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«Edited by ANNE MASON Research Fellow, Centre for Health Economics University of York and ADRIAN TOWSE Director, Office of Health Economics Radcliffe ...»

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evaluation of the current urban employee health insurance reform in China. Journal of the Asia Pacific Economy 10: 506–27.

Yip WC and Hsiao WC (1997) Medical savings accounts: lessons from China. Health Affairs 16: 244–51.


Discussion of Alan Maynard’s paper:

‘The public–private challenge in health care’... Dominique Polton Discussing priority setting in public and private health care, Alan Williams outlined the conceptions of healthcare systems associated with two competing ideologies: the libertarian ideology, which emphasises freedom and personal responsibility, and views health and access to health care as part of the reward system; and the egalitarian ideology, based on equal opportunity of access to health care, independently of income (Williams, 1988). They have polarised views on demand (demand-driven system versus priorities deter mined by social judgment about need), supply (profit versus professional ethic and financial constraint as incentives), adjustment mechanisms (market versus central planning and management pressures) and criteria of success (consumers versus citizens).

Interestingly, Alan Williams highlighted the gap between the idealised functioning of these two healthcare systems, as advocated by their adherents, and the way they work in practice. In private systems, market failures in the healthcare sector distort competition; in public systems, the supposed benevolent regulator tends to satisfy professional corporations and the immediate expectations of the population at the expense of cost-effective choices.


Alan Maynard uses this framework to analyse the ongoing reforms in various healthcare systems. He argues that these reforms are more inspired by a libertarian ideology than by evidence, notably reforms based on the regulation of demand through financial responsibility of individuals – as in the US, Australia or Hong Kong. Even in egalitarian health care systems where this notion of increased financial responsibility is set aside, competition and choice


tend to be viewed as solutions in themselves, leading to controversial policies as in the English NHS, such as increasing use of the private sector and reform of hospital tariffs policy.

There seems indeed to be a general libertarian trend in healthcare systems.

Since the beginning of the 1990s, the idea of introducing or reinforcing market forces in the healthcare sector has spread in countries with very different initial designs. In a country like the US, which was already largely reliant upon a private insurance market, competition increased during the managed care era.

Competition for enrolees between sickness funds has now been the rule in the Netherlands and Germany for more than a decade. The Netherlands has gone one step further with the 2006 reform, extending competition between private insurance funds for the whole population. Other trends include questioning the legitimacy of government rationing of health care and pressure for private funding to complement public coverage (e.g. the Supreme Court decision about private health insurance in Québec).

Most of these planned or implemented reforms tend to be designed on ideological grounds. The belief is spreading that elements of economic liberalism will solve the problems faced by healthcare systems, although this belief is not supported by evidence. For example, one of the expected outcomes of

competition between insurers is enhanced competition between providers:

in that respect, the evolution of the US system should lead to caution. The failure of the managed care as a structural solution to regulate the healthcare system was in part inherent to its dynamic, and shows the drawbacks of this type of competition. The system that has emerged from this failure is ever more individualistic, with the development of consumer-driven health plans and health-saving accounts (Polton, 2004).

The libertarian trend is also evident in the old European egalitarian systems. Whether it actually undermines the equity principles of these systems is debatable. A close analysis of four countries where elements of managed competition have been introduced (Belgium, Germany, the Netherlands and Switzerland) concluded that the impact was mixed, and found evidence of increased solidarity due to health insurance reform (which was sometimes an explicit aim) (Maarse and Paulus, 2003). One of the reasons is that despite their egalitarian inspiration, most European systems have historically allowed unequal treatment of populations through various mechanisms: professional fragmentation, incomplete coverage, exemption of the richest part of the population from public insurance, or opportunity to opt out or to get supplementary coverage etc. Thus so far there has been scope for improvements of solidarity, or explicit policies for reducing health inequalities, while introducing market-like elements such as prospective reimbursement, increase of private payments or competition between insurers or providers. However, it is necessary to monitor these developments carefully and to ensure that the equity objectives are preserved, in practice as well as in principle.

If these reforms are based more on ideology than on evidence, then what


would be an evidence-based policy to cope with the difficulties of all health systems – i.e. tensions between pressures to increase expenditures and public finance constraints, conflicting objectives of efficiency, equity, user satisfaction and cost control?


According to Alan Maynard, the obvious and straightforward solution is to tackle supply-side inefficiencies, which have been known for decades. On the contrary, the libertarian approach focuses on irrelevant issues of demand and funding. Indeed, the libertarians endorse the argument that healthcare expenditures will inevitably grow to justify regressive policies of increasing individual financial responsibility, although the real impact of these drivers of expenditures and their ineluctability are questionable.

I will argue that the funding and demand aspects cannot be so easily dismissed and need a real debate, taking into account that the real world is one of mixed systems. On the other hand, gaining efficiency on the supply side is invariably a very complicated process with modest achievements and very imperfect tools.

The funding of healthcare systems: a false debate?

The starting point of Alan Maynard’s demonstration is that the inevitability of expenditure increase is a false premise – and explains the focus on the question of how to finance the necessary funding (a frequent answer being to raise user charges, given public budget constraints). He argues that the alleged drivers of expenditures have less impact than is often argued (e.g. the ageing of the population), or that they result in an inefficient use of resources (e.g.

technological change).

The ageing of the population In contrast to the popular and journalistic view, health economists have repeatedly argued that the ageing of the population has in itself a limited impact on healthcare expenditures, because this process of change in the demographic structure is slow, as the nice metaphor used by Robert Evans (glacier or avalanche) suggests (Barer and Evans, 1995). The growing share of expenditures going to the elderly population is mainly the result of a drift in the health expenditure age profile, which is due not to higher morbidity, but to changes in practices and technological innovation (Dormont et al., 2006).

However the impact of ageing, even limited, will increase over the next decades (in variable proportions depending on the country), and will require extra funding, while other needs of the elderly population (pensions, long-term care) will put a growing pressure on the working population.

In addition, as Alan acknowledges, the debate on the evolution of health status associated with longevity (compression or expansion of morbidity) is


ongoing. There is mixed evidence and uncertainty for the future: the hypothesis of an increased burden of chronic diseases, such as diabetes, in a growing elderly population cannot be excluded.

Technological advance Alan Maynard argues that if new technologies put a pressure on healthcare expenditures, many are of no value in terms of health outcome: ‘the evidence base for a majority of healthcare interventions is absent and many practices may be little more than expensive placebos’. Following this line of reasoning, resisting the pressure of the lobbies on the supply side to introduce pseudotechnological advance and dispensing with ineffective care which brings no benefits to the population should be sufficient, without having to raise the issue of extra funding in health care.

However this argument is debatable, and Alan Williams himself expressed

an opposite view:

Both systems [i.e. public and private] have then to face the problem that the recent rapid growth of effective health care has led us to the point where no country (not even the richest) can afford to carry out all the potentially beneficial procedures that are now available, on all the people who might possibly benefit from them. So priority setting can no longer simply be a matter of eliminating ineffective activities... Priority setting now has to deal with the much more contentious high level efficiency problem of choosing where to be on the production possibility frontier, that is which mix of efficient activities to select from those that are open to us.

(Williams, 1988) The demand for health and health care Another controversial point concerns the demand for health care. The widely held view of ‘infinite demand’ obviously serves the interests of those who benefit from increased spending, as Alan Maynard points out. The health industry is indeed eager to endorse the view that health care is a luxury good,

prone to grow faster than income, and some economists support this position:

in France, a couple of years ago, a think tank of economists published a report defending the idea that policies rationing health care were nonsense and that the only legitimate limit was on public financing of these expenditures (Le Cercle des Économistes, 2004).

On the other hand, other economists have shown that there is no such thing as a demand for health care, in the sense of a classical demand function in economic theory (Rice, 1998). The widespread idea that health care is a luxury good has also been challenged: it is generally based on the observation that the share of health expenditures in GDP is positively linked with GDP.

But further research has shown that this elasticity may not be greater than one when other variables are taken into account (Gerdtham and Jönsson, 2000).


Besides, a relationship at the societal level reflects collective choices, which is different from individual choices.

Again, Alan Williams enlightens this issue in showing that although economists are very reluctant to use the concept of ‘need’, they cannot totally avoid it in health care, where the demand cannot play the role it plays in other sectors (Williams, 1974).

However, the fact that the mere confrontation of supply and demand is not the proper mechanism to determine the level of health insurance and health care consumed, as it is in other markets, does not mean that there is no demand for health care in the general sense, and no preference for health care over other desirable goods. People may prefer to use extra income to improve access to care, perhaps through public coverage. The question is of course which mechanism should be used to elicit preferences, which cannot derive from individual decisions of sovereign consumers, and should reflect democratic choices. But there is no reason to exclude a priori an increase of funding for health care from these choices.

For all these reasons, the issues of demand and extra funding are not irrelevant. The question is: how should a potential increase of healthcare expenditures be financed?

If more funding is necessary or desirable, how should it be organised?

For pedagogic purposes, we often use typified situations and simplify reality in order to conceptualise it. In this sense, the opposition between the libertarian and egalitarian views is helpful. But in practice, a totally libertarian system does not exist: even countries such as the US, who rely strongly on market forces, had to ensure access to health care for high-risk and low-income people who would not have been covered by private insurance. Nor does a totally egalitarian system exist: none of our European systems is purely public or egalitarian, as all allow some private funding and/or private insurance.

In some countries, public and private insurance cover separate populations, e.g. in the Netherlands before the 2006 reform, with 30% of the population (i.e. those with higher income) being covered by private insurance; to a lesser extent, the same is true in Germany. In other countries, private insurance buys goods and services that are excluded from public coverage (such as drugs or dental care). Elsewhere, private insurance allows access to providers that are not funded through public insurance, as in the UK (private hospitals). In some

countries, there is no separation based on populations, goods or providers:

private insurance complements public insurance, either financially (to fund co-payments as in France) or in terms of quality of care (to buy better access, as in Ireland) (Polton and Rochaix, 2004).

In all countries, there are user charges and some healthcare expenditure that is not publicly financed. Generally, individuals with high expenditures and/or low incomes are likely to face lower co-payments. Yet out-of-pocket costs may result in financial barriers and inequity of access.


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