Introduction
Social health insurance (SHI) was founded on the principle of solidarity. Despite the political motivations of Bismarck, namely to suppress socialist opposition among the workers, the model adopted in Germany brought workers together for mutual benefit. Developing out of the voluntary sickness funds, the national SHI established solidarity between the healthy and the sick, the young and the old, the childless and those with children, the better-off and the worse-off members of the funds and between men and women. With the expansion of insurance to cover other groups, including the non-working population, dependants and pensioners, solidarity has also been extended. Solidarity remains the key feature of the present SHI systems of western Europe.
During the 1990s, health care systems were subject to major reforms. One of the main thrusts of these reforms was the introduction of competition into health care. Heavily influenced by ‘market romantics’ (Morone and Goggin 1995), European health care policy-makers experimented in a variety of ways with the market in public health systems. SHI systems were not immune to the influence of pro-market policies.
This chapter focuses on the introduction of competition on the financing side, between insurance funds in the SHI systems of western Europe. It begins by defining solidarity and competition followed by a brief history of competi-tion in Belgium, Germany, Israel, the Netherlands and Switzerland. The next section analyses why competition was introduced and the extent to which competition actually operates in practice. The tension between competition
and solidarity is mediated by a number of mechanisms that are then discussed.
An assessment of the impact of competition follows. Finally the chapter con-cludes with a discussion of future policy directions in all eight countries covered by this book and the policy implications for other countries with competing funds or considering reform in this area.
Solidarity and competition – conflict or complement?
Solidarity is fundamental to the social welfare vision of universal benefits shared by all citizens. It is based on interpersonal transfers. The extent of solidarity between these groups depends on the structure of, and participation in, the social insurance system. This solidarity exists on the revenue side because contributions are neither tied to the actual cost of the services used nor the expected cost. On the expenditure side, entitlements are equal so that the benefits received are according to need and irrespective of ability to pay or other characteristics of those individuals. Therefore, groups that utilize more but pay less will benefit from the transfers. Furthermore, if dependants and non-working spouses (more usually women) are covered without additional contribution, transfers from those without children to those with children and from men to women are larger. However, if people with incomes above a certain threshold are excluded from the SHI or can opt out, the transfers from rich to poor are reduced. Finally, where pensioners pay a lower rate, this increases transfers from the young to the old. Solidarity, then is at the very heart of SHI. This differs from voluntary and private insurance where normally the costs of insurance are risk-rated and entitlements vary, thus limiting solidarity.
In contrast to solidarity, competition is based on self-interest and ‘encourages individuals and institutions to do whatever they can to maximise their own gain’ (Light 2000: 969). In this light, competition appears as the antithesis of solidarity, although aspects of it exist in several SHI systems. Economic theory suggests that competition will exist when there is perfect information, no posi-tive or negaposi-tive externalities of consumption and consumer tastes are predeter-mined (Rice 1998). A number of analysts believe that these features do not exist in the market for health care services (Stone 1993; Light 2000; Rice 2003). So what role does competition play in SHI systems?
Competition may operate at different levels within the health care system:
between public insurance and private insurance; between purchasers; and between providers. Competition between purchasers (i.e. insurance funds offer-ing SHI) is the focus of this chapter. Direct competition between social insur-ance and private insurinsur-ance exists only in those countries where membership of the statutory system is voluntary for part of the population. For example, in Germany those earning over 41,400 per annum (2003; raised to 46,350 in 2004) have the right to opt out. However, due to the irreversible nature of this decision, competition cannot really be seen in practice.1
Solidarity and competition 171
Competition policies in SHI systems
Before analysing the extent and impact of competition it is important to under-stand the policies which have been implemented in each of the five SHI coun-tries where choice between sickness funds exists (Belgium, Germany, Israel, Netherlands, Switzerland). In Austria, France and Luxembourg there is no com-petition between the sickness funds as people cannot choose between funds, since sickness fund membership is dependent on occupation or/and region of residence.
Belgium
Choice of fund has existed in Belgium since the establishment of SHI in 1945.
There are about 100 mutualities (this number is rapidly reducing due to mergers), which are mostly grouped into five alliances (the National Alliance of Christian mutualities, National Union of Neutral mutualities, National Union of Socialist mutualities, National Union of Liberal mutualities and the National Union of the Free and Professional mutualities), one railway association and one public fund (the Auxiliary Fund) among which citizens may choose. They have the right to change fund every three months. All funds operate nationally.
The funds receive a per capita allocation for administrative costs (Kerr and Siebrand 2000). Until 1995, despite legal provision that funds should be financed prospectively from contributions and subsidies, in fact all costs were reimbursed and funds faced no budget constraint. All surpluses and deficits were pooled across funds and any overall deficit was covered by subsidies from state finances. Legislative reform passed in 1995 introduced risk-adjusted capitation in order to finance funds on a prospective basis. This has been implemented gradually: 10 per cent of fund income 1995–7, 20 per cent in 1998–2000, and 30 per cent since 2001. However, the funds are protected from full financial risk and are only responsible for a proportion of any deficit which is not due to external factors: 15 per cent in 1995–7, 20 per cent in 1998–2000, 25 per cent since 2001. Since 1995 insured persons have to pay in order to cover eventual deficits. As deficits can vary among funds, this individual contribution may vary from one fund to the other. Although the amount of this contribution remains very small, it may rise in the future to cover rising expenditures and growing deficits and increase differences between the funds.
Germany
Up until 1996, choice of funds only existed for white-collar workers but not for the majority of blue-collar workers who were assigned membership according to occupation and region. Thus there were large differentials in contribution rates between the sickness funds (i.e. high-risk occupational groups were subject to the highest rates). The Health Care Structure Act (GSG), passed in 1992 and which came into effect in 1993, marked a major structural change in SHI. It granted equal legal status to manual and salaried workers (i.e. extended the right 172 Social Health Insurance Systems
to change funds) and introduced cross-subsidization between funds. Contribu-tion rates are set by the funds and collected directly by them. A risk adjustment mechanism, called the Risk Structure Compensation Scheme, calculates the financial transfers to be made between funds to compensate them for both the difference in contribution income and in expected expenditures of enrollees.
Enrollees initially had the right to change fund annually with three months notice. However, from the beginning of 2000, enrollees can change fund at any time but must stay with the fund for a minimum of 18 months after changing.
In 2000 there were 420 funds operating in Germany, however many operate at a regional level (Busse 2001).
Israel
Competition between insurance funds was introduced in Israel in 1995 under the National Health Insurance Law. The majority of the population (96 per cent) were enrolled in one of four not-for-profit sickness funds prior to 1995.
These operated with integrated providers and received revenues directly from members and indirectly from employers via government. The main fund, Kupat Holim Clalit (KHC), covered 70 per cent of the population and had a higher proportion of elderly, chronically ill and low income than the other smaller funds. As a result KHC suffered from chronic financial deficits and relied on regular government subsidies (Shmueli and Chinitz 2001). The source of revenues was changed to a health tax (accounting for about 40 per cent of fund income) and general taxation. An annual budget is set by the Ministry of Finance and this is used to calculate a capitation to the funds adjusted only for age. The only additional sources of revenue come from co-payments and the sale of supplementary insurance policies (Gross and Harrison 2001).
Netherlands
In the Netherlands the introduction of competition was part of an evolving debate on the role of competition which had been reflected in earlier reform proposals (Schut 1995). The concrete proposals were put forward in the report of a government commission in 1987, chaired by Wisse Dekker, former chief executive of Philips and passed by government in 1988. The changes to the health insurance sector formed part of a wider restructuring of sick leave and disability insurance. Not all of the committee’s recommendations were adopted due to doubts about the ability of the new system to contain costs as well as strong opposition from interest groups such as the private insurers and employers. However, the following proposals were adopted:
•
insurers were able to directly levy a flat-rate contribution set by them, in addition to the proportional income-based contribution which was collected by the Central Fund and is the same for everyone regardless of insurer;•
the abolition of the regional restrictions on sickness fund activity (which had Solidarity and competition 173resulted in natural monopsonies) and new entrants including private insurers were allowed in to the market;
•
insurers were allowed to contract selectively with providers and negotiate reimbursement prices lower than those set by the Central Tariff Authority;•
insurers were able to restrict the purchase of supplementary insurance prod-ucts to those subscribers who already had their main insurance from them (Schut 1995; Schut and Van Doorslaer 1999).These reforms, which became known as the Dekker-Simons reforms after a change in government, created a model of ‘competition among purchasers’ – i.e.
between health insurance funds. Risk adjustment in the Netherlands is per-formed by the Central Fund which collects contributions from employers and employees. It then makes capitation payments to the funds adjusted for age, sex, social security/employment status, region of residence and pharmaceutical cost groups (since 2002). Citizens have the right to change fund once a year. In 1999 there were 30 funds in the market operating at a national level (Okma and Poelert 2001).
Switzerland
Since the Health Insurance Law came into force in 1996, all permanent residents in Switzerland are legally obliged to purchase health insurance policies. The reform contained a number of measures:
•
premiums are community rated (i.e. the same for each person taking out insurance with a particular company within a canton or sub-region of a canton); previously risk rating of premiums was permitted;•
subsidies from the cantons are means-tested and allocated directly to the enrollees;•
all willing provider contracting of physicians was abolished;•
a risk adjustment mechanism based on the age and sex of enrollees.Before the introduction of the law, the purchase of health insurance in Switzerland was voluntary. Thus the introduction of ‘managed competition’ has increased government control. There are 93 funds operating in Switzerland (2002 data) though many operate within cantons. Citizens may change fund annually.
This brief description of insurance competition in each country provides the background for the following examination of the reasons why competition was introduced.
The logic for competition in SHI systems
The theory of ‘managed competition’, most famously described by Alain Enthoven (see for example Enthoven 1998), suggests that properly regulated competition will lead to more efficient use of resources, restrain health care 174 Social Health Insurance Systems
expenditure and improve quality. These ideas were particularly resonant at a time when governments across Europe were keen to reduce public expenditures and ‘roll back’ the welfare state: ‘Governments deployed market mechanisms in an attempt to push ossified health service bureaucracies into becoming more efficient and responsive’ (Morone 2000: 960).
In the European context, managed competition is most commonly used to describe the use of competitive or market-like mechanisms within the public sector. These were advocated for the United Kingdom and found expression in the introduction of the internal market in the National Health Service which aimed to promote competition between suppliers. Separation of purchaser and provider has traditionally existed within SHI systems, though due to all-willing provider contracts not on the provider side. The expression of managed com-petition in SHI systems was to enhance comcom-petition between purchasers (i.e.
insurance funds). This was to be achieved primarily by offering choice of funds.
Both the stated policy objectives of competition and the political motivations, however, differed between countries.
Choice of funds was not an explicit policy decision in Belgium. However, the introduction of reforms to increase the financial responsibility of the funds was intended to shift the financial risk onto insurance funds, in order to increase efficiency, reduce deficits and government subsidies.
In Germany, the main policy objective was that competition combined with risk adjustment would lead to convergence of contribution rates, thus reducing the variation in rates between funds. This reflected concern about equity.
Occupational funds with lower than average incomes and higher than average risks were charging higher contribution rates than the company funds with higher than average incomes and lower than average risks. In addition, there was growing concern at the escalating contribution rates and the consequences for labour costs. By increasing incentives for efficiency, it was hoped that competition would result in reduced contribution rates across the board.
In Israel, competition was seen as the solution to the problems of deficits in the insurance funds, particularly KHC, as well as a lever to enhance the perform-ance of funds – for example, by offering additional benefits. However, the main political thrust (led by the Ministry of Finance) was to constrain government expenditures through enhanced central control (Gross and Harrison 2001).
In the Netherlands, the impetus was to drive up efficiency by breaking the natural monopolies formed by the exclusivity of regional funds and making health insurance funds more active purchasers. It was hoped this would precipi-tate a process of rationalization within the SHI system. The insurer was expected to develop into an active ‘purchaser of care’ on behalf of the insured person, i.e.
it would organize a network of physicians, paramedics, health care establish-ments etc. to take care of an ‘insured’ patient, for which it would receive a per capita fee from the public payer (Bocognano et al. 1998: 194).
In Switzerland the stated objective of managed competition was to ‘marry efficiency with equity’. However, the political context was that the reforms shifted the costs of health care onto consumers by relieving federal and cantonal governments of the burden of health care expenditure (Zweifel 2000).
The underlying objectives of the reforms to some extent reflected the theoretical expectations of managed competition. However, in practice there were other Solidarity and competition 175
national political objectives which mediated the policies and adapted the ideal type of managed competition to the existing structures, organizations and interest groups in each country. Thus any evaluation of the impact of competi-tion must also recognize the accompanying institucompeti-tional and historical constraints (Gross and Harrison 2001).
The extent of competition in SHI
There are a number of dimensions that can be used to measure the extent of competition. First, an assessment of market structure: the number of funds, their concentration and the numbers of mergers, acquisitions and new market entrants. Second, the activity of funds: marketing costs, innovative products, cartel formation and price setting. Third, the behaviour of consumers: fre-quency and numbers moving funds and the information used to choose funds.
Market structure
In the Netherlands, one effect of the changes has been the emergence of private insurers who are active in the statutory insurance market. The established sick-ness funds, however, continue to dominate regional markets for statutory insur-ance. The choice of fund has prompted an accelerated process of mergers and acquisitions – between 1985 and 1993 the number of insurers fell from 53 to 26.
By 1999, there were 30 funds operating nationwide, with an average member-ship of about 300,000 persons (with a large variation in membermember-ship, ranging from less than 1000 to over 1 million). This suggested that when faced with competition, multiple insurers merged to benefit from economies of scale (Normand and Busse 2002). In Israel there have been no new market entrants.
The market share of the funds has, however, shifted. The market share of the largest fund (KHC) was 70 per cent prior to the reforms and has fallen to 59 per cent (Gross and Harrison 2001).
Response of funds
The expected results of competition were that sickness funds would increase efficiency (by strengthening their purchasing power or improving their administrative efficiency) and reduce their price (either contribution rates or other charges). In practice the behaviour of sickness funds had some negative effects on both equity and efficiency. Covert risk selection, collaboration and price fixing have been observed. In their evaluation of managed competition in Israel, Gross and Harrison observed: ‘Rather than striving to improve clinical quality or publicize information on their services and quality of care, the SFs [sickness funds] concentrated on making service improvements that would readily impress patients and used aggressive and even illegal marketing methods to attract members’ (2001: 1220).
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In Belgium, competition between mutualities for members was intense prior to 1995 when per capita allocations were made for administrative costs.
Response of consumers
The necessary prerequisite for competition between funds is the unimpeded choice of funds by consumers. The extent to which this choice is exercised varies between countries and between groups. As well as presenting data on the scale of the movement between funds this section discusses some of the factors which influence consumer choice. For example, in some countries price com-petition is enabled either through the setting of different contribution rates or a per capita premium. In other cases there is no price competition, but rather quality competition in terms of the services offered to members.
Data on the movement of individuals between funds in Germany reflects the net gains and losses of the different funds rather than the actual number of people who have moved. However, it gives an indication of the magnitude of the movement in terms of the impact on fund membership. Recent data released by the Ministry of Health indicates that this trend continues (Greß et al.
2002). Population surveys carried out in Germany in spring 1999 showed that
2002). Population surveys carried out in Germany in spring 1999 showed that