and patients in that practice, which has
doctor about the risks and benefits of PSA influenced doctors' prescribing patterns
testing. and made them give more consideration to
Status of Guidelines and Practitioner cost-effectiveness).
Compliance Priority Setting on the Delivery Side �
Increased Emphasis on Primary Care
Practice guidelines in New Zealand are advice,
not protocols. They apply in usual In New Zealand, hospital services are free but
circumstances and always require doctors to
use their clinical judgment about when and patients are subject to substantial co-payments
how to apply them. They are not prescriptive for primary care. This has prevented patients
and have no regulatory implications. from seeking care in the early stages of their
medical conditions. Instead, this has
However, doctors are increasingly seeing the encouraged them to use the emergency
guidelines as an authoritative summary of services of the local hospital (which are free to
clinical evidence to guide their treatment them but are expensive to the government) or
decisions. The level of confidence in the to delay seeking treatment until they are much
evidence is clearly indicated. The New sicker, which often results in avoidable
Zealand Guidelines Group provides the admissions to hospital.
guidelines either in hard copy or on a website
to any person free of charge. Since October 2003, the government has made
a conscious decision to substantially increase
The New Zealand experience suggests that the funding for primary care. Its objectives are to:
extent to which doctors adhere to such
guidelines and comply with their advice
depends on the following factors: � Increase access to and the affordability of
primary care services
� The moral authority and reputation of the � Ensure that people receive care as early as
guideline developers, based on the strength possible to reduce avoidable hospital
of the evidence that they present in support admissions
of their guidelines � Encourage doctors to increase their
� Whether there is anonymous peer review emphasis on wellness
of prescribing and treatment decisions and � Promote greater patient participation in
whether formal discussion groups are their own wellness
conducted for professionals in a practice to � Improve health status indicators and close
explore the reasons for treatment decisions health status gaps or disparities between
� Whether research findings exist to back up population groups
the guideline; for example in the case of � Reduce disability associated with chronic
the blood pressure guideline in New conditions and increase the independence
Zealand, research on the effects if of disabled patients.
guidelines indicated a change in doctors'
prescribing intentions for first line While the problems of affordability of primary
treatment, towards increased use of low- care and late access had been around for many
dose diuretics, alone or in combination years, the center-left government that was
169
Practical Issues in Priority Setting in Health Care
elected in 1999 made a number of "credit card steadily through the mid- to late-1990s. By
pledges", which included substantial increases early 2002, the country's level of overseas debt
of funding for primary care to increase access had reduced significantly due to the growing
to health services. strength of the New Zealand dollar. Budget
surpluses had increased as a result of higher
The economy in New Zealand improved rates of employment and higher tax revenues.
In simple terms, there was more money to services and early care and to emphasize
spend. wellness education. Their services include
diabetes awareness, nutrition education, retinal
The health sector is funded on a three-year screening, foot care, and Pacific and Maori
basis but with annual increases in the total support services, as well as the curative and
allocation to adjust for inflation and for treatment services traditionally delivered by
demographic and technological changes. This fee-for-service primary care teams (including
increase applies to all services. Health GPs, nurses, physiotherapists, dieticians,
spending as a proportion of government pharmacists, and counsellors). This initiative
expenses is forecast to increase from 18.2 in is a major change from the fee-for-service
2000/01 to 20 percent by 2005/06. payment model in which the majority of
patients were seen by a GP.
In response to the economic improvements of
the 1990s, the government decided to put Specialists have expressed concern about the
substantial additional funding (from new current adequacy of funding for secondary and
money) into primary care, as this level of tertiary care. They have called for more of the
health care � the level used most often by most new funding to be allocated to those areas.
people � was receiving a very limited share of There has also been strong resistance to the
public funding by 1999. changes from some primary care practitioners
who argue that their clinical autonomy is being
Since 2002, the majority of new funding has infringed by the capitation payment method.
been spent on primary care. A small They also feel that funding increases should be
proportion of new funding has been allocated used to address the significant under-funding
to other services (for example, to elective of some aspects of primary care, such as the
surgery to reduce waiting times). This income levels of GPs and the business costs of
increased primary care funding has been private practice, rather than increasing the
provided in phases, targeted first to the very subsidies for patients. Concern has also been
young, to older people, and people with the raised about the competence of nurses and
highest health needs. Increased subsidies will other members of the primary care team to
cover the whole population by 2007. deliver services instead of GPs.
Actual funding for other services has not Participants in a national primary care
declined, but, with the deliberate allocation of conference in 2002 were strongly critical of the
new funding to primary care, the proportion of proposed changes. Three years later, in March
spending on primary care and on all other 2005, increasing levels of funding have been
services in total health funding has changed. made available for primary care, which means
In 2003/04, 11.79 percent of health funding that Primary Health Organizations are now in
was allocated to primary care. By the place around the country covering most of the
following year (2004/05), the percentage had population (95 percent). Increasing numbers
increased to 12.93 percent. of practitioners are becoming convinced of the
value of the changes, although significant
Since 2002, Primary Health Organizations issues still remain. An independent evaluation
(which are similar to primary care HMOs) of the changes has reported that reducing fees
have been set up across the country funded on has increased access to primary health care,
a capitation basis to provide preventive health and GPs are reporting increased patient visits.
170
Practical Issues in Priority Setting in Health Care
Changing the responsibilities of the primary Based on the New Zealand experience, the
care team has provided nurses with more following factors are needed if the exercise is
opportunities for skill development and more to be successful:
varied career paths. However, the report also
says that high patient fees are still a concern, � If increasing funding for one level or kind
with not all of the increased funding being of service does not require a reduction in
used to the benefit of patients as originally funding for current services)
envisaged. There are challenges arising from � If funders and providers have common
the differing sizes of the PHOs, in creating goals (for example, an agreed focus on
cooperation between PHOs, and in developing improving the health of the greatest
the capacity and skills of the PHO staff. Also, number of the population and a willingness
the increase in the number of visits may be to balance the needs of individual
attributable to the worried well rather than by patients),
patients with significant health needs. � If consumers are involved and understand
which services are more or less effective
This example gives a flavor of how difficult it clinically
can be to change how resources are allocated � If all relevant interests or viewpoints are
across different health services. Had this represented and there is an authoritative
rebalancing in New Zealand required a and credible mechanism for mediating
reduction in funding for some existing services different points of view
to increase funding for others, it is likely that � If there are organized public forums
there would have been even more dissent. available for ongoing discussions as
evidence, priorities, and trade-offs change.
Conclusion
There are no easy solutions, and goodwill is
Priority setting in health care within services key.
and between services is a challenging task.
171
Summary of the Discussion
Michael Reich
Harvard University
The final session of the International Seminar on oriented social systems (such as the role that the
Reforming Health Social Security began with a Cato Institute has played in China). In short,
presentation by Wendy Edgar on "Practical ideas and values matter in the debate over health
Issues in Priority Setting in Health Care," in system reform. The radical transformations in
which she reviewed the work of the New the former socialist countries and many
Zealand Core Services Committee. Next, the developing countries over the past 10 to 15
chairs of the seminar's four sessions presented years, with the shift toward emphasizing the
the major lessons that had emerged from each market rather than the state, illustrate how such
session. William Hsiao focused on the changes can occur. On the other hand, many
implications of the experience of introducing rich countries (such as Canada) have protected
extra billing in Korea for the current policy core values that are embedded in the institutions
debate now underway in Japan. Kotaro Tanaka of the health system. Rich countries, it was
presented the main points of the discussion suggested, have not experienced the same
about long-term care, giving particular attention transformation in values as has been witnessed
to issues of cost control and financing. Joseph in the former socialist countries and developing
White spelled out the major issues that had countries. Caution, therefore, is needed in
arisen in the discussion about additional health making generalizations based on the experiences
expenditures in Canada and the United of certain countries.
Kingdom, including the question of why so
much attention is paid to waiting times and what The second theme for discussion was the
we want health systems and health expenditure challenges involved in using technical analysis
to achieve. Finally, Peter Berman examined the in policy debates about health system reform.
commonalities between the health system The discussion began with the question of how
experiences of China and India, especially their to interpret the Soonman Kwon's analysis of
similar origins, their shifts toward market-based extra billing in Korea in the context of the
systems, and their governments' ability to deal ongoing policy debate about this issue in Japan.
with the serious disparities that have arisen in It was noted that the Korean analysis was only
those countries. partial and did not include an assessment of the
impact of extra billing on health outcomes.
The participants then explored two major themes Academic analysis often has various
that had emerged from the sessions: � first, the unavoidable limitations due to a lack of
role of values played by health system reform complete information or time or money
and, second, the challenges involved in making constraints. Many academics, therefore, are
technical analysis useful to policy debates. reluctant to enter policy debates in case their
studies are misinterpreted or misused. It is often
The discussion about values and ideas in health difficult to present the complexities and
system reform complemented the seminar's subtleties of academic studies in public
focus on the economic and political dimensions discussions and political controversies. Other
of health social security. It was noted that academics, on the other hand, are willing to
specific ideas sometimes become dominant in enter these public debates and use their studies
the policy debate, making them the conventional (and the research of other scholars) to affect
wisdom and making it hard for alternative views public thinking and policymaking. This
to be heard. These dominant views and values illustrates some of the challenges of "speaking
are often promoted by specific organizations or truth to power" (in the words of political
interest groups, as has happened with the scientist Aaron Wildavsky), especially in using
emphasis on freedom and choice and market- the experiences of one country to shape social
172
Summary of the Discussion
policy in another country. The discussion policymakers to understand and interpret their
concluded with a reminder that academic findings. Thus, the discussion returned to the
researchers not only have an important role to importance of values and ideas in shaping public
play in the pursuit of truth and the production of policy about health systems and long-term care �
evidence through their research but they also which was one of the major objectives of
have an important obligation to help holding this international seminar in Japan.
173
Appendix 1- Program
International Seminar on Reforming Health Social Security
Program
June 27-29, 2005
Keio University Mita Campus
Tokyo, Japan
Sponsored by
A Joint Grant from the Ministry of Education & Science, Japan, and Keio University
Co-sponsored by
The World Bank
Supported by
The Asahi Shimbun Company
Japan Medical Association
Japanese Society of Clinical Economics
National Federation of Health Insurance Societies
174
Appendix 1 - Program
Sunday, 26 June 2005
Welcome Reception
Time: 18:30 onwards
Monday, June 27, 2005
9:00 � 9:30 Welcome, Introduction and Logistic Announcements
Professor Naoki Ikegami
Keio University
Closed Sessions
Venue: Conference Room, 4th Floor, North Building
Session 1: Choosing to Cover Comprehensive or Basic Medical Services under
Universal Social Health Insurance
Chairperson: Professor William Hsiao
Harvard University
9:30 � 11:00 1st Paper: Should Providers Be Allowed to Extra-bill for Uncovered Services?
Debate, Resolution, and the Future in Japan
Professor Naoki Ikegami
Keio University
2nd Paper: The Billing of Medical Services and the Financial Burden on Patients in
Korea
Professor Soonman Kwon
Seoul National University
11:00 � 11:15 Coffee Break
175
Appendix 1 - Program
11:15 � 12:45 Discussion
12:45 � 14:00 Lunch
Session 2: Financing Long-term Care
Chairperson: Professor Kotaro Tanaka
Yamaguchi Prefectural University
14:00 � 15:30 Financing Long-term Care: Lessons from 19 OECD Countries
Dr. Manfred Huber
Organization for Economic Co-operation and Development
1st Paper: Long-term Care in Germany
Professor Heinz Rothgang
University of Applied Sciences in Fulda
2nd Paper: Sustaining Long-term Care Insurance in Japan and Beyond
Professor John C. Campbell
University of Michigan
15:30 � 15:45 Coffee Break
15:45 � 17:15 Discussion
Tuesday, June 28, 2005
Session 3: Increasing Public Expenditures on Health Care
Chairperson: Professor Joseph White
Case Western Reserve University
9:00 � 10:30 1st Paper: Increasing Investment in the UK-NHS: Some Policy Challenges
Professor Alan Maynard
176
Appendix 1 - Program
York University
2nd Paper: Re-Casting Canadian Federalism: Health Care Financing in the New
Century
Professor Joseph Wong
Toronto University
10:30 � 10:45 Coffee Break
10:45 � 12:15 Discussion
12:15 � 13:15 Lunch
Session 4: Social Security in Rapidly Industrializing Nations
Chairperson: Professor Peter Berman
The World Bank and Harvard University
13:15 � 14:45 1st Paper: State Extractive Capacity, Policy Orientation, and Inequity in the
Financing and Delivery of Health Care in Urban China
Professor Shaoguang Wang
Chinese University of Hong Kong
2nd Paper: Health System Issues, Challenges, and Options: Reflections on China,
India, and Kerala
Professor Kottilil Mohandas
Sree Chitra Tirunal Institute for Medical Sciences and Technology
14:45 � 15:00 Coffee Break
15:00 � 16:30 Discussion
16:45 � 17:15 Campus Walk
177
Appendix 1 - Program
Wednesday, June 29, 2005
Session 5: Summary and Interactions of the Key Points
Chairperson: Professor Michael R. Reich
Harvard University
9:00 � 9:10 Practical Issues in Priority Setting in Health Care
Ms. Wendy Edgar
Past-president, Society on Priorities in Health Care,
Ministry of Health, New Zealand
9:10 � 10:15 Summary of the Key Discussion Points from Each Session by the Four Chairs
Professor William Hsiao
Harvard University
Professor Kotaro Tanaka
Yamaguchi Prefectural University
Professor Joseph White
Case Western Reserve University
Professor Peter Berman
The World Bank and Harvard University
10:15 � 10:30 Coffee Break
10:30 � 12:00 Interrelationship among the Topics of the Four Sessions
12:00 � 13:00 Lunch
13:00 � 13:30 Meeting with Translators
(Chairs and Speakers of the Open Symposium)
178
Appendix 1 - Program
Open Symposium
Venue: Conference Hall 518, Ground Floor, West Building
Time: 13:30 � 16:45
Co-chairpersons: Honorable Keizo Takemi
Member, House of Councillors
and
Professor John C. Campbell
University of Michigan
13:30 � 13:40 Opening Greeting
Director Aftab Seth
Global Security Research Institute, Keio University
13:40 � 13:55 Fundamental Issues in Health Social Security
Professor William Hsiao
Harvard University
13:55 � 14:10 Billing of Medical Services and the Financial Burden on Patients in Korea
Professor Soonman Kwon
Seoul National University
14:10 � 14:25 Long-term Care in Germany
Professor Heinz Rothgang
University of Applied Sciences in Fulda
14:25 � 14:40 Federalism and Health Care Financing in Canada
Professor Joseph Wong
Toronto University
179
Appendix 1 - Program
14:40 � 14:55 Inequity in the Financing and Delivery of Health Care in Urban China
Professor Shaoguang Wang
Chinese University of Hong Kong
14:55 � 15:10 Break
15:10 � 15:25 Summary of the Discussions in the Closed Session
Professor Naoki Ikegami
Keio University
15:25 � 16:40 Questions and Answers from the Floor
Panelists: Professor William Hsiao
Professor Naoki Ikegami
Professor Soonman Kwon
Professor Heinz Rothgang
Professor Shaoguang Wang
Professor Joseph Wong
16:40 � 16:45 Summary
Honorable Keizo Takemi
Professor John C. Campbell
Farewell Reception
Time: 17:30 onwards
180
Appendix 2-Biographies of Participants
(in Alphabetical Order)
Berman, Peter He has also served in administrative posts at the
Social Science Research Council and as
Peter Berman (MSc, PhD) is a health economist Secretary-Treasurer of the Association for Asian
and has been co-director of the Flagship Studies.
Program Core Course on Health Sector Reform
and Sustainable Financing run jointly by Chan, Chee Khoon
Harvard University and the World Bank
Institute. He also co-directs Harvard's course on
"Private Sector Health Care: Developing Chee Khoon Chan is an Associate Professor in
Successful Policies and Programs." He joined the Development Studies Program of the School
the World Bank's New Delhi office as Lead of Social Sciences at the Universiti Sains
Economist for Health, Nutrition, and Population Malaysia. He graduated from the Massachusetts
in July 2004 on leave from the Harvard School Institute of Technology with Bachelor and
of Public Health, where he was Professor of Master's degrees in life sciences and has a
Population and International Health Economics Doctor of Science degree in epidemiology from
and Director of International Health Systems. Harvard University. His research publications in
His areas of expertise include analyzing the cancer epidemiology, eugenics and bioethics,
performance of health systems and the design of health care financing policy, and environmental
reform strategies; assessing the supply side of health and development have appeared in
health care delivery and the role of private international and local journals such as Cancer
health care provision in health systems and Causes and Control, the Lancet, and the
developing strategies to improve outcomes International Journal of Health Services. Dr.
through public-private sector collaboration; and Chan has served as a consultant and technical
using national health accounts as a policy and adviser to several international and domestic
planning tool. Among his five authored/co- institutions including the World Bank and the
edited books include Getting Health Reform Malaysian Institute of Economic Research. He
Right: A Guide to Improving Performance and was a founding member of the Penang Cancer
Equity (Roberts et al, Oxford University Press, Registry and a co-founder and coordinator of the
2003). Citizens' Health Initiative, which drafted A
Citizens' Health Manifesto for Malaysia. His
Campbell, John Creighton. current research interests include emerging and
re-emerging infectious diseases, policy issues in
John Campbell is Professor of Political Science science and technology, the environment and
at the Department of Political Science at the development, and health care financing policy in
University of Michigan where he has taught Malaysia.
since 1973. His BA and PhD are from
Columbia University. He specializes in Conrad, Harald
Japanese politics in general and in
organizational decision-making and social Harald Conrad is a Research Fellow at the
policy. He is the author of several books German Institute for Japanese Studies and is
including Contemporary Japanese Budget based in Tokyo. His main areas of research are
Politics, How Policies Change: The Japanese Japanese social and labor market policies,
Government and the Aging Society (University human resource management, and products and
of California Press, 1977) and The Art of services for senior citizens. His recent
Balance in Health Policy: Maintaining Japan's publications include the book The Japanese
Egalitarian, Low-cost System (co-author with Social Security System in Transition - An
Naoki Ikegami, Cambridge University Press, Evaluation of Recent Pension Reforms
1998). These books and many of his other (Ersheinungsjahr, 2001) and the co-edited
writings have also been published in Japanese. volume Aging and Social Policies - A German-
181
Appendix 2 - Biographies of Participants
Japanese Comparison (Iudicium Verlag, services financing and between health
2003). After working for three years in the book expenditure and general public expenditure
industry, Dr. Conrad studied Economics and management. Her work outside the Bank has
Marketing at the University of Cologne, included secondments to the England
Hitotsubashi University (Tokyo), and Keio Department of Health in England and to the
University (Tokyo). He holds a PhD in United Kingdom Treasury to work on financing
Economics from Cologne University, which and system reform in health and social services
awarded him the Erhardt-Imelmann-Award 2001 during two of the current UK Government's
for outstanding scientific research. Dr. Conrad medium-term spending reviews. She also spent
has teaching assignments in Japanese and 12 years in the New Zealand civil service, part
business studies at Bonn University, Munich of the time as an economist at the Treasury. Ms.
University, and Sophia University (Tokyo). Hawkins is a graduate in economics and public
policy of the Woodrow Wilson School of Public
Edgar, Wendy and International Affairs at Princeton University
(USA) and of Otago University (New Zealand).
Wendy Edgar has a BA in English and
Education, an MA in early childhood education,
and a Diploma in Health Economics. Her career Hsiao, William
has included five years working in curriculum
development in Canberra, Australia, five years
in the Select Committee Office of the New William Hsiao is the K.T. Li Professor of
Zealand Parliament (dealing with a wide range Economics at the Harvard School of Public
of policy issues including disarmament and arms Health and directs the Program in Healthcare
control, employment equity, and the quality of Financing. He received his PhD in Economics
teaching), and 15 years in health policy and from Harvard University. Prior to his
management. From 1992 to 1999, she was appointment at Harvard, Dr. Hsiao was the
Program Director for the Core Services Deputy Chief Actuary of the US government. He
Committee established by the New Zealand has advised many governments and international
Government. Ms Edgar's most recent positions organizations on health sector reforms, including
have included being a Health Advisor in the giving policy advice to three US presidents and
Office of the Minister of Health, leading policy to the US Congress on the planning of national
work on the funding of long-term care for older health insurance, the payment of physicians,
people in New Zealand, and Senior Advisor social security, and pension reforms. His current
International with the responsibility for policy research focuses on finding a viable and
work to support New Zealand's commitments in sustainable model for funding and delivering
International Health. She is a Founder Member basic health care to farmers in poor and low-
and the Immediate Past Chairperson (2000- income nations. He has won many awards,
2003) of the International Society on Priorities including honorary professorships by the leading
in Health Care, which was established in Chinese universities. Dr. Hsiao is the author of
Stockholm in 1996. more than 150 papers and several books.
Huber, Manfred
Hawkins, Loraine
Manfred Huber is a senior economist (Principal
Loraine Hawkins is a Lead Health Specialist in Administrator) in the Health Division within the
the East Asia and Pacific Human Development Directorate for Employment, Labor, and Social
Unit of the World Bank and is currently the Affairs of the Organization for Economic Co-
Human Development Sector Coordinator for the operation and Development (OECD). He is
World Bank's program in the Philippines. Much currently in charge of work on long-term care
of her work experience, both inside and outside policy and data and on output and price
the Bank, has focused on the interface among measurement in health care. Prior to this, he led
health systems, other social insurance, and social a team in charge of health indicators. Among
the regular outputs of this work were two of
182
Appendix 2 - Biographies of Participants
OECD's flagship publications: OECD Health at the Keio School of Medicine, from which he
Data and Health at a Glance. Dr. Huber is the received his MD and PhD. He also received a
author of the OECD manual A System of Health Master of Arts degree in health services studies
Accounts and has provided advice to with Distinction from Leeds University (United
administrations in numerous countries on how to Kingdom). During 1990-1991, he was a visiting
improve health information systems. Among his professor at the University of Pennsylvania's
other research interests are macro-economic Wharton School and Medical School and has
simulations for health care reform and continued to be a Senior Fellow at Wharton. He
international comparisons. He graduated from is a board member of interRAI (a non-profit
the University of Munich with a Master of international consortium of researchers and
Science in Mathematics. He was a Lecturer and clinicians focused on care planning instruments)
Research Assistant in economic statistics at the and has sat on various national and state
University of Munich where he received a PhD government committees. His publications
in Economics. include The Art of Balance in Health Policy -
Maintaining Japan's Low-cost Egalitarian
Iguchi, Naoki System (Cambridge University Press, 1998) with
John C. Campbell and Measuring the Quality of
Naoki Iguchi has been Director General for Long-term Care in Institutional and Community
Policy Planning and Evaluation (in charge of Settings (OECD, 2002) with John Hirdes and
Health and Welfare) at the Ministry of Health, Iain Carpenter.
Labor, and Welfare since 2004. He previously
served as director of divisions of the Ministry of Kwon, Soonman
Health, Labor, and Welfare, as Councilor at the
Cabinet Office, Councilor for the MHLW Soonman Kwon has worked at the Seoul
Minister, and Assistant Minister. His areas of National University, South Korea since 1997
expertise include aging, pensions, social where he is currently the Chair of the
insurance, and policy planning. Mr. Iguchi Department of Health Policy and Management
graduated from the Faculty of Economy at at the School of Public Health. He received his
Tokyo University in 1974. PhD from the Wharton School of the University
of Pennsylvania and was Assistant Professor of
Ii, Masako Public Policy at the University of Southern
California. Professor Kwon has held visiting
Masako Ii, PhD, is a professor in the Asian positions at the Harvard School of Public Health
Public Policy Program at Hitotsubashi (Takemi Fellow), London School of Economics
University. She received her bachelor's degree and Political Science, University of Duisburg
from International Christian University in Tokyo (Germany), University of Trier (Germany),
and her PhD in Economics from the University University of Bremen (Germany), Hosei
of Wisconsin, Madison. She worked in the University (Japan), and the Danish National
Population and Human Resources Department at Institute of Social Research. He has served on
the World Bank in Washington DC and in the numerous government health policy committees
Ministry of Planning, the Ministry of Health, in Korea. Dr. Kwon's main areas of interest are
and the National Institute of Statistics in La Paz, health economics and finance, pharmaceuticals,
Bolivia. She was also a visiting scholar in the comparative health policy and the welfare state,
Faculty of Economics at the University of the and aging and long-term care. He has published
Philippines and an associate professor at numerous articles in international journals.
Yokohama National University. She is currently
a member of the Medical Care Insurance Maynard, Alan
Meeting of the Social Security Council.
Alan Maynard is Professor of Health Economics
Ikegami, Naoki and Director of the York Health Policy Group in
the Department of Health Sciences, University
Naoki Ikegami is Professor and Chair of the of York. He is also an Honorary Professor of
Department of Health Policy and Management Health Economics at the University of
Aberdeen, Visiting Professor at the London
183
Appendix 2 - Biographies of Participants
School of Economics, and Adjunct Professor at Omori, Koichi
the Centre for Health Economics Research and
Evaluation, University of Technology, Sydney, Koichi Omori is Communications Officer at the
Australia. He was Founding Director of the World Bank's Tokyo Office. His main
Centre for Health Economics at the University responsibilities include building partnerships
of York (1983-95) and Founding Editor of the with civil society organizations and the private
journal Health Economics. He has worked as a sector in Japan. He also serves as the Bank's
consultant for the World Health Organization, liaison with those groups in the areas of the
the European Union, the World Bank, and the environment, social development, and
UK Government's Department for International rural/agricultural development. Prior to joining
Development. Dr. Maynard has published the World Bank, he was Chair Research
widely in books, specialist journals, and the Associate and Assistant to the Director of
media. His most recent publication is Public- International Research Center for Environment
Private Mix for Health Care: Plus �a Change, and Development at Ritsumeikan University in
Plus C'est le M�me Chose (Radcliffe Publishing Kyoto, Japan.
for the Nuffield Trust, 2005). He has been Chair
of the York NHS Health Services Trust since Reich, Michael R.
1997 and has been involved in NHS
management since 1983. Michael R. Reich is Taro Takemi Professor of
International Health and Director of the Takemi
Mohandas, Kottilil Program in International Health at the Harvard
School of Public Health. He has written widely
Kottilil Mohandas is Director (Academic Head on international health policy and politics,
and Chief Executive Officer) of Sree Chitra including various aspects of global
Tirunal Institute for Medical Sciences and pharmaceutical policy. His recent books include
Technology in Kerala, India. He was formerly Public-Private Partnerships for Public Health
Professor and Head of the Department of (editor, distributed by Harvard University Press,
Anesthesiology and Dean of the Institute. After 2002); Getting Health Reform Right (co-author
he assumed the Director's position in 1994, the with M.J. Roberts, W. Hsiao, and P. Berman,
Institute initiatives and achievements included Oxford University Press, 2004); and Wounds of
starting India's first school of public health and War (co-author with J.M. Lamb and M. Levy,
first MPH program, developing innovative, cost- distributed by Harvard University Press, 2004).
effective comprehensive care programs for He recently served as Director of the Harvard
epilepsy, coronary heart disease, and movement Center for Population and Development Studies.
disorders, winning the National Technology From August 1 2005, he will be a visiting
Award, and getting ISO accreditation for the first scholar at the National Institute of Public Health
laboratory for testing and evaluating medical in Cuernavaca, Mexico. He received his PhD in
devices in India. Professor Mohandas is a Political Science from Yale University in 1981
member of the editorial board of several and his MA in East Asian Studies and BA in
professional journals and of the Board of Molecular Biophysics and Biochemistry also
Governors of several science and technology from Yale University.
institutions and advisory bodies of university-
level institutions. He is the immediate past Rothgang, Heinz
President of the Association of Indian
Universities (established in 1925) and is Heinz Rothgang is Professor for Health
currently the Chairperson of the Association of Economics at the University of Applied Sciences
Commonwealth Universities (established in in Fulda, Germany. He is also a fellow at the
1913), with a current membership of over 500 Center for Social Policy Research and principle
universities from the 37 Commonwealth researcher at the Research Center on the
countries. Transformation of the State at the University of
Bremen. He holds a diploma and a PhD in
Economics from the University of Cologne. Dr.
Rothgang has authored several reports for
federal and state departments and parliaments in
184
Appendix 2 - Biographies of Participants
Germany, the EU, and Germany's Supreme Japanese include "Increases in Medical Costs
Court. His recent publications in English Resulting from an Aging Population and Issues
include "The Changing Role of the State in in Health Care Policy" in Health Security and
OECD Health Care Systems (co-author with M. Health Care Costs by Iryou Hoshou To Iryouhi
Cacace, S. Grimmeisen, and C. Wendt) in (University of Tokyo Press, 1996).
European Review, Vol. 13, No. 1, 2005; "Future
Long-term Care Expenditure in Germany, Spain, Takemi, Keizo
Italy, and the United Kingdom" (co-author with
A. Comas-Herrera, R. Wittenberg, J. Costa-Font, Keizo Takemi is a member of the House of
C. Gori, A. Maio, C. Patxot, L. Pickard, and A. Councilors for the Liberal Democratic Party
Pozzi) in Aging and Society, forthcoming; (LDP) in Japan. He is serving his second term
"Projections on Public Long-term Care as Executive Member of the Committee on
Insurance Financing" in Aging and Social Policy Health, Welfare, and Labor, as Member of the
- A German-Japanese Comparison edited by H. Committee on Audits, as Executive Member of
Conrad and R. L�tzeler, Munich: Iudicum, 251- the Joint Meeting of Both Houses on the Reform
273. of Pension and Other Social Security Systems,
and as Executive Member of the Research
Shimada, Haruo Commission on the Constitution. He was
appointed as State Secretary for Foreign Affairs
Haruo Shimada, Professor of Economics at Keio during his first term. In the LDP, he serves as
University, is one of the most active and Deputy Chairman of the Medical Care
outspoken economists in Japan. He is a Special Committee of the Research Commission on
Adviser to the Cabinet Officer and chairman of Social Security System and as Deputy Chairman
the Economic Research Center at the Fujitsu of the Research Commission on Foreign Affairs.
Research Institute. He is a member of the He received his undergraduate and graduate
National Tax Commission, the Fiscal System degrees from the Faculty of Law, Keio
Council, the Japan Investment Council, the University. In 1980, he started teaching at the
Industrial Structure Council, and several other School of Political Science and Economics,
committees and academic associations. Dr. Tokai University, where he became a professor
Shimada is the author of numerous books on the in 1995. He has also been a visiting scholar at
Japanese economy and on international Harvard University.
management and labor problems. His expertise
is in labor economics and industrial relations, Tanaka, Kotaro
international management, and economic
policies. He has published many books and Kotaro Tanaka is Professor of Social Policy in
articles in his profession and has also written the Faculty of Social Work at Yamaguchi
many commentaries and essays for newspapers Prefectural University. After graduating from
and popular magazines. He appears frequently the Faculty of Law at Kyoto University, he
on TV programs both in Japan and abroad, entered the Ministry of Health and Welfare in
including CNN, NBC, ABC, CBS, and the BBC. 1974 where his areas of responsibility included
pharmaceutical affairs and medical economy
Takagi, Yasuo before beginning his career at the Prefectural
University in 1995. His major field of research
Yasuo Takagi is Professor of Health is the comparison of the social security systems
Management at the Graduate School of Health of Japan and Germany, focusing on health care,
Management at Keio University. He joined long-term care, and the pension systems. His
Keio University in April 2005 after serving as a publications include Financing Increasing
professor in various other schools, including the Medical Expenditures and Allocation of Specific
Faculty of Medical Sciences at Kyushu Risks in Health Insurance (Duncker and
University. Earlier, he served as Director of Humblot, Berlin, 2000) with von Maydell et al,
Research and Statistics at the Social Solidaritaet und der Wettbewerb in der
Development Research Institute. Professor Gesetzlichen Krankenversicherung
Takagi's research centers on health care (Luchterhand, 2002) in German with Winfried
financing and long-term care. His writings in Boecken et al, and Introduction to Social
185
Appendix 2 - Biographies of Participants
Security (Yuhikaku, 2001) in Japanese with East Asian countries.
Mukuno.
White, Joseph
Tanaka, Shigeru
Joseph White is Luxenberg Family Professor of
Shigeru Tanaka is Professor and Associate Dean Public Policy, Director of the Center for Policy
of the Graduate School of Business Studies, and chair of the Department of Political
Administration at Keio University. His major Science at Case Western Reserve University in
area of interest is health policy including long- Cleveland, Ohio. He received an AB from the
term care from the viewpoint of economics. He University of Chicago and an MA and PhD from
graduated from the Master's and PhD courses at the University of California, Berkeley, all in
the Department of Commerce at Keio University Political Science. Before coming to Case, he
where he specialized in econometrics. He also was Associate Professor of Health Systems
received a Master of Management degree from Management at Tulane University School of
the Graduate School of Management at Public Health and Tropical Medicine, and before
Northwestern University (USA). He is that, he was first Research Associate and then
Chairman of the Board of the Japan Society for Senior Fellow in Governmental Studies at The
Long-term Care Business Management and is a Brookings Institution in Washington DC. Dr.
member of the boards of several academic White's research has focused on American
societies in Japan. He has also sat on and federal budget politics and policies, health care
chaired various national government committees finance policy and politics, and the "reform" of
organized by the Ministry of Health, Labor, and Social Security and Medicare. Among his books
Welfare and the Ministry of Economy, Trade, are False Alarm: Why the Greatest Threat to
and Industry. His publications include "Health Social Security and Medicare is the Campaign
Promotion in the Workplace" (in Keio Business to `Save' Them, (Johns Hopkins University
Forum, Vol.21, No.1, 2004), "Long-term Care in Press, 2001 and 2003), and Competing
an Aged Society and the New Era of a Welfare Solutions: American Health Care Proposals and
Country" (Keio Business Review, Vol.16, No.1, International Experience (Brookings, 1995).
1999), "Retire and Don't Worry about It" in
Japan's Health System (Faulkner and Gray, Wong, Joseph
1993) and "The Japanese Health System" in
Advances in Health Economics and Health Joseph Wong received his PhD in political
Services Research (JAI Press Inc., 1990). science from the University of Wisconsin-
Madison in 2001. Before joining the faculty at
Wang, Shaoguang the University of Toronto, Wong was a visiting
associate in research at the Fairbank Center at
Shaoguang Wang is professor of political Harvard University (1999-2001). He has also
science at the Chinese University of Hong Kong been a visiting fellow at the Institute for
and is the chief editor of the China Review, an National Policy Research in Taipei and the
interdisciplinary journal dealing with greater Graduate School of Public Administration at the
China. He studied for his LLB at Peking Seoul National University. Wong most recently
University and his PhD at Cornell University. finished a collaborative project on welfare states
He taught at Tijiao High School in Wuhan from in East Asia with the United Nations Research
1972 to 1977 and at Yale University from 1990 Institute for Social Development. Wong has
to 2000. He has authored, co-authored, and published widely (in the journals Comparative
edited 19 books in Chinese and English. In Political Studies, International Political Science
addition, he has contributed to numerous edited Review, Studies in Comparative International
volumes and journals. His research interests Development, the Journal of East Asian Studies,
include political economy, comparative politics, Pacific Affairs, and Nature Biotechnology
fiscal politics, democratization, and economic among others) and, most notably, he is the
and political development in former socialist and author of Healthy Democracies: Welfare Politics
186
Appendix 2 - Biographies of Participants
in Taiwan and South Korea (Cornell University including Director of the International Division
Press, 2004). From 2005, Professor Wong will (1991) and Director of the International Banking
be the Book Review Editor for the journal Division. He has held a number of overseas
Governance. positions, including First Secretary at the
Japanese Embassy in Cairo and Second
Yoshimura, Yukio Secretary at the Japanese Embassy in London.
Mr. Yoshimura is the author of many articles on
Yukio Yoshimura has been Vice President and the issue of international finance, including
Special Representative for Japan at the World "Lessons from the Asian Crisis for the
Bank since 2002. He was previously Senior International Financial System" in The Asian
Advisor to the President of the World Bank Financial Crisis: Origins, Implications, and
(2001-2002) and Executive Director for Japan at Solutions (Federal Reserve Bank of Chicago and
the International Monetary Fund (1997-2001), the International Monetary Fund,1999).
and held various important positions in Japanese
Ministry of Finance's International Bureau,
Secretariat's Biography
Shinoda�Tagawa, Tomoko
Management at the HSPH, she collaborated with
Tomoko Shinoda-Tagawa is an Instructor in the Division of Health Care Quality of the
Medicine and Health Policy in the Department of Massachusetts Department of Public Health to
Health Policy and Management at the Keio improve the quality of care in nursing homes by
School of Medicine. She received an MD from analyzing incident data from Massachusetts
Hokkaido University, an MPH from Harvard nursing homes. Now working in a Japanese
School of Public Health, and a PhD from Osaka hospital as an internist and endocrinologist, she
University. When she was a Research Associate is seeking a way of evaluating the impact that
in the Department of Health Policy and long-term care insurance has on the quality of
care in the health care setting.
Transcribers' Biographies
Kodate, Naonori Tomita, Naoko
Mr. Kodate is currently a researcher at the Naoko Tomita is a PhD candidate in Public
Political Science Division of the Faculty of Law Health and Policy at the London School of
at the University of Tokyo majoring in European Hygiene and Tropical Medicine, University of
and comparative politics. In 2002, he joined the London. She is also a visiting research associate
MRes/PhD course in Political Science at the at the Department of Health Policy and
London School of Economics and taught senior Management at the School of Medicine of Keio
undergraduate tutorials on the politics of the University. Her current research focuses on the
European Union and comparative executive policymaking process in the separation of
government in advanced industrial countries. In prescribing and dispensing in Japan and South
2004, he was granted PhD candidacy status and Korea. Her other research interests include the
is now undertaking a comparative analysis of politics of health policy and pharmaceutical
British and Japanese health policies and politics policy and comparative health policy. Ms.
in the light of hospital reconfigurations. Tomita received an MA and a BA in Political
Science from Kobe University.
187
Appendix 3 - Addresses of Participants
(in Alphabetical Order)
Berman, Peter Hawkins, Loraine
E-mail: pberman@worldbank.org E-mail: lhawkins@worldbank.org
Address: c/o World Bank Address: EASHD
70 Lodi Estate World Bank Office of Manila
New Delhi, 110003 The Taipan Place
India F. Ortigas Jr. Avenue
Ortigas Center
Campbell, John Creighton Pasig City 1605
E-mail: jccamp@umich.edu Philippines
Address: Department of Political Science
University of Michigan Hsiao, William
7725 Haven Hall E-mail: hsiao@hsph.harvard.edu
505 S. State Street Address: Department of Health Policy and
Ann Arbor Management
MI 48109-1045 Program in Health Care Financing
USA Harvard School of Public Health
4th Floor
Chan, Chee Khoon 124 Mt. Auburn
E-mail: ckchan50@yahoo.com Cambridge
Address: Development Studies Program MA 02138
Universiti Sains Malaysia USA
11800 Penang
Malaysia Huber, Manfred
Email: huber@euro.centre.org
Conrad, Harald Address: European Centre for Social
E-mail: conrad@dijtokyo.org Welfare Policy and Research
Address: German Institute for Japanese Berggasse 17
Studies A-1090 Wien
3-3-6 Kudan-Minami (Dr. Huber has moved from the Organization for
Chiyoda-ku Economic Co-operation and Development to the
Tokyo 102-0074 European Center for Social Welfare Policy and
Research.)
Japan
Iguchi, Naoki
Edgar, Wendy Email: iguchi@npfa.or.jp
E-mail: wendy_edgar@moh.govt.nz Address: National Pension Fund Association
Address: Sector Policy Directorate 5F Sumitomo-Mitsui Banking Roppongi
Ministry of Health Building
P.O. Box 5013 1-21 Roppongi 6-chome
Wellington Minato-ku, Tokyo 105-0032
New Zealand Japan
(Mr. Iguchi has moved from the Ministry of Health,
Labor and Welfare to the National Pension Fund
Association.)
188
Appendix 3 � Addresses of Participants
Ii, Masako Omori, Koichi
E-mail: masako-ii@ics.hit-u.ac.jp E-mail: komori@worldbank.org
Address: Hitotsubashi University Address: World Bank Tokyo Office
2-1-2 Hitotsubashi 10F Fukoku Seimei Bldg.
Chiyoda-ku 2-2-2 Uchisaiwai-cho
Tokyo 101-8439 Chiyoda-ku
Japan Tokyo 100-0011
Japan
Ikegami, Naoki
Email: ikegami@sc.itc.keio.ac.jp Reich, Michael R.
Address: Department of Health Policy and E-mail: reich@hsph.harvard.edu
Management Address: Department of Population and
School of Medicine International Health
Keio University Center for Population and Development
35 Shinanomachi Studies
Shinjuku-ku Harvard School of Public Health
Tokyo 160-8582 9 Bow Street
Japan Cambridge
MA 02138
Kwon, Soonman USA
E-mail: kwons@snu.ac.kr
Home Page: http://plaza.snu.ac.kr/~kwons Rothgang, Heinz
Address: School of Public Health E-mail: rothgang@zes.uni-bremen.de
Seoul National University Address: Zentrum F�r Sozialpolitik
29 Yonkon-dong Universit�t Bremen
Chongno-gu Parkallee 39
Seoul 110-799 28209 Bremen
South Korea Germany
Maynard, Alan Shimada, Haruo
E-mail: akm3@york.ac.uk E-mail: haruo@shimada-lab.info
Address: Department of Health Sciences Address: Faculty of Economics
University of York Keio University
York Y010 5DD 2-15-45 Mita
England Minato-ku
Tokyo 108-8345
Mohandas, Kottilil Japan
E-mail: director@sctimst.ac.in
Address: Sree Chitra Tirunal Institute for Takagi, Yasuo
Medical Sciences and Technology E-mail: takagi@sfc.keio.ac.jp
Thiruvananthapuram Address: Graduate School of Health
Kerala-695011 Management
India Keio University
4411 Endou
Fujisawa-City, Kanagawa 252-8530
Japan
189
Appendix 3 � Addresses of Participants
Takemi, Keizo Wang, Shaoguang
E-mail: keizo_takemi@sangiin.go.jp E-mail: wangshaoguang@cuhk.edu.hk
Address: 521 Members Office Bldg. of the Address: Department of Government and
House of Councilors Public Administration
Yokohama 223-8523 The Chinese University of Hong Kong
Japan Shatin NT
2-1-1 Nagata-cho Hong Kong
Chiyoda-ku
Tokyo 100-8962 White, Joseph
Japan E-mail: joseph.white@case.edu
Address: 22356 Fairmount Blvd.
Tanaka, Shigeru Shaker Heights
E-mail: dzm01032@nifty.com OH 44118
Address: Graduate School of Business USA
Administration
Keio University Wong, Joseph
2-1-1 Hiyoshi Honcho E-mail: joe.wong@utoronto.ca
Kouhoku-ku Address: 95 Lesmount Avenue
Toronto
Tanaka, Kotaro Ontario
E-mail: ktanaka@yamaguchi-pu.ac.jp Canada M4J 3V8
Address: Faculty of Social Work
Yamaguchi Prefectural University Yoshimura, Yukio
3-2-1 Sakura-batake E-mail: yyoshimura1@worldbank.org
Yamaguchi 753-8502 Address: World Bank Tokyo Office
Japan 10F Fukoku Seimei Bldg.
2-2-2 Uchisaiwai-cho
Chiyoda-ku
Tokyo 100-0011
Japan
190
Appendix 3 � Addresses of Participants
Secretariat's Address
Shinoda�Tagawa, Tomoko
E-mail: xr3y-tgw@asahi-net.or.jp
Address: Department of Health Policy and Management
School of Medicine
Keio University
35 Shinanomachi
Shinjuku-ku
Tokyo 160-8582
Japan
Transcribers'Addresses
Kodate, Naonori
E-mail: naonorsk@nifty.com Tomita, Naoko
Address: Graduate School of Law and E-mail: Naoko.Tomita@lshtm.ac.uk
Politics Address: Health Services Research Unit
University of Tokyo Department of Public Health and Policy
559 Bldg. #4 London School of Hygiene and Tropical
7-3-1 Hongo Medicine
Bunkyo-ku Keppel Street
Tokyo 113-0033 London WC1E 7HT
Japan UK
191
List of Working Paper Series 2004-2006
Working Papers
Human Development Sector Unit
East Asia and Pacific Region
The World Bank
No. 2004-1: Disability Issues in East Asia: Review and Ways Forward
No. 2004-2: Cambodia Skills and Growth
No. 2004-3: Evaluating the Performance of SGP and SIGP: A Review of the Existing Literature
and Beyond
No. 2004-4: Vietnam Reading and Mathematics Assessment Study � Volume 1
No. 2004-5: Addressing Inequity in Access to Health Care in Urban China: A Review of Health
Care Financing Reform Experiments
No. 2004-6: Strengthening World Bank Support for Quality Assurance and Accreditation in
Higher Education in East Asia and the Pacific
No. 2004-8: Financing Health Care for Poor Filipinos
No. 2004-8: Health Care Financing for the Poor in Vietnam
No. 2004-9: Pro-Poor Health Financing Schemes in Thailand: A Review of Country Experience
No. 2004-10: Health Financing for the Poor in Indonesia
No. 2004-11: Making Injections Safe in China: How Much Will it Cost and Who Will Pay?
No. 2004-13: Private Sector Involvement in Education: A Review of World Bank Activities in East
Asia and Pacific, 1996-2002
No. 2004-14: Current Trends, Future Opportunities Human Development Outcomes in the Pacific
Islands
No. 2005-1: China: Pension Liabilities and Reform Options for Old Age Insurance
No. 2005-2: Cambodia: Balancing the Books: Household Financing of Basic Education in
Cambodia
No. 2005-3: Vietnam Learning to Teach in a Knowledge Society
No. 2005-4 Reforming Health Social Security: Proceedings of an International Seminar
No. 2006-1: Mongolia: Assessment of the Child Money Program and Properties of Its Targeting
Methodology
No. 2006-2 Indonesia: Quality Assurance and Accreditation in Higher Education in East Asia
and the Pacific
192