HONG KONG SEPTEMBER '97

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I. SOME GENERAL OBSERVATIONS
A. A taxonomy of alternative health systems
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A TAXONOMY OF HEALTH-SYSTEM COMPONENTS
PAYING THE PROVIDERS OF HEALTH CARE
OWNERSHIP OF HEALTH CARE PROVIDERS
Private Insurance
Direct Payments
Social Health Insurance
Government-Administered Health Insurance
Regulated Non-Govt Sickness Funds
Non-Profit
For-Profit
Out of Pocket
Government
Private, but non-profit
Private, and for-profit
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CANADAS GOVERNMENT-RUN SOCIAL HEALTH INSURANCE
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THE MOSAIC OF U.S HEALTH INSURANCE
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B. The role of social ethics in selecting
health systems
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To design of a nations health system
especially its methods of financing depend
crucially on the social ethic that is to be
imposed on the health system.
One can have one of three distinct views on this
social ethic
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ALTERNATIVE SOCIAL ETHICS FOR HEALTH CARE
Health care is
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AS A RULE, AMERICANS DO NOT OPENLY DISCUSS THEIR
PREFERRED DISTRIBUTIVE ETHIC FOR HEALTH CARE.
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But it may not matter what the public thinks..
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Which one these ethical perspectives a nation
adopts will determines
How the individual household contributes to the
financing of the health system

• by ability to pay (a percentage of income)
• per capita (by size of family)
• per projected health care costs (by health status)

How the providers of health care (doctors,
hospitals, pharmacies, etc.) are paid for their
goods and services

• the same fee for the same service, regardless of
  the patients socio-economic status or age
• fees that vary with the patients socio-economic
  status

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II.FINANCING HEALTH SYSTEM
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FINANCING A HEALTH SYSTEM
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II.FINANCING HEALTH SYSTEM
A. Canada
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In Canada, the bulk of health spending (71) is
tax financed. The rest is financed by private
households, either by out-of-pocket payments
(16) or through private, supplementary health
insurance that covers services not covered by the
government-run, provincial health plans.
Employers to not purchase health insurance for
their employees. They contribute to health
insurance only through general taxation.
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CANADIAN HEALTH SPENDING 1999 BY SOURCE
Total 90 billion
SOURCE Commission on the Future of Health Care
in Canada, Final Report, 2003.
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SOURCES OF FUNDS FOR SELECT HEALTH CARE SERVICES
AND PRODUCTS NOT COVERED BY GOVERNMENTS MEDICARE
IN CANADA
SOURCE Commission on the Future of Health Care
in Canada, Final Report, 2003.
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B. The United States
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U.S. HEALTH SPENDING 2002, BY SOURCE
Total 1,548 billion
SOURCE Commission on the Future of Health Care
in Canada, Final Report, 2003.
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U.S. tax financed health care is really 60,
because government recycles taxes into private
health insurance.
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Private health insurers pay for about 35 of all
U.S. health care. Most (90) of all private
health insurance policies are purchased by
employers on behalf of their employees (although
that is not mandatory and not all employers do
it). Employer-provided health insurance is lost
when the job is lost.
In the U.S., governments directly pays for 46 of
all health care, although taxes directly and
indirectly finance 60 of all health spending,
because government recycles some taxes for health
care back through private health insurers.
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A large body of empirical research in the U.S.
has shown that privatizing tax-financed health
care in this fashion drives UP (not down) total
health spending.
It is so, because private insurers require a much
larger fraction of the premium (about 15 to 20)
for marketing, administration and profit than do
the simpler, government-run system.
Furthermore, private insurers do not have the
bargaining power over fees that government has.
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These data imply that marketing, administration
and profits range around 17 to 19 in private
health plans.
81 to 83
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III. THE ADMINISTRATIVE COST OF THE TWO SYSTEMS
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In a paper in the The New England Journal of
Medicine August 21, 2003 pp. 768-775) , Steffie
Woolhandler, Terry Campbell and David Himmelstein
have estimated that, if one combines the
administrative costs of all parties (employers,
government, private insurers and providers of
health care, Americans in 1999 spent 1,059 per
capita on administration and Canada only 307,
because that countrys largely single-payer
system is so much easier to administer.
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In the same issue of the NEJM, economist Henry
Aaron argues (not convincingly, in my view) that
these authors may have overestimated the gap in
expenses, he nevertheless agrees that
I look at the U.S. health system and I see an
administrative monstrosity, a truly bizarre
mélange of thousands of payers with payment
systems that differ for no socially beneficial
reason.
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Earlier, in a highly sophisticated comparison of
1990 German and American health spending, the
McKinsey Global Institute came to a similar
conclusion.
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(U.S. Dollars, Purchasing Power Parity)
(SOURCE McKinsey Gobal Institute, Health Care
Productivity, 1996, Exhibit 5.
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MY OWN CONCLUSION
Any nations government that would seek to
imitate the United States approach to financing
health care clearly does not have in mind the
best interest of its people.
The administrative costs visited on American
patients by the countrys pluralistic insurance
system are neither economically nor morally
defensible.
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IV. PRICE DISCRIMINATION AND SOCIAL VALUES
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DEFINITION OF PRICE DISCRIMINATION
Price discrimination in the context of health
care means that different prices are paid the
providers of health for the same health service,
depending on the insured persons insurance
status.
If that price is lower for patients of a low
socio-economic status (SES) than for persons of
higher SES, then one communicates to providers
that their work has a lower social value if
applied to low SES patients than it does if it is
applied to high SES patients.
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Should the health care given to any of these
children have the same value in the eyes of
society, regardless of these childrens
socio-economic status (SES)?
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CANADA
Canadians believe that the work of health-care
providers has the same social value, regardless
of whether the recipient of that work is rich or
poor.
Therefore, fees schedules in Canada (and other
payment systems) are uniform across each
provincial health plan. Payments made to
providers for particular goods or services do not
vary by the patients SES.
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UNITED STATES
In the united States, the fees paid providers do
vary with the insurance status of patients and
the market clout of the insurers vis a vis the
providers.
In general, for example, the state governments
pay providers for poor patients covered by
Medicaid fees that are much less than half of the
fees these legislators would pay providers for
their own family members (either directly or
through commercial insurance).
Interpreting this signal correctly, as economists
would predict, many American physicians will not
treat Medicaid patients, because society tells
them that such work has low value.
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TAKE-AWAY MESSAGE
Any nations government that would seek to
imitate the United States approach to financing
health care implicitly accepts the ethical
premise that the social value of health care
varies with the wealth of its recipient.
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V. GAPS IN HEALTH INSURANCE
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In Canada, there are virtually no uninsured
people, because all residents are required to
enroll in one of the countrys provincial health
plans.
By contrast, in the United States some 44 million
persons (16 of the population) are without
insurance at any moment in time, among them 5 to
7 million children. Health insurance is voluntary
in the U.S. It is treated as a consumer
servicelt not a social service.
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VI. HEALTH SPENDING
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HEALTH SPENDING PER CAPITA, SELECTED OECD
COUNTRIES, 2001 (IN PURCHASING POWER PARITY )
57 of U.S. level
SOURCE OECD DATA 2003
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PRICING KINDNESS OUT A OF KIND NATIONS SOUL
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VII. HEALTH STATUS
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A sizeable body of cross-national research has
shown that the higher U.S. health spending does
not translate themselves into

• superior health status indicators (on the
  contrary, they tend to be relatively poor albeit
  for reasons that may have little to do with
  medical care proper)
• higher satisfaction scores among the citizenry
  (on the contrary, the U.S. ranks at the bottom of
  the OECD on this score)
• higher satisfaction scores among physicians and
  hospital executives (on which the U.S. also
  scores relatively poorly).

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VIII. PEOPLES SATISFACTION WITH THE SYSTEMS
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PERCENT OF RESPONDENTS WHO SAID IN 2001 THAT
THEIR HEALTH SYSTEM NEEDS
SOURCE The Commonwealth Fund, Issue Brief May,
2002.
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IX. THE CHOICE BEFORE YOU IN A NUTSHELL
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THE END