NBER WORKING PAPER SERIES

THE CHANGING ROLE OF GOVERNMENT IN FINANCING HEALTH CARE:AN INTERNATIONAL PERSPECTIVE

Mark StabileSarah Thomson

Working Paper 19439http://www.nber.org/papers/w19439

NATIONAL BUREAU OF ECONOMIC RESEARCH1050 Massachusetts Avenue

Cambridge, MA 02138September 2013

We thank Carolyn Tuohy, the European Health Policy Group, and particularly Janet Currie, for manyhelpful comments and advice. We also thank Matthew Townsend, Ellie Hukin and Katie Bates forexcellent research assistance. The views expressed herein are those of the authors and do not necessarilyreflect the views of the National Bureau of Economic Research.

NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies officialNBER publications.

© 2013 by Mark Stabile and Sarah Thomson. All rights reserved. Short sections of text, not to exceedtwo paragraphs, may be quoted without explicit permission provided that full credit, including © notice,is given to the source.

The Changing Role of Government in Financing Health Care: An International PerspectiveMark Stabile and Sarah ThomsonNBER Working Paper No. 19439September 2013JEL No. I1,I13,I18

ABSTRACT

This paper explores the changing role of government involvement in health care financing policy outsidethe United States. It provides a review of the economics literature in this area to understand the implicationsof recent policy changes on efficiency, costs and quality. Our review reveals that there has been someconvergence in policies adopted across countries to improve financing incentives and encourage efficientuse of health services. In the case of risk pooling, all countries with competing pools experience similardifficulties with selection and are adopting more sophisticated forms of risk adjustment. In the caseof hospital competition, the key drivers of success appear to be what is competed on and measurablerather than whether the system is public or private. In the case of both the success of performance-relatedpay for providers and issues resulting from wait times, evidence differs both within and across jurisdictions.However, the evidence does suggest that some governments have effectively reduced wait times whenthey have chosen explicitly to focus on achieving this goal. Many countries are exploring new waysof generating revenues for health care to enable them to cope with significant cost growth. However,there is little evidence to suggest that collection mechanisms alone are effective in managing the costor quality of care.

Mark StabileUniversity of Toronto14 Queen's Park Cres. W.Toronto, ON M5S 3K9CANADAand NBERmark.stabile@utoronto.ca

Sarah ThomsonCowdray HouseLondon School of Economics and Political ScienceHoughton StreetLondon WC2A 2AE UKS.Thomson@lse.ac.uk

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I.Introduction AlargepartoftherecentdebateoverhealthcarereformintheUnitedStatesfocusedonhowmuchgovernmentinvolvementisappropriateinthehealthcaresector.NationsacrosstheOECDensureuniversalaccesstohealthcarefortheircitizensthroughnationalorregionalriskpoolingfinancedbymandatoryincome‐relatedcontributions(premiums).Ensuringuniversalprotectionagainstthecostsofhealthcareandcontrollingpublicexpendituresrequiresasignificantdegreeofnationalorregionalmanagement‐‐acommonfeatureacrossthesecountries.YetnotwohealthsystemsareidenticalandOECDcountriesachievethisgoalinavarietyofdifferentways.Manyhealthsystemsmakesubstantialuseofmarketmechanisms,forexample,despitehavingextensivepublicfundingandregulation.

ThispaperexploresthechangingroleofgovernmentinvolvementinhealthcarefinancingpolicyoutsidetheUnitedStates.Itprovidesareviewoftheeconomicsliteratureinthisareatounderstandtheimplicationsofrecentpolicychangesonefficiency,costsandquality.Economistsandhealthpolicyresearchershavewrittenextensivelyonthedifferencesinhealthcarecostsandcoverageratesacrosscountries.Inthesetwoareas–shareofGDP(grossdomesticproduct)spentonhealthandshareofpeoplewithoutanyformofhealthcoverage–theUShaslongbeenanoutlier.However,whiletherearemanysimilaritiesacross‘therest’ofthecountriesintheOECDtherearealsosubstantialdifferencesinpolicydesign.Inaddition,significantpolicychangesinthelasttenyearshaveinsomecasesledtoadegreeofconvergencewiththeUS.ExamplesincludetheintroductionofauniversalmandateintheUnitedStates,themovetowardsacompetitivehealthinsurancemarketinGermanyandtheNetherlands,andtheadoptionofmarket‐likemechanismssuchasactivity‐basedfundingtopayhospitals,selectivecontracting,andprovidercompetition.

TobetterunderstandhowOECDhealthsystemsbothdifferfromandhaveconvergedtowardsthehealthsystemintheUnitedStatesoverthepastdecade,andtoorganizethevastliteratureonfinancinghealthcare,wespecifythreefinancingfunctionspresentinanyhealthsystem,whethermadeexplicitornot:raisingrevenueforthehealthsystem(collection);poolingrisk;andpurchasingservices(Kutzin,2001).Afourthdimension–makingcoveragedecisions(whom,whatandhowmuchtocover)–cutsacrossthethreefunctions,asshowninFigure1.Weusethisframeworktoexploretheeconomicliteratureontherelationshipbetweenthefinancingfunctionsandhealthsystemperformance,drawingonrecentworkfromtheUnitedStateswhenappropriate. Thereareotherusefulwaysofcharacterizinghealthsystems.Forexample,Reinhardt’staxonomyofthecomponentsofhealthsystemsdistinguishesbetweengovernment,not‐for‐profitandfor‐profitontheproductionsideandsocialinsurance,privateinsuranceandnoinsuranceonthefinancingside(Reinhardt,2009).WeuseKutzin’sframeworkforthefollowingreasons.First,itallowsforacomparisonofanytypeofhealthsystem,andavoidstheuseoftraditionallabels(e.g.‘taxfinanced’or‘socialinsurance’).Thishastheadvantageofrevealingratherthanobscuringvitalsimilaritiesanddifferencesbetweensystemsinthewaythatmanyclassificationsdo.Second,itenablesustogetawayfromtermssuchas‘private’or‘public’,shiftingtheemphasisontodifferencesinhowcountriescarryoutthefunctionsasopposedtodifferencesinthelegalstatusoftheagents

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responsibleforcollection,poolingandpurchasing.Third,itallowsustofocusthereviewonfunctionsratherthanontoolsandgoals.Whilemanycountriesincludeequity,forexample,amongthegoalsofthesystem,thisgoalisaffected,undereachfunction,bythenatureofthetoolsinuse.Similarly,taxesandregulationarewidelyusedtoolsratherthanfunctionsofthehealthcarefinancingsystem.Fourth,theframeworkhighlightshowhealthfinancingfunctionsaremoreorlessindependentofeachother;decisionsabouthowtopoolrisksandpurchaseservicescanbemadeirrespectiveofhowrevenuesareraised.

Theresearchgoalsforthispaper,then,aretoexploretheeconomicimplicationsofthedifferentwaysinwhichOECDhealthsystemscarryoutthefinancingfunctions,howpolicychangeshaveresultedinmoremarketforceswithinthesejurisdictions,andtheeffectsofthesechangesonsystemefficiency,costs,andoutcomes(quality).WedonotrevieworevaluatetheliteratureexaminingthejustificationforgovernmentinterventioninthehealthsectorbecausethegovernmentplaysamajorroleinfinancinghealthcareinallOECDcountries,includingtheUnitedStates.Also,whileweanalyzetheefficiencyandeffectivenessofanumberofpolicyinterventionsonparticularpopulations,weareoftenunabletomakeclaimsabouttheoverallwelfareimplicationsofgovernmentinterventioninthecountriesweexamine.

Ourreviewrevealsthattherehasbeensomeconvergenceinpoliciesadoptedacrosscountriestoimprovefinancingincentivesandencourageefficientuseofhealthservices.Inthecaseofriskpooling,allcountrieswithcompetingpoolsexperiencesimilardifficultieswithselectionandareadoptingmoresophisticatedformsofriskadjustment.Inthecaseofhospitalcompetition,thekeydriversofsuccessappeartobewhatiscompetedonandmeasurableratherthanwhetherthesystemispublicorprivate.Inthecaseofboththesuccessofperformance‐relatedpayforprovidersandissuesresultingfromwaittimes,evidencediffersbothwithinandacrossjurisdictions.However,theevidencedoessuggestthatsomegovernmentshaveeffectivelyreducedwaittimeswhentheyhavechosenexplicitlytofocusonachievingthisgoal.

Therestofthepaperisorganizedasfollows:webeginwithabriefoverviewofthecountriesweconsiderinthisreview.WethenexploretheeconomicsliteratureoutsidetheUnitedStatesforeachofthefinancingfunctionslistedabove,examiningtheconsequencesofpublicpolicychoicesmadearoundfinancinghealthcare.WereviewthetheoreticalliteraturewhereitguidesdifferencesbetweentheUnitedStatesandotherjurisdictions,althoughourfocusisontheempiricaleconomicanalysisofhealthcarefinancingpolicychoicesinternationally.Wethensummarizetheimplicationsoftheevidenceandoffersomegeneralconclusions.2.Backgroundinformationonselectedcountries

Althoughwehavenostrictcriteriaforacountry’sinclusioninourreview,werestrictourfocustorecentliteratureonhealthcarefinancingpublishedineconomicjournalsinEnglish.Asaresult,alargeamountoftheworkreviewedherefocusesonasmallnumberofcountries:Australia,Canada,France,Germany,Switzerland,andtheUnitedKingdom.

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Figure2comparesthefinancingmixinthesecountriesandintheUnitedStatesin2011orthemostrecentyearforwhichdataareavailable.Itshowshowallsevencountriesusethefullrangeoffinancingmechanisms.Publicfinance(generalandearmarkedtaxes)dominatesanditssharehasgrownslightlyovertimeinallexceptGermany.TheUKreliesmostheavilyongeneraltaxesfollowedbyCanadaandAustralia,althoughtheextentofthedifferencebetweenthecountriesispartlyanartifactarisingfromthewayinwhichthedataarepresented.Statutoryhealthinsurance(SHI)funds(fundsthatarecompulsoryandenforcedbylaw)inmostEuropeancountriesobtainsomeoftheirrevenuefromothertaxsourcesinadditiontopayrolltaxes.Internationally,healthfinancingdataarebrokendownbyexpenditureagentratherthanbycollectionmechanism.Thishastheeffectofobscuringthetrue‘source’ofpublicrevenuesforthehealthsector.Incountriesinwhichpurchasersarestatutoryhealthinsurancefunds,somenon‐payrolltaxrevenueisinvisibleininternationalstatistics,evenwhenitmaybesubstantial;inFranceitaccountsforoverathirdofSHIrevenue(Chevreuletal.2010).Thecorollaryisthatpayrolltaxrevenuemaynotvisibleincountrieswherecentralgovernmentagenciespoolfundsandpurchasehealthservices;intheUKitaccountedforalmost20%ofNationalHealthService(NHS)revenuein2007,thelatestyearforwhichthisfigureisavailable(Boyle2011).

OECDdataindicatethatsixoutofthesevencountriesenjoyuniversalcoverage(Table1a).Thebasisforentitlementtostatutorycoveragevariesacrossthecountriesandhaschangedovertimewithincountries.EntitlementisbasedonresidenceinEngland,Canada,Australia,andFrance,whileGermanyandSwitzerlandemployuniversalmandates.UniversallycompulsorycoverageisarelativelyrecentdevelopmentinFrance,GermanyandSwitzerland.Switzerlandintroducedcompulsoryuniversalcoveragein1996toaddressconcernsaboutunequalaccesstohealthinsurance,gapsincoverageandrisinghealthexpenditure(Crivelli2013inpress).Before2000statutoryhealthinsuranceinFrancewascompulsoryforworkersandtheirdependantsandvoluntaryforeveryoneelse;thosewhocouldnotaffordtopaythefixed(non‐income‐related)contributionforvoluntarycoveragereliedonlocallyadministeredgovernmentsubsidies(Chevreuletal.2010).In2000Francebrokethelinkwithemploymentandextendedincome‐relatedcontributionstoallresidents,withfreeaccesstohealthinsuranceforthosewithverylowincomes.In2009Germanyintroducedcompulsoryuniversalcoveragetostemthegrowingnumberofuninsuredpeople(vanGinnekenandBusse2009),butitmaintainedthelinkbetweenstatutorycoverageandemployment.

GermanyistheonlyOECDcountrytoallowhigherearnerstooptoutofcontributingtothestatutoryhealthinsuranceschemeandbeprivatelycoveredinstead.Voluntary(private)healthinsuranceplaysarangeofrolesacrossthesevencountries,asshowninTable1a.WiththeexceptionoftheUS,however,itscontributiontototalspendingonhealthdoesnotexceed15%.Measuredintermsofcontributiontototalspendingonhealth,France,GermanyandSwitzerlandhavethreeofthefourlargestmarketsforvoluntaryhealthinsuranceinEurope(ThomsonandMossialos2009).

CollectionagentsforthedominantpublicfinancingmechanismrangefromnationaltaxagenciesinEngland,Canada,andAustraliaandthenationalsocialsecurityagencyinFrance,toindividualhealthinsurancefundsinGermanyandSwitzerland.AlmostuniquelyinEurope,Swisshealthinsurancefundsarefreeto

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settheirowncontributionrates(Thomsonetal.2009)(Table1b).Incontrast,contributionratesinFranceandGermanyaredeterminedbycentralgovernment,longthenorminFrancebutarecentdevelopmentinGermany(introducedin2009)(OgnyanovaandBusse2009).Switzerlandisuniqueintwootherways.First,itusescommunity‐ratedratherthanincome‐relatedcontributionstofinancestatutorycoverage,andthesecanvarysignificantlyacrossfunds,eveninthesameCanton(region).Second,itrequiresallcitizens,includingdependentadultsandchildren,topaypremiums,whereasinFranceandGermanystatutoryhealthinsuranceautomaticallycoversdependentsatnoextracosttothehousehold.Francealsoexemptsadultswithannualtaxableincomesbelow€9,020frompayingcontributions(about2.3%ofthepopulationin2006)(Chevreuletal.2010).

Tosecurefinancialprotectionforlow‐incomehouseholdstheSwissCantonsoperateasystemofpremiumsubsidieswithinparametersdefinedbythefederalgovernmentbutwithleewaytoseteligibilitythresholdsforsubsidiesandtodeterminethemagnitudeofsubsidies.Untilrecently,thefederalgovernmentusedasystemofmatchinggrantstoencourageCantonstoofferaminimumlevelofsubsidy.Inspiteofthis,therecanbelargedifferencesacrossCantonsineligibilityforsubsidiesandhouseholdpremiumcosts(Thomsonetal.,2013).Theothercountriesavoidtheneedforadministrativelycomplexandpotentiallyinequitablesubsidiesbyimposinganationalcontributionrateandlinkingcontributionstoincome.

AsintheUS,peopleinGermanyandSwitzerlandhavechoiceofhealthinsurerforpubliclyfinancedbenefits(Table1b).Insurerscompeteforenrolleesandaresubjecttosomeformofriskadjustmentmechanism,tolowertheirincentivetoselectrisks.

Intermsofhealthcaredelivery,patientsinallofthecountriescangenerallychoosetheirphysicianandhospital.Gatekeeping(therequirementforareferralforaccesstospecialistcare)iswidelyencouraged,oftenthroughfinancialincentives.Allsevencountrieshaveexperimentedwithdifferentwaysofpayingproviders.Fee‐for‐servicepaymentofphysicianscontinuestodominateinallexceptEngland,whileactivity‐basedfundingthroughdiagnosis‐relatedgroups(asystemwhichclassifieshospitalcases/proceduresintogroupsandthenassignspaymentpricesforthesegroups,commonlyreferredtoasDRGs)israpidlybecomingthenormforpayinghospitals.EffortstolinkproviderpaymenttoperformancefeatureinallexceptCanadaandSwitzerland.3.GeneratingandCollectingRevenue Howsystemstransfermoneyfromindividualstoprovidershasimplicationsfortheefficiencyofboththehealthsystemandtheeconomythroughemploymenteffectsanddeadweightloss.Italsoaffectsfinancialprotectionforindividualsagainstlossandthepoolingofriskandmayalsoaffecttherateofgrowthofhealthcarecostsandtheresponsivenessofthehealthsystemtochangesineconomicactivity.Publiclyfinancedhealthcareisusuallygeneratedviatwocollectionmechanisms‐generaltaxesandearmarkedtaxes(oftenreferredtoassocialinsurancecontributions,particularlywhenleviedonwages)–andoftensupplementedbyuserfees.Generaltaxesandsocialinsurancecontributionsaffect

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themedicalsectordirectlyonlybecauseofpoliticaleconomyconsiderations,whileuserfeeswillhavedirecteffectsonthemedicalsector.Thissectionfirstconsiderstherelativeefficiencyofgeneraltaxesversusearmarkedtaxesthenlooksatuserfees.ThemajorempiricalfindingsarehighlightedinTable2.GeneralandEarmarkedTaxes

Therelativeefficiencyofdifferenttypesoftaxesusedtofinancehealthsystemshasbeenexploredinthepublicfinanceandhealtheconomicsliterature.Theequityandefficiencypropertiesofgeneraltaxation(c.f.Auerbach,1985)donotdifferdependingonwhetherthemoneyisspentonhealthoreducationperse,althoughifthelevelofgovernmentthatcollectsrevenuediffersfromthelevelofgovernmentthatprovideshealthcoveragetheremaybeequityissuesandissuesaboutwhethertheleveloftaxationbestmeetslocaldemandfortheservicesrequired(c.f.AhmadandBrosio,2006).Ofcourse,theamountofdeadweightlossassociatedwithanyrevenuegenerationwilldependonthebalanceandtypeoftaxesusedtoraisetherevenue.Onceagain,standardpublicfinancetheoryontherelativedeadweightlossofincomeversuspayrollversusconsumptiontaxesapply,regardlessofthegoodbeingpurchasedwiththerevenue(Sandmo,1976). Economictheoryontherelativeefficiencyofsocialinsurancecontributionsversusgeneraltaxessuggeststhatwherethecontributionsareappliedtoanentirepopulationorgroup,withoutoption,andwithoutdirectlinkagetothebenefitreceived,thecontributionisequivalenttoatax(Blomqvist,2011).Ifthecontributionprogramisdirectlyrelatedtothebenefitprogram,thenonlythedifferencebetweenthecontributionrequiredandthevalueofthebenefitreceivedwillbetreatedasatax.Althoughthepublicfinanceliteratureoutlinestheinefficienciesinherentinearmarkedfunding,ifcontributionsareearmarkedforhealthcaretheremaybepoliticaleconomyreasons(suchtransparencyandgreaterprotectionfrompoliticalinterference)whyvoterspreferthemtotaxes(MossialosandDixon,2002).

Somesystemsmandateindividualstoobtaincoveragethroughanetworkofinsurersandmayallowinsurerstocollectsomeoralloftherevenue.Insuchcasespartorallofthecontributionmaybeleviedintheformofacommunity‐ratedpremiumratherthanasaproportionofincome.Theremaybeasingleriskpoolormultipleriskpoolswithorwithoutpublicsubsidy(weturntothisissueinmoredetaillater).Whethergovernmentcollectionofrevenuesissuperiororinferiortoothermechanismsforensuringfinancialsecuritysuchasmandatingcoveragedependsonanumberoffactors(exploredinSummers,1989).First,mandatesandtaxesonlaborcanaffectthelevelofemploymentandwages.Theextentdependsonthesupplyofanddemandforlaborandconsequentdeadweightloss.Mandates,iftheyareimplementedasbenefitsperworker,willoperatesimilartoalumpsumtax.Ifcertaintypesofemploymentareexempt(suchaspart‐timework)mandatesmayhavelargeeffectsonthedemandforfull‐timeversuspart‐timework.Second,healthcoverageleadstoanincomeeffect,thesizeofwhichdependsontheindividual’svaluationofthehealthcoverage.Third,thegovernanceofpublicinsuranceissubjecttotheusualpoliticaleconomyproblemsofgovernment.

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Gruber(2000)providesasimpleformalizationofthisanalysisthatisusefulforunderstandingtheemploymenteffects.Supposelabordemand,Ld,isgivenby:Ld=fd(W+C)whereWiswagesandCisinsurancecost;andlaborsupplygivenby:Ls=fs(W+αC)whereαCisthemonetaryvaluethatemployeesplaceonhealthinsurance.Inthiscaseαisthevaluationofthemarginaldollarofhealthinsurance.Thenitisthecasethat:

W

C

d s

d s

whered and s aretheelasticitiesofdemandandsupplyforlabor.Grubernotesthatthisequationdiffersfromthestandardincidenceofataxonlaborbytheterm s which“capturestheincreaseinlaborsupplyduetoemployeevaluationofmoreexpensiveinsurance”(Gruber,2000,p.660).

Valuationsofα<1maybemorelikelyunderpubliclyprovidedcoverageormandatesascontributionstothesystemaretypicallydisconnectedfrombenefitsreceived.Thisdisconnectoccurswheneverredistributionisanimportantelementofthepublicinsurancearrangementandisminimizedifbenefitsarevaluedattheirfullcost.Whereinsuranceisprovidedevenifindividualsdonotwork,thenthevaluationofthebenefit(α)willbecloserto0thanifbenefitsareonlyavailabletoworkers(dependingonanydifferenceincoveragebetweenworkersandnon‐workers)andthecostwillhavealargernegativeeffectonemployment.

Giventhatmandatedinsurancecanbelessredistributivethanpubliclyprovidedcoverage,doesnotnecessarilyinvolvecentralizedrevenuecollection,anddoesnotgenerallyinvolvegovernmentprovisionofinsuranceorservices,itisarguablethattheseinefficienciesaresmallerformandatesthanforpubliclyprovidedinsurance.Summers(1989)thereforeconcludesthatmandatesaretobepreferredtopublicprovision.Ontheotherhand,transactioncostsandtheeffectivenessofmandatesmaybeamatterofconcern.Avarietyofothereconomicandpoliticalfactors,includingadesiretoredistributethroughthehealthinsurancesystem,maycausesystemstodeviatefromthetheoreticallysuperioroutcome.

Manyhealthsystemsexplicitlyorimplicitlyaimtoredistributeincomefromhigher‐tolower‐incomeindividuals.Theextentofthisredistributionisanotapriorirelatedtothefinancingmechanismused,althoughhealthsystemsfinancedthroughgeneraltaxrevenuestendtobemoreredistributiveinpracticethanthosefinancedthroughsocialinsurancecontributionsandthosethataremoreprivatelyfinanced(Wagstaffetal,1992;Wagstaff,2010).Payrollcontributionsareoftencapped,unlikeincometaxes,andiftheyareprogressiveinsteadofproportional,theytendtohavesmallerincreasesinthemarginalrateastheymoveuptheincomescale.Anotherimportantelementoftheextentofredistributionwillbetheutilizationofthesystembyhigh‐versuslow‐income

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individuals.Oncedifferencesinaccessandlifeexpectancyaretakenintoaccount,itmaybethecasethatthemarginaldollarallocatedtohealthcareislessredistributivethanadollarallocatedtoeducationorincomeassistancebecausehigherincomeindividualsarelikelytolivelongerandthereforebenefitmorefromthepubliclyfinancedhealthcaresystem(Glied,2008).

Thereisalong‐standingdebateintheliteratureonwhetherhealthsystemsfinancedthroughgeneraltaxrevenuesarebetterabletocontrolhealthcarecoststhanthosefinancedthroughsocialinsurancecontributions,andontherelationshipbetweenfinancingstructureandhealthoutcomes.Oneofthedifficultieswiththeliteratureisthatcharacterizingahealthsystembyitsprimarysourceoffinanceisakintopaintingwithanextremelylargebrush.Notwotax‐financedorsocialinsurance‐financedsystemsarealike;forexample,theUKandCanadaarebothtaxfinanced,buttherearefewothersimilarities.Inonerecentstudy,Wagstaff(2009)usessystemchangesfromgeneraltaxfinancingtosocialinsurancewithinOECDcountriesbetween1960and2006toexaminewhethersocialhealthinsuranceleadstoincreasedordecreasedcostgrowth.Lookingatchangeswithincountriesovertimepotentiallyovercomestheproblemsofcomparisonsacrossverydifferentsystems.However,largechangesinfinancingaresomewhatrare,andmaybeafunctionofotherunderlyingeconomicconditionsalsorelatedtopublicspending.Totryandaccountforthefactthatswitchingispotentiallyendogenous,thesemodelsincludebothdifference‐in‐differencemodelsandIVmodels(usinglagsofthesocialinsuranceindicatorvariableasaninstrument).Thefindingssuggestthatthereisanincreaseinhealthcarecostsof3to4percentassociatedwithamovetosocialinsuranceandthatthismoveisrelatedtoadeclineinformalsectoremploymentof8to10percent.Someofthedeclineinformalsectoremploymentmaysimplyinvolveashifttonon‐formalemployment(presumablytoavoidthecostsassociatedwithsocialinsurancepremiumsinformalemploymentsettings)astheestimatesonoverallemploymentlevelsaresmallerandlessrobust.Thestudyfindsnoevidencethatthetransitiontosocialinsuranceresultsindeclinesinavoidablemortality(deathsfromspecificconditions,suchasdiabetes,whichshouldnotoccuriftimelyandeffectivecareisavailable).Theresultsaredrivenbythosecountrieswhichtransitionedfromsocialinsurancetotaxfinancedorviceversa,includingDenmark,Sweden,Italy,andSpainwhomovedawayfromsocialinsurance,andanumberofeasternEuropeancountrieswhomovedtowardit. Arelatedpaper(WagstaffandMoreno‐Serra,2009)usesasimilarmethodologytolookatadifferentsetofcountriesandtimeperiod.TheyexaminetransitionsbetweenonefinancingstructureandanotheramongEasternEuropeanandAsiancountriesbetween1990and2003.Thesetransitionswererelativelylargeandfastcomparedtotheslowerevolutionofmoredevelopedhealthcaresystems.Theyfindevenlargerresultsforthetransitionfromgeneraltax‐financedtosocialinsurancefinancing.Theirestimatesofincreasesinspendingpercapitaareintheorderof11percent,witha3percentincreaseininpatientadmissions(althoughaveragelengthofstaydeclined).Onceagain,therewasnoevidenceofdifferencesinhealthoutcomesasaresultoffinancingtransitions.WagstaffandMoreno‐Serrasuggestthatphysiciansinthesecountriessawthetransitionasanopportunitytoincreaseresourcesinthesystemandthereforetheirincomeswhichmayhelpexplainsomeoftheresults.Theyalsohypothesizethatthetransitiontosocialinsuranceleadtolessintegratedsystemsleavingsomepeople

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slowtosignupforinsuranceandothersnotcapturedbypreventionprograms,bothpotentiallyleadingtoincreasedoverallcosts.However,thefactthattheyfindnooverallchangeinoutcomessuggeststhatthemagnitudeofthesetypesofeffectsmusthavebeenfairlysmall. ArecentpaperbyCylusetal.(2012)explorestherelationshipbetweencollectionmechanism(tax‐financedversussocialinsurance)andtherelationshipbetweeneconomicdownturnsandhealthcarespending.UsingOECDdataonwithincountryvariationsforseveralEuropeancountries,theauthorsestimatemodelsoftherelationshipbetweenchangesinGDPandchangesinpublichealthcareexpenditures.TheyfindthatgrowthinpublichealthcareexpendituresismorestronglyassociatedwithchangesinGDP(positively)intax‐financedcountriesthanincountriesprimarilyfundedthroughsocialinsurancecontributions.Theresultsstemfromcostshiftingandotherpolicychangesintaxfinanced‐countriesthatoccurredineconomicdownturns.Whilepolicyresponsestoeconomiccrisesareclearlypossibleinsocialinsurancecountriesaswell,costshifting(mainlyontousers)didnotoccurtothesameextent.Theauthorshypothesizethattax‐financedcountriesare,ingeneral,moresusceptibletogovernmentdecisionstoreducecostsintimesofeconomiccrisis.

Finally,recentworkbyBaickerandSkinner(2011)modelstheefficiencyofraisingrevenuestofinancerisinghealthcarecostsintheUS(andelsewhereashealthcarecostsarerisingmorequicklythaneconomicgrowthinmanyOECDcountries).Theauthorsdevelopamacroeconomicmodelthataccountsforincreasesinhealthcarespendingthatimprovelongevitybutneedtobefundedthroughincreasedtaxation.Inacomparisonofraisingrevenuethroughincreasedmarginaltaxratesversuslessprogressivepayrolltax,theyfindsubstantialdeclinesineconomicgrowthwiththeformer:an11percentdeclineinGDPrelativetothebaselineofnodistortionaryimpactoftaxfinancing.Theefficiencycostsarelowerwhenlessprogressivetaxesareusedtofinancetheincreaseincosts,althoughthisisassociatedwithlowerincomeindividualspayingalargershareoftheoverallcosts.Notsurprisingly,theefficiencycostisalsolowerwhenlessrevenueisrequiredtoachievethesamehealthgains(increasedproductivityofhealthspending).

CostSharingandUserFees

Thethirdcollectionmechanismusedinavarietyofhealthsystemsisuserchargesorfees(co‐paymentsandotherformsofcostsharing).Thesegenerallyconsistofsomeformofpositivepricechargedtotheuseratthepointofserviceandfromaneconomictheorypointofviewcanallbemodeledasconsumerprices(SchokkaertandVandeVoorde,2011).Userfeesgenerallyhavetwopurposes,firstasamechanismforrevenuecollection,andsecondasamechanismtoachieveamoreefficientallocationofresources.Regardingthesecond,allocativeefficiency,severalstudies(c.f.Pauly,1974)haveshownthatinthepresenceofmoralhazard,theoptimaltheoreticalsolutionincludessomecostsharingforsomeservices.Theprincipalproblemhereisthattheindividualhasinformationandcontroloverfuturehealthstatesthattheinsurercannotobserve.Thismoralhazardproblemresultsintheindividualconsumingexcesscareandtakinglesspreventativeaction.Theoptimalsolutioninthiscaseisfortheinsuredindividualtoretainpart

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ofthelosses(Pauly,1974).Othershavearguedthatfornon‐electiveprocedurescostsharingmayleadtoinefficientoutcomesasindividualsplaceahighvalueonthecarepurchasedfrominsurancepayoutswhenill.Inthissettingindividualspurchaseinsurancenottoavoidrisknecessarily,butforaclaimonadditionalincomewhensick(Nyman,2003).

Inthecaseofcostsharingforthepurposeofrevenuecollection,itisnotclear,giventheadministrativecostsinvolved,andtheequityconsiderations,thatuserfeesareanoptimalmeansofsupplementingtaxesandcontributionsindevelopedhealthsystems.SchokkaertandVandeVoorde(2011)notethatstrictassumptionsaboutthelimitationsofpublicfinancingmechanismsforthehealthcarebudgetarerequiredforuserfeestobeoptimalasapartoftherevenue‐raisingbasket,namelythatthatgovernmentsubsidiesremainfixedinthepresenceofuserfees(i.e.thatgovernmentfundsarenotcrowdedout)andthattheadditionalrevenueisusedtoincreasethequantityorqualityofhealthservices.

InternationalevidenceontheeffectsofvariousformsofuserfeesasasupplementalcollectionmechanismisconsistentwiththeoryandevidencefromtheUnitedStates.EvidencefromCanada,forexample,whichexamineshowindividualswhoneedtopayoutofpocketforprescriptiondrugsusecarerelativetothosewhodonot,suggestsanegativedemandelasticityintheorderofthosefoundintheRANDexperiment(around‐0.2forprescriptiondrugcoverage)andgreateruseofpubliclyfinanceddoctorservices(Finkelstein,2002;Stabile,2001).EvidencefromCanadathatexaminesincreasesinuserfeesforprescriptiondrugsalsofindsnegativehealtheffectsandincreasedemergencyroomuseforolderandlow‐incomeusers(Tamblynetal.,2001).EvidencefromFrance,wherevoluntaryhealthinsurancereimbursesuserfeesforpubliclyfinancedservices,suggeststhatvoluntaryinsuranceincreasesutilizationand,therefore,publiclyfinancedcosts(Buchmuelleretal.,2004).Therelationshipbetweenout‐of‐pocketpricesandutilizationholdsinanumberofothercountriesintheOECDandacrossabroaderspectrumoflow‐andmiddle‐incomecountries(GertlerandHammer,1997).UsingtheintroductionofreferencedbasedpricinginpartsofCanadaasaquasi‐experiment(whereafeeisappliedtoauserifhe/shechoosesadruginthesameclassasthereferencedrugbutatahighercost),GrootendorstandStewart(2006)findonlymodestdeclinesinoveralldrugexpenditurewhencomparingchangesinexpendituresintheprovincethatintroducedreferenced‐basedpricingtothosethatdidnot.However,theauthorsnotethatpartofthereasonforthesmallbehavioralresponsefoundheremaybethatthepolicywaseithernotapplicableornotbindingformanyusers,limitingthepotentialforsavings.Thereissomeevidenceofmovementtowardsstrategiesthatpromoteefficiencythroughvalue‐basedcostsharing(usingcostsharingtoencouragepatientstousemedication,services,andprovidersthatofferbettervaluethanotheroptions)ratherthansimplyapplyinguserfeesacrosstheboard(Stabileetal,2013).

Overall,theevidencesummarizedaboveandreportedintable2reveals

policychangesacrosscountriestoimprovefinancingincentivesandencourageefficientuseofhealthservices.Theevidencesuggeststhatcollectionmechanismsalonearenoteffectiveinmanaginghealthcarecostsorquality.Someevidencesuggeststhatfinancingthroughsocialinsuranceisassociatedwithhighercostgrowthovertimethanfinancingthroughgeneraltaxrevenues,butpublic

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spendingonhealthtendstotrackGDPmoreclosely(particularlyinrecessions)intax‐financedsystemsthaninsystemsfinancedthroughsocialinsurance.

4.PoolingRisk Thissectionexaminestheliteratureonoptionsforpoolingriskandmanagingadverseselectionandimplicationsforhealthsystemefficiencyandcosts.ThemajorempiricalfindingsarehighlightedinTable3.Problemswithadverseselectionhavelongbeenrecognizedinthehealthinsuranceliterature.Individualswithhigherexpectedcostswillbemorelikelytoseekmoregenerousinsurance,andinsuranceprovidersinavoluntarycompetitivemarketwillneedtopriceinsuranceofferingsatcostsabovetheaveragevalueofthebenefitspackagetooffsetthehigherexpectedcostsofbothbenefitsandselection(CutlerandReber,1998).Thiscanresultinbenefitspackagesthatareunaffordableformanyhigh‐costindividuals.Riskpoolingdesignedtocountertheseconcernshasbeenaprimaryobjectiveofmanyhealthsystems.Sinceinformationaboutindividuals’healthinsurancecostsisimperfectandasymmetric,perfectriskadjustmentacrossindividualsisunattainable.Second‐bestsolutionsinthepresenceofimperfectinformationleadtoanumberofpotentialproblemsinpractice,includingresidualselection,bluntedincentivesforproviderstomanagecare,amisallocationofindividualsacrossplans,orareductioninchoiceofinsurersandtypeofcoverage. Thetheoreticalliteratureonriskpoolingoffersanumberofstrategiesfordealingwithadverseselectiongivenimperfectinformation.Oneobvioussolutionisforgovernmentstocreateasingle,mandatorypoolortohavemultiplepoolsbutwithoutcompetitionandchoicebetweenpools.Whiletheclearupsidetothesesolutionsistheeliminationofadverseselectionproblems,theremayalsobeefficiencycostsduetotheuncompetitivenatureoftheinsurancemarket.

Governmentsthatwishtopreserveuniversalaccesstoinsurancewithoutusingasinglepooloreliminatingconsumerchoiceofinsurercanpursueasetofalternatestrategiestomanageriskselection.Theycanprovidesubsidiestoindividuals‐cashtransfers,vouchers,tax‐favoredtreatment,taxcredits,etc‐toenablethemtopurchasehigh‐costinsurance.vandeVenandSchut(2011)notethatpremiumsubsidiesareunlikelytobeoptimalforthreereasons:theyreducetheincentiveforefficientpurchasingofinsurancebyhigh‐riskindividuals;theyencourageexcesspurchaseofinsuranceandtheresultingmoralhazardeffects(ZweifelandManning,2000);andtheymaycreateamisallocationofsubsidesifthemagnitudeofthepremiumisbasedonelementsthatarenotrelevantforthelevelofthesubsidy(suchasdifferencesinefficiencyamonghealthinsurersorregionaldifferencesinprices).Incontrast,risk‐adjustedsubsidies,wherepaymentsarebasedonobservableriskfactorssuchasage,sex,andhealthstatus,retainconsumerpricesensitivityandcanbeadjustedovertimetoreflectchangesinconsumerrisk(vandeVen,2006).Risk‐adjustedsubsidiescanbegiventoindividualsortoinsurers.Alternatively,governmentscanregulateratesandinsuranceplanfeaturesandthencompensateplansfortheexpectedriskpoolafterthefact(vandeVenandEllis,2000).

Wheresubsidiesareprovidedbygovernmenttotheinsurer,individualsarethenchargedacommunity‐ratedcontributionforinsurancethatisnotbasedontheirexpectedcosts.vandeVenandSchut(2011)refertosubsidiesprovided

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toinsurersasriskequalizationandnotethatthesearefarmorecommoninpracticethansubsidiesprovidedtoindividuals,duetolowertransactioncosts.Theultimatesuccessoftheseriskadjustmentmechanismsdependsonabilitytodeterminerisk(vandeVenetal.,2000).GlazerandMcGuire(2000)showthatinanoptimalriskadjustmentframework,pricespaidtoinsurersshouldnotonlyreflectdifferencesincostsacrosspatients,butalsoprovideincentivesforhigherqualitycareforthetypesofpatientslikelytoenrollintheplan.Underthistypeofframework,riskadjustmentpaymentswouldoverpayinsurersrelativetopaymentsbasedsolelyonaveragecosts(GlazerandMcGuire,2000). Brownetal.(2011)showthatfirmswillrespondtoriskadjustmentmodelsbya)reducingtheirscreeningeffortsalongthedimensionsincludedinthemodelandb)selectingpatientsconditionalonriskadjustmentandbasedoncharacteristicsnotincludedintheriskadjustmentformula.Theseeffortscanresultinincreasesratherthandecreasesinthedifferentialpayments(theoriginalpaymentgiventotheinsurertocoversomeoneminusthecounterfactualcostsifthegovernmenthadcoveredthecostsfortheperson)whichwouldbecountertotheobjectivesofthegovernmentinprovidingtheriskadjustmenttotheinsurer.

TheEuropeanhealthsystemsinthisreviewwithcompetitivehealthinsurance‐GermanyandSwitzerland‐havesignificantlyimprovedtheirriskequalizationschemesinthelasttenyearsandnowhaverelativelysophisticatedformulasthatincludehealth‐basedriskadjusters(Thomsonetal,2013).Inspiteofthis,insurers’incentivestoselectriskscanbesubstantialandtherecontinuestobe(largelycircumstantial)evidenceofriskselection(vandeVenetal,2007)andhencepotentialinefficienciesinriskpooling.

NuschelerandKnaus(2005)investigatetheeffectsofthe1996Germanreformsthatallowedforgreatercompetitionamongsicknessfundstotestforevidenceofriskselectionbycompany‐basedsicknessfunds.Thereformsincreasedthenumberofpeopleswitchingbetweensicknessfundsfromaround6percentprereformto10percentthreeyearsafterthereform.Thepapersuggeststhathealthierworkershadlowerswitchingcostsandthereforeweremorelikelytoswitchfunds(tocompany‐basedfundsandregionalfunds,soswitchingmaynothavebeenduetotargetedselectioneffortsonthepartofcompany‐basedfundsbutratherdrivenbyindividualselection)andthatcompany‐basedfundswithlowerpremiumsenjoyedahealthierpoolofenrolleesasaresultofthereforms. TheSwisssystemalsopromoteschoiceforindividualsandcompetitionamonghealthinsuranceproviders.Swissresidentscanchooseamong35differentsellersofinsuranceforthestatutoryhealthinsurancepackage(FrankandLamiraud,2009).Allindividualsarerequiredtoobtainstatutorycoverageand,asnotedabove,thereisriskequalizationrunbythestateonaCantonbyCantonbasis.Colombo(2001)investigatestheeffectsofconsumerchoiceinthiscontextandfindsthereislittleswitchingbehavior,withonly3.9%ofpeopleswitchinginagivenyear.FrankandLamiraud(2009)showthatswitchingbehavioractuallydeclinesasthenumberofoptionsavailableintheSwisscontextincreases. Riskselectionalsocanbeexacerbatedbythefunctioningofthevoluntaryhealthinsurancemarketwhenconsumerpurchasingdecisionsforthetwoformsofinsurancearelinked.Forexample,ifconsumershavestrongincentivestopurchasevoluntaryinsurancefromthesameinsurerfromwhomtheypurchasestatutoryorcompulsorycoverage(forreasonsofconvenienceorlegalrequirement),andifselectionispermittedinthevoluntarymarketanddesirable

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forinsurersbutdifficultinthestatutorymarket,thenselectioninthevoluntarymarketmayaffectselectioninthestatutorymarket.Thiscouldlimitconsumermobilityinthestatutorymarket.Swisscitizensareabletopurchasecomplementaryvoluntaryinsurancetocoverservicesexcludedfromthestatutorybenefitspackagesuchassomedrugs,accesstocertainphysiciansandtreatmentoutsidetheCantonofresidence.Swissinsurerscansellcomplementarybenefitstoindividualsthatholdstatutorycoveragewiththesameinsurer.Incontrasttostatutoryplans,complementaryplansarenotriskadjustedorcommunityrated.Paoluccietal(2006)reviewwhetherthecomplementaryinsurancemarketcanbeusedtoundermineriskadjustmentacrossanumberofjurisdictions(includingSwitzerland).Theyexplorehowtheprobabilitythatthevoluntarymarketwillbeusedforselectioninthestatutorymarketvarieswiththestrengthofincentivesforriskselectioninthestatutorymarketandthestrengthofthelinksbetweenstatutoryandvoluntaryinsuranceandfindprimafacieevidencethatriskadjustmentinthestatutoryinsurancemarketishamperedthroughselectioninthevoluntarymarket,particularlyinSwitzerland.

AdditionalevidencebyLehmannandZweifel(2004)examinesamajorSwissinsurancecompanythatalsooffersamanagedcareoptiontobetterunderstandtheextentofriskselectionversusinnovationinexplainingthecostdifferencesbetweeninsuranceoptionsintheSwisscontext.Theyconcludethatwhilethereisfavorableriskselectionintolowercostinsuranceoptionssuchasmanagedcare–selectionthatisnotfullycapturedbythesimpleriskadjustmentmechanism–mostcostsavingsareduetocontractualinnovationonthepartofthemanaged‐careorganization.

AlthoughtheEuropeancountrieshaveputinplacenumerousmechanismstoallowindividualstomoveeasilyfromoneinsurertoanother(openenrolment,fullcoverofpre‐existingconditions,standardizedbenefitsetc)andtofacilitateinsurercompetitionformembers(theoptionforpremiumvariationandriskadjustment),thereissomeevidenceofbarrierstoswitchingforolderandapparentlylesshealthypeopleand,inSwitzerland,of‘inertia’inthefaceofmultipleinsuranceoptions.Thissuggeststwothings:first,choiceofinsurermaynotbeasgreatastimulustoenhancingefficiencyandqualityasexpectedifinsurersonlyrisklosinglow‐costindividuals,andthereforedonotfaceincentivestoimprovecareforhigher‐costindividualsbutinsteadcompeteonlyforthelowrisks.Second,theremaybeapointbeyondwhichinsuranceoptionspresentinformationproblemsthatleadtoinertiaandlossofvaluefortheconsumer.Thus,thetransactioncostsofinsurercompetitionmaybehighforindividualsandthehealthsystem. TheevidencefromGermanyandSwitzerlandreviewedaboveisconsistentwithevidencefromtheUSMedicaremarket.ArecentpaperbyBrownetal.(2011)investigatesdifferencesbetweentraditionalMedicareprogramsforolderpeopleandprivate“MedicareAdvantage”(MA)programs.DespitethefactthatthesemustbeofferedatthesamepriceastraditionalMedicareprograms,andthefactthatthegovernmentimplementeddifferentialpaymenttotheseprogramsbasedonpatientriskscores,MAprogramshavedisproportionatelyenrolledlower‐costindividuals.Newhouseetal.(2012)alsoinvestigaterecentstepstakentoreducefavorableselectionintoMAprograms,includingimprovedriskadjustmentthroughbetteruseofdiagnosticinformationoninpatientandoutpatientclaimsformsandchangestomakeitmoredifficulttoleaveMAmonthly

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(calledapartialenrollment“lock‐in”thatkeptpeopleinMAforthefinalninemonthsoftheyear).Theyconcludethatriskselectionwasgreatlyreduced,althoughnottozero.Therefore,despitegovernmentinterventionthereisstillevidenceofsomeriskselectionamonginsurersintheUnitedStates.

USempiricaleconomicliteratureonthedemandforinsurancehasadvancedourunderstandingofwhoseeksinsuranceandwhyoverthepastdecade.Theclassicaleconomicsliteratureworkedfromthepremisethatbuyinginsuranceismoreattractiveforriskierindividuals.Themorelikelyanindividualistoneedcare,themorelikelyhe/sheistobuyinsurance.Foragivenprice,therefore,sickerindividualsaremorelikelytobuyinsurance,allelseequal.EinavandFinkelstein(2011)notethatcompetitivepricingrespondstotheaverageinsuredindividualwhileefficientpricingshouldbebasedonthemarginalindividualwhoislessriskythantheaverageindividual.Therefore,insurancepricestendtobetoohigh,leadingtounder‐insuranceinthepresenceofadverseselection.

Inrecentwork,however,Einav,FinkelsteinandLevin(2010)findthatthereareanumberofotherdimensionstothedemandforinsurancebeyondrisk,including,importantly,riskaversion.Forexample,intheUSlong‐termcaremarket,theyfoundthatinadditiontopredicteduseoflong‐termcare,individualswhoexhibitmoreprecautionarybehavior(throughpreventativemeasuressuchasseatbeltuseandgettingflushots)aremorelikelytobuylong‐termcare(advantageousratherthanadverseselection),andlesslikelytouselong‐termcare,therebyeliminatingadverseselectioninthismarket(FinkelsteinandMcGarry,2006).Fangetal.(2008)alsofindfurtherevidenceof“advantageous”selectionintheUSMedigapinsurancemarket,alonganumberofnon‐healthorrisk‐relateddimensions.SimilarresultsarefoundinvoluntaryhealthinsurancemarketsinEuropeancountries(Bolinetal.,2010).Inlightofthisempiricalevidence,Einav,FinkelsteinandCullen(2010)estimatetheefficiencyconsequencesofselectioninthecontextofalargefirmandfindonlymodestwelfarecostsfromadverseselection.Thus,whileallofthestudiesreportedfindevidenceofsomeadverseselection,theextentofthisselection,andthepresenceofadvantageousselectioninsomecases,suggestthatthewelfarelosstraditionallyassociatedwithadverseselectionmaybelessthanpreviouslythoughtandthatconcernsaboutitmayhavebeenoverstated.

Inconclusion,theevidencereviewedaboveandsummarizedinTable3suggeststhatcountrieswithcompetingpoolsexperiencesimilardifficultieswithselectionandareadoptingmoresophisticatedformsofriskadjustment.Thenatureofthemarketforvoluntaryinsurancecanplayaroleinexacerbatingselection.Recentevidencesuggeststhatmoredetaileddataonuse,coupledwithrestrictionsonabilitytochangeinsurer,cansignificantlymitigateriskselection.5.PurchasingServices

Allhealthsystemsrequirethepurchaseofawiderangeofgoodsandservicesprovidedbyhospitals,labs,pharmaceuticalcompanies,physiciansandothercaregivers.Thepurchasingfunctionmaybecarriedoutbygovernmentagencies,insurers,groupsofdoctorsactingonbehalfofpatientsorpatients

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themselves.Itinvolvesdecisionsaboutwhatservicestobuy,fromwhom,atwhatpriceandunderwhatconditions.ManyOECDhealthsystemshaveexperimentedwithpoliciesintendedtostrengthenthepurchasingfunctionbymovingawayfrompassivereimbursementofproviders.Commontoolsadoptedinrecentyearsincludehospitalcompetition,activity‐basedpaymentforhospitalservices(orDiagnosisRelatedGroups,(DRGs)asystemwhichclassifieshospitalcases/proceduresintogroupsandthenassignspaymentpricesforthesegroups)andthelinkingofproviderpaymenttoperformanceandoutcomes(pay‐for‐performance,P4P).Wereviewtheliteratureonrecentinnovationsinhospitalcompetitionandproviderpaymentbelow,andsummarizetheempiricalliteratureinTable4.

HospitalCompetition

TheNationalHealthService(NHS)inEnglandhas,inthelasttwentyyears,engagedinseveralexperimentstofosterpatientchoiceofhospitalandencouragehospitalcompetition.Theextenttowhichhospitalcompetitionimprovesqualityorpricesmaydifferdependingonthenatureofthemarket.Forathoroughreviewofthenatureofcompetitioninhealthcaremarketsandasummaryoftherecentresearchinthisarea,seeGaynorandTown(2011).Inmanymarketspricesaresetbyregulators,leadingtonon‐pricecompetitionbasedonquality.Hospitalqualityisinherentlyhardtomeasureandhasmultipledimensions.Somedimensions,suchaswaitingtimesarerelativelyeasytomeasure.Others,suchasrisk‐adjustedmortalitycanbemoredifficulttoquantify.Thetheoreticaleffectsofcompetitionunderfixedpricesareincreasedquality,withagreatereffectwherethereisalargernumberoffirmsinthemarket;qualitywillalsoincreaseasregulatedpricesincrease(GaynorandTown,2011).Propperetal.(2004)andPropperetal.(2008)arguethatinmarketswithstricterbudgetconstraints(generallywheretherearelargegovernmentpurchasersorwherepurchaserbudgetsaredeterminedbygovernments),priceswillberelativelymoreimportantandthereforehospitalswillcompeteonpricesinsteadofonquality.Thetheoreticaleffectonqualityinthiscaseisindeterminateandmayresultinqualitybelowefficientlevels.

EvidencefromavarietyofreformsinEnglandaregenerallyconsistentwiththesepredictions.Intheearly1990sthecreationofaninternalmarketthroughapurchaser‐providersplitallowedDistrictHealthAuthorities(DHAs)withresponsibilityformeetingthehealthneedsoftheirlocalpopulationtopurchaseservicesfromhospitals.TheaimwastomakehospitalscompeteforthebusinessofDHAsandofgroupsofGPswhoheldfundstopurchasecarefortheirpatients(“GPfundholders”),therebyimprovingefficiencyandquality.Followingachangeofgovernmentin1997,thepurchaser‐providersplitremainedinplaceandnewgeographicallydefinedprimarycaretrusts(PCTs)weresetuptopurchaseservicesfromprimarycareprovidersandhospitals.Inthemid2000s,thegovernmentexperimentedwithavariantofGPfundholdingknownaspractice‐basedcommissioning(BevanandvandeVen,2010).Andin2013anewgovernmentestablishedclinicalcommissioninggroupstofacilitatepurchasingbygroupsofGPs.

Propperetal.(2004)examinetheeffectsofhospitalcompetitiononmortality.Theydefinecatchmentareasforeachhospital,capturethenumberof

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hospitalsineacharea,thenweightthismeasurebythepopulationeachareaserves.Theirfindingssuggestthatincreasedhospitalcompetitionreducedquality;hospitalslocatedinareaswithmorecompetitionhadhigherdeathratesthanthoseinareaswithlowerlevelsofcompetition,controllingforobservabledifferencesinpatientandhospitalcharacteristics.Thesizeoftheeffectissmallbutrobust.Inafollow‐upstudy,however,Propperetal.(2008)notethatwhereoutcomesareeasilyobservable(waittimes),hospitalshadtocompeteonbothpriceandquality(waittimes)andcompetitionledtoimprovements,butattheexpenseofqualitymeasuresthataremoredifficulttoobserve.OtherevidencereviewedinBevanandvandeVen(2010)suggeststhatNHShospitalsincreasedproductivityandthatwhilewaittimesappearedtoimproveunderGPfundholdingtheredidnotappeartobemuchevidenceofareductionincosts. TheGPfundholdermodelwasinplacefrom1991to1999whenitwasabolished.Dusheikoetal.(2006)usethispolicyreversaltoexaminetheeffectsofsupply‐sidecostsharingonphysicianbehavior.TheyfindstrongevidencethatGPfundholdingresultedinadeclineinsecondaryadmissions(aswouldbepredictedbythetheory).TheyfindnoevidencethattheresultofthiswasasubstitutionofemergencyadmissionsforelectiveadmissionsthroughaGP.ThissuggeststhatincentivizingthegatekeepingfunctionofGPsdoesresultinlessutilization,potentiallyresultinginworsecareforpatients.However,wereviewothereffectsofthereformsbelow(suchasimprovedwaittimesforpatientswhowereinGPfundholdergroups)andacompleteanalysisofthewelfareeffectsofsuchpolicieswouldneedtotakeintoaccountthecombinedeffects. FurtherreformsinEnglandsoughtincreasedpatientchoiceofthelocation,timeanddayofelectivesurgerytoreducewaitingtimesandimprovequalitythroughcompetition,withmoney“followingthepatient”(DRGs)(Dixonetal,2010).Thereforms,commonlyreferredtoas“ChooseandBook”,wereslowtogetofftheground.Dixonetal.(2010)reportthatasof2008,lessthanhalfofGPreferralsforoutpatientappointmentsusedthenewsystem.Gaynoretal.(2010)examineevidenceofincreasedconsumerchoicethrough“ChooseandBook”andtheintroductionofDRGs.Usingdischargedataandcomparingvariationinmarketstructureacrosshospitalsthroughmarketconcentration,theyfoundthathospitalscompetedonquality,resultinginimprovementsinmortalityandlengthofstay.Inafollow‐uppaper(Gaynoretal.,2012)theauthorsestimateastructuraldemandmodelusingdatafromthesamereformsforcoronaryarterybypassgraft(CABG)surgery.Theirestimatesconfirmthatreformsgivingpatientschoiceofhospitalincreasedpatientelasticityofdemandwithrespecttoservicequality.Theyfoundconsiderableheterogeneityintheirestimates,withsickerpatientsrespondingmoretothereform,butdidnotfindsignificantresponsedifferencesbyincome(Gaynoretal.,2012).

Cooperetal.(2010)alsoexaminetheeffectsofincreasedcompetitionintheNHSusingadifference‐in‐differencesapproachwith“exposure”tocompetitionandtimeasthetwodifferences.Theyfindthatwhileincreasedcompetitionamongpublicsectorhospitalsimprovedproductivitythroughshorterlengthofstay(particularlyforpresurgery),competitionbetweenpublicandprivatehospitalshadtheoppositeeffect,withpost‐surgerylengthofstayincreasinginpublichospitalsasaresultofcompetition(pre‐surgerylengthsofstayremainedrelativelyunchanged).Theauthorsofferpatientselection(less

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complicatedpatientsbeingdrawntotheprivatesector)asanexplanationforthesedifferingeffects. EvidencefromAustraliaalsosuggestsmixedbenefitsfromincreasedcompetitioninacontextwherepublicandprivatehospitalsarecompetingforpatientsandhavemultiplepayers(bothgovernmentandprivateinsurance).Australiahasarelativelyhighshareofproceduresinprivatehospitals,ataround30%ofallinpatientadmissions,andhighlevelsofprivateinsurancecoverage,ataround45%ofthepopulation(PalangkarayaandYong,2013).Inasettingwherepublichospitalsandprivatehospitalscompeteonpriceandquality,PalangkarayaandYong(2013)examinetheeffectsofhospitalcompetitiononmortalityandreadmissionsusinghospitaldischargedata.Theirevidencesuggeststhatcompetitionhasmixedeffectsonquality:asmallincreaseinmortalitybutalargerdecreaseinunplannedreadmissions.However,theresearchsettingheredoesnotallowforquasi‐experimentalcontrolforotherfactorsthatmaybeassociatedwithgreatercompetition,whichmightbiastheresults. Onceagain,theevidencefromtheUKandAustraliaisconsistentwithevidencefromtheintroductionofdrugcoveragethroughMedicarePartDintheUnitedStates.Researchtheresuggeststhatthemechanismsusedbygovernmenttopurchaseprescriptiondrugs,i.e.movingpatientsfromindividualpurchaserstomembersofaninsuredgroup,canhavestrongeffectsonmarketoutcomesincludingloweringoptimalprices(incontrasttothestandardinsurancefindingofanincreaseinprices).TheirfindingscomefrominsurersaspartoftheMedicarePartDprogramwhichbundlesinsurancewithaformularyandgrouppurchasing.Thereasonsbehindthiscounter‐intuitiveresultincludetheabilityofinsuranceplanstobundleinsurancewithformulariesandothermechanismstocreateelasticdemand.Individuals,unlikeinsuranceplans,arenotwellinformedaboutthesubstitutabilityofdrugs,anddoctorsaregenerallynotwellinformedaboutnegotiatedprices.Insuranceplans,ontheotherhand,areabletoproviderulesandincentivestotakeadvantageofbothoftheseresultinginlowerprices.(DugganandScottMorton,2010). Insum,theliteraturefindsmixedeffectsofcompetitiononquality.Thismaybepartlyduetodifferencesinqualitymeasureswithfairlyuniformevidenceontherelationshipbetweenqualityandwaittimesandmoremixedevidenceonqualitymeasuresthatarehardertoconsistentlymeasuresuchasrisk‐adjustedmortality. ProviderPayment:DRGsandPay‐For‐Performance

TheintroductionofDiagnosisRelatedGroupstopayforhospitalcarehasbeenamajortrendacrossOECDcountries.Expressedpolicyreasonsforthismoveincludeincreasedefficiency,transparency,theabilitytoincreasevolumesforselectservices,andcost‐containment.AreviewoftheevidenceacrossEuropesuggeststhatgreateruseofDRGsledtoanincreaseinadmissionratesandadeclineintheaveragelengthofstay,aswouldbepredicted,suggestingimprovementsinquality(Busseetal.,2012).EvidenceontheeffectofDRGsonoverallsystemcosts,asdistinctfromper‐unitcosts,ismoredifficulttoascertain,withsomeevidenceofhigheroverallcostsinFranceandlimitedevidenceoncostsintheUKandGermany(O’Reillyetal,2012).

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ReformofphysicianpaymenthasmainlyfocusedonlinkingpaymenttoperformanceandtheUnitedKingdomhasexperimentedmoresubstantiallywithP4PthananyotherEuropeancountry.P4PwasintroducedtopayUKGPsin2003,with25%ofGPincometiedtomeetingqualitytargetsinasystemknownasthe‘QualityandOutcomesFramework’(QOF)(Gravelleetal,2008).QOFusesalistof65clinicalqualityindicatorsforpatientsinthepractice.Paymentsarelinearlyrelatedtothenumberofpatientswhoachievetheindicatorsasaratioofthosesuitablefortheindicator.Whenpatientsarenotsuitablefortheindicatortheyareconsidered“exceptions”.Thisensuresthatqualitymeasuresarenotappliedtothosepatientsforwhomtheyarenotappropriate.However,italsoallowsGPstoexcludepatientsforwhomtheycannotreachthequalitystandards.Gravelleetal.(2008)investigateboththedegreetowhichGPsaremeetingqualitystandardsandthemagnitudeofexceptionreportingusingGPdatafromScotland.Theresultssuggestthatover90%ofpracticesachievedthehighestlevelofpayforperformanceandthatthesepracticesexceededthestandardrequiredtomaximizepay.Only1%ofpatientsseemedinappropriatelyexcepted.However,afollow‐upstudybyGravelleetal.(2010)usesproviderleveldatatotestwhetherphysiciansgamedthesystemtotakeadvantageoftheavailablefinancialrewardsbynotonlyincreasingthenumberofpatientstreatedsuccessfullybutalsobydecreasingthenumberofpatientseligiblefortreatmenttherebyimprovingtheirratiosoftreatedpatientsandimprovingtheirfinancialrewardandfindevidenceofsuchgamingbehavior.

IntermsoftheeffectsofQOFonpatientoutcomes,theevidencesuggestsmixedsuccess.Campbelletal.(2007)examinetheimprovementsinUKprimarycareusingalongitudinalcohortstudythatspanstheintroductionofpayforperformanceandfocusesonthemanagementofthreemajorchronicconditions:asthma,coronaryheartdiseaseandtype2diabetes.Whiletheauthorsnoteimprovementsinpracticequalityforallthreeofthesegroupsoverthe1998to2005period,theimprovementsbeganbeforetheintroductionofQOFandareinevidencebothforthoseclinicalindicatorsthatreceivedfinancialincentivesforimprovementandthosethatdidnot.TheyconcludethatQOFisassociatedonlywithamodestaccelerationinimprovementforasthmaanddiabetes.

AsecondinvestigationontheeffectsofQOFonqualityofcarebySerumagaetal.(2011)focusesonpatientswithhypertension.Thestudycomparescohortswhostartedtreatmentin2000(severalyearsbeforetheintroductionofpayforperformanceintheUK)withthosewhostartedsixmonthsbeforetheintroductionofpayforperformance.Theyconcludethattherewerenochangesinincidenceofadverseoutcomesormortalityrelatedtohypertensionasaresultoftheimplementationofpayforperformance.

MorerecentevidencefromahospitalP4Pprogram(Suttonetal.,2012)usesadifference‐in‐differencesframeworktoexaminethechangesinmortalityforpatientsadmittedwithpneumonia,heartfailureandAMIbeforeandaftertheintroductionoftheAdvancingQualityprogram–ahospitalbasedpayforperformanceprogramintroducedinthenorth‐westregionofEnglandbutnotintherestofthecountry.Thefindingssuggestimprovementsinmortalityrelativetotherestofthecountryandtheauthorsnotethatincomparisontootherprogramsthathavenotfoundsuchlargeresultstheprogramhadlargerbonusesandgreaterinvestmentbyhospitalsinquality‐improvementactivities.

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TheevidencefromtheUKisreflectedinevidencefromtheUS.Forexample,intheMedicaidmarket,Duggan(2004)findsthatgovernmentcontractswithHMOstotakeonMedicaidpatientsresultedinhighercostsperpatientwithnocorrespondingimprovementin(infant)healthoutcomes.AreviewofthebroaderliteratureonP4PbyRosenthalandFrank(2006)suggeststhattheempiricalevidenceinsupportofpay‐for‐performanceintheUSisweak.Theynotethatamongthehealthcarestudiesreviewed,manyshownoresults.Theyalsonote,however,thatmanyofthesestudiesweresmallscaleinterventionsthatmaynothavebeenpickedupbyphysicians,andthatthelackofoutcomeshere,therefore,maynotbegeneralizabletolargerscaleinterventions.

Overalltherehasbeenconvergencetowardsmoreuseofmarket‐likemechanismsinOECDhealthsystems.TheseincludewideadoptionofDRGstopayhospitals,attemptstoencouragehospitalcompetitionand,morerecently,greatereffortstolinkproviderpaymenttoperformance.Theevidenceonhospitalcompetition(summarizedinTable4)suggeststhatwhereoutcomesareeasilyobservableortargeted(suchaswaittimes)hospitalscompeteonpriceandquality(waittimes),leadingtoimprovedoutcomes.6.CoverageDecisions Decisionsaboutwhomtocover(breadth),whattocover(scope)andhowmuchofthecosttocover(depth)mayhaveimplicationsforefficiency,costs,andquality.Inadditiontocoveragedecisions,governmentsinmanyjurisdictionsareoftenabletodeterminehowquicklytoprovideservices.Systemswithfixedbudgetsorotherbudgetconstraintmechanismsforhealthcareprovisiongenerallyemploypriceandnon‐pricerationingtocontrolaccessandcostswithinthepubliclyfinancedsystem.Oneofthemostcommonnon‐pricerationingmechanismsistolimitaccesstocarethroughwaitlists.Indeed,longwaitingtimesandcarerationedbymechanismsotherthanpriceareoftenexpressedconcernsinUSpolicydebatesaroundanincreasedroleforgovernmentinthehealthcaresector(c.f.Esmail,2009).Here,wefocusoncoveragebreadthandscopeandonwaitingtimes(giventhelargeroleitplaysinthedebatearoundrationingcare),aswediscussedcoveragedepthinthesub‐sectiononuserfeesabove.TheempiricalevidencereviewedissummarizedinTable5.

DemandForInsuranceandCoverageBreadthandScope Asallthecountriesthatwereviewherehaveuniversalornearlyuniversalcoverage,weexaminetheliteratureonthedemandforinsurancethatcomplementsthesesystemsandhencehelpsdefinepubliccoveragedecisions.Wedonotaddressliteratureonthedemandforinsurancethatsupplementsor“topsup”publiccoveragehere1,withtheexceptionofthesubsidiesforinsurance

1Thepublicfinanceliteratureexploresthewelfareeffectsofallowingforprivatetoppingupofuniversalpublicbenefits,comparingtheeffectsofsuchasystemto

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throughtaxsystems,asitdoesnotrelatedirectlytocoveragedecisionswithinthepublicsystem(seeThomsonandMossialos,2009andStabileandTownsend,2013forreviewsofthisliterature).

WhiledoctorsandhospitalservicesareuniversallyanduniquelycoveredbytheprovincialhealthinsuranceplansinCanada,coverageofotherservices,suchaspharmaceuticals,dentalservices,andothernon‐hospitalordoctorbasedcareisnotuniversal.Theseservicesarecoveredbyamixofprivateandpublicinsuranceandpublicsubsidy,dependingonprovinceofresidence,age,andincome(Stabile,2001).Severalstudieshavelookedatthefinancingandequityimplicationsofthismixedpublicandprivatecoverage,particularlyaroundprescriptiondrugcoveragewhichhasbeenoneofthefastinggrowingcomponentsofhealthcarecostsinCanadaoverthepastfewdecades(Alanetal,2005).

Researchontheeffectsofpublicdruginsuranceprogramsexplorestheequityandcostimplicationsofchangesinpharmaceuticalcoveragefromage‐basedcoveragetoincome‐basedcoverage.InBritishColumbia,priorto2003thegovernmentprovidedcoverageforindividualsage65andolder(similartoUSMedicare).In2003theprovinceswitchedfromage‐basedcoveragetoanincome‐basedcoverageprogramwheretheamountofcoverage,deductibleandcostsharingvariedbyfamilyincome.Theexplicitgoalsofthepolicychangewerea)tomaketheprovincialdrugprogrammoresustainableandb)toincreasefairnessandequitywithinthedrugprogram(Hanleyetal.,2008).Areviewoftheequityconsequencesoftheshiftfromagetoneeds‐basedcoveragesuggeststhatthecoveragechangedidresultinalessregressivedrugprograminBCintermsoftheoutofpocketfundspaidfordrugs.Thischangewasdrivenbyanincreaseintheout‐of‐pocketcostspaidbyhigherincomeseniorsfollowingthepolicychange.Althoughtheoveralleffectwastomaketheprogramlessregressive,theaverageoutofpocketcostsforlow‐incomehouseholdsalsoincreased(Hanleyetal.,2008).

Apartfromtargetedpublicdruginsuranceprograms,thegovernmentofCanadaprovidessignificantsubsidyforthepurchaseofvoluntaryhealthinsurancethroughthetaxcode.LiketheUnitedStates,Canadaexemptsemployercontributionstohealthinsurancefrompersonaltaxableincome.Themostrecentreviewofthesetaxexpendituressuggestthattheyareintheorderof$3billionannually(DepartmentofFinanceCanada,2011).ResearchexaminingtheimplicationsofthesesubsidiesonlinkingvoluntaryhealthinsurancetothelabormarketsuggestthatthereisalargerimpactofthesubsidiesontheprobabilitythatsmallfirmsofferinsuranceinCanada(aswellastheUS)andlesslikelytoaffectthedecisionoflargerfirmstoofferinsurancegiventheotheradvantages(largeriskpoolsandadministrativeefficiencies)availabletolargefirms(Stabile,2002).Theevidenceheresuggeststhatintheabsenceofthesesubsidies,complementarydrugcoverageofferedthroughsmallfirmswoulddeclinesignificantly(intheorderof50%).

Inadditiontosubsidizingthepurchaseofinsurancethroughanemployer,theCanadiansystem,liketheUSsystem,allowsfordeductionsandcreditsforoutofpockethealthcareexpenditureswhentheseexpendituresexceedacertain

onewhereindividualseitherchoosetoparticipateinthebenefitprogramoroptoutcompletely.SeeCurrieandGahvari(2008)forareviewofthisliterature.

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shareofpersonalincome.Aswiththeemployerdeduction,thesubsidyvarieswiththeindividual’smarginaltaxrate.Evidenceexploringtheeffectsofthesesubsidiesalsoconfirmssignificanttax‐priceelasticitieswithrespecttoallhealthcareexpenditures,andwithrespecttothepurchaseofvoluntaryhealthinsurance(SmartandStabile,2005).Thereisnoevidence,however,thatthesesubsidiesaffectthepurchaseofhealthinsuranceontheintensivemargin.Thisislikelybecausebothinsurancepremiumsandout‐of‐pocketspendingareeligibleforthetaxcredit,leavingtherelativepriceofmarkethealthinsuranceandselfinsuranceunchangedinCanada(SmartandStabile,2005).Insum,thesubsidieshaveincreasedcoverageratessubstantially,butatthecostofsignificantpublicrevenuelossandreducedequity. Australiahasalsopromotedvoluntaryprivatehealthinsurancealongwiththepublicsystemthroughtheuseoftaxsubsidiesthroughlargeuniversalrebatesonprivateinsurancepurchases,lifetimecommunityratingbasedontheagethatinsuranceisfirstpurchased,aswellastaxsurchargesonhighearnerswhodonotpurchaseprivateinsurance.Evidenceontheeffectsoftheselargesubsidiesoninsurancetakeupunsurprisinglyfindslargeincreasesinprivateinsurancetakeup(Hurleyetal,2002)andselectionintoinsurancebyindividualswhoexpecttobeheavyusersofhospitalservices(SavageandWright,2003).Additionally,theevidencesuggeststhatthecombinationoftaxsubsidiesandtheeffectsofprivatesystemsonthehealthcareinputcosts(bothintheshortandlongrun)limitthepotentialcostsavingsforthepublicsector(Hurleyetal.,2002).TheauthorsnotethatthereisnoconclusiveevidencefromAustraliathatshowsadeclineinpublicwaitingtimesfollowingtheintroductionofaparallelprivatesystem,northatpubliccostswerereducedwhentheoverallcostofthepoliciesaretakenintoaccount.EconomicEvaluationandCoverageScope

Manyhealthsystemsemployhealthtechnologyassessment(HTA)andvariousdegreesofeconomicevaluation(forexample,costeffectivenessanalysis)todeterminewhatthepubliclyfinancedbenefitspackageshouldcover.Inadditiontoconsideringwhetheraparticularserviceortreatmentshouldbefunded,assessingbodiescanalsoconsiderbestpracticeswithinacceptedtreatmentstoreduceharmfulorcostlytreatmentvariation.HTAisnot,however,uniquetopubliclyfinancedinsurance–allpayersmustdecidewhattheywillandwillnotpayfor,andmanyattempttoelicitbestpracticesfromtheirproviderstoensurequality,safetyandefficiency.Thereisanextensiveliteratureonmethodsofeconomicevaluation(c.f.Drummondetal.,2005,Garber,2000).Garber(2000),buildingonGarberandPhelps(1997),explorestherelationshipbetweeneconomicanalysisanddecisionmakingbytheinsurer.Wherethedecisionisbasedontheaverageriskinthepopulation,theinsurancecompanyorpublicinsurerwillcoverthoseserviceswiththemaximumnetbenefit.GarberandPhelpsnotethatonlythoseserviceswhoseexpectedbenefitsequalorexceedcostswillbeinsuredandthesewillbeincludedinthepremium.Inthecaseofagovernmentinsurer,itispossiblethatabroadersetofcostsandbenefitswillbeusedinanyeconomicevaluation,asallcostsandbenefitstosocietyshouldberelevant.Thismayleadtodifferentdecisionsaboutwhattocover.Theperspectiveofa

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managed‐carecompany,forexample,wouldignoreproducersurplus.However,giventhattherelevantpopulationforgovernmentmaynotincludeproducersoutsidetheboundariesofthestatethisdistinctionisperhapsnotasapplicableinpractice(Pauly,1995andGarber,2000).

Severalcountrieshavesetupbodiesaimedatincreasingtheuseofhealthtechnologyassessment.Forexample,theNationalInstituteforHealthandClinicalExcellence(NICE)wasestablishedinEnglandin1999toensurethattreatmentdecisionswouldbebasedonthebestavailableclinicalevidence,andmanyothercountrieshavefollowedsuit.However,evidenceoftheeffectivenessofHTAislimited.EvidencefromNICEsuggests,forexample,thatveryfewappraisalsofnewtechnologieshavehadanegativeoutcome(NICE,2010).WhereNICEhasrecommendedrestrictingtheuseoftechnologies,therehavebeensomesavingstotheNationalHealthService,butpartofthecosthasbeenshiftedtopatients,limitingoverallcostcontainment(Richards,2008).

AccesstoCareandWaitTimes

Intheabsenceofpricesasaformofdemandcontrol,theoptimalwaitforcarewillbeonethatbalancesmarginalsocialcostsandmarginalsocialbenefits.Assumingthatthelongerthewaitforinpatienttreatment,thelowerthetotalcostofcareinpresentvalueterms,thentheoptimalwaitwilldependbothontotalcostsandthenatureofthebenefitcurve–i.e.howthebenefitoftreatmentchangeswithdelayinbeingtreated.Incontrasttoamarketclearingprice,waitingimposesacostonthepatientbydelayingcare;italsoresultsinadeadweightlossasthereislostconsumersurplusandnogaintotheproducer.GravelleandSiciliani(2008)notethatinthepresenceofmoralhazardsomewaittimemaybeoptimal,buttheassumptionsrequiredforsucharesulttobewelfareincreasingincludethatthemarginalcostofwaitingbehigherforpatientswithasmallerbenefitfromtreatment(GravelleandSiciliani,2008).Ifwaittimesarerequired,itisoptimalforthosepatientswhofacethegreatestgaintoreceivetheshortestwaitandforthosewithnopotentialgaintowaitaninfiniteamountoftime.However,intheabsenceofperfectinformation,shorterwaittimesshouldbeofferedtothosegroupswithhigherexpectedgains(GravelleandSiciliani,2009).Therefore,whereasmostprivateinsuranceschemesimposeauniformcostacrossallpatients,publiclyfinancedcareoftenimposeswaittimesthatwillnotbeuniform,anddependinsteadonthepotentialgainsfromtreatmentandthedeadweightlossofwaiting. Propperetal.(2002)investigatetherelationshipbetweenGPfundholdinginEnglandandwaittimes.GPfundholdingallowedsomeGPstopurchaseservicesonbehalfoftheirpatientsaspartofalargersetofreformstoencouragehospitalcompetitionandlowerwaittimes(discussedabove).Alltransactionswerewithinthepubliclyfinancedhealthcaresystem.Theauthorsexaminehospitalwaittimesforover100,000electivehospitaladmissionsinEnglandbetween1993and1997.TheyfindpatientswithGPfundholderswaitedlesstime,allelseequal,thannon‐fundholderpatients.Thelongestreductionsinwaitswerefoundinthoseareaswiththelongestwaittimesapriori.Theyfindlimitedevidenceofspillovereffectsfornon‐fundholderpatientsorforotherareasofpractice.Theyconcludethatit

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wastheabilitytopayforshorterwaittimesfromwithinthepublicsystem,andnottheabilitytochoosethehospitalfortheprocedure(fundholderscouldpurchaseserviceswithoutspecificallypayingforlowerwaits)thatresultedinshorterwaittimes(Propperetal.,2002). SicilianiandMartin(2007)alsoexaminetherelationshipbetweenincreasedchoiceinNHShospitals(throughthepoliciesexaminedabove)andwaittimesusingdatafrom120hospitalsbetween1999and2001.TheyusesimilarmeasuresofmarketconcentrationtoPropperetal,2004(reviewedabove)andfindamodestreductioninwaittimesfromincreasedcompetition.Theirresultsalsoimplythatthereisanoptimalnumberofhospitalscompetingwitheachanotherandthatoncetheoptimalnumberisexceeded(between11and14hospitalsinacatchmentarea)furtherincreasesinthenumberofhospitalscompetingcanresultinincreasedwaittimes.Theauthorsdonotprovideanexplanationforthisresult,butnotethattheeffectismodest. ResearchbyCooperetal.(2009)alsoexamineshowthepoliciesoutlinedaboveaswellasincreasedfundingbytheUKgovernmentaffectedwaittimesforcare.Theydocumentasteadydeclineinwaittimesforhip,knee,andcataractproceduresintheNHSbetween2000and2007(afteraninitialincreaseinwaittimes).Aswaittimesfell,thevariationinwaittimeacrosssocioeconomicstatusalsofell,improvingequity.Whiletheevidencepresentedisnotcausal,andtheauthorsdonottryandlinkparticularpartsoftheUKreformstothedeclinesinwaittimesandimprovementsinequity,theydoclaimthat“thepost2000governmentreformsdidnotleadtotheinequitabledistributionofwaittimesacrossgroupsthatmanypeoplepredicted”(Cooperetal,2009,p.5). Propperetal.(2010)examinetheuseoftargetsintheUKasatooltoreducewaittimes.TheyexploitthenaturalexperimentgeneratedbytheintroductionoftargetsintheEnglandbutnotScotlandtoidentifywhethertargetsettingforwaitlistsledtoafallinwaittimesinEngland.Theyfindareductioninwaitingtimesof13daysonaverage.Whilelevelsofelectivecarerosetoreducewaittimes,theydidnotfindreductionsinnon‐targetedactivitytooffsetthesechanges.Theyalsofindnoevidenceofafallinpatientquality,someevidenceofanincreaseinthequalityofcareandofwaitlist“manipulation”wherebypatientswereremovedeithertemporarilyorpermanentlyfromthelist.OveralltheauthorsconcludethattargetssuccessfullyloweredwaittimesinEngland,withlittleevidenceofadversesideeffects. WaittimeshavebeenidentifiedasapersistentpolicyprobleminCanadaaswell(Wilcoxetal.,2007).AfewstudieshavetriedtoassesstheimpactoflongerwaittimesinCanadaintermsofhealthoutcomes.Achallengeinmeasuringtheimpactoflongerwaitsisthat,inadditiontoanyhealthdifferences,theremaybenon‐healthmeasuressuchaspainorlostincomeorleisurethataremoredifficulttomeasure.However,muchoftheliteraturefocusesonmoreeasilymeasuredoutcomessuchaslengthofstaypostsurgery,ormortality.OnesuchstudyexaminespatientswithhipfracturesinQuebecadmittedtohospitalbetween1990and1993(Hamiltonetal.,1996).Aftercontrollingforpatienthealthandforbothobservedandunobservedindividualandhospitalcharacteristics,waittimeforsurgeryhadlittleeffectonpost‐surgerylengthofstayormortality.Studiesinthemedicalliteraturelookingatopen‐heartsurgery(Carrieretal.,1993)similarlyfindlittledifferenceinpost‐operativeoutcomes.However,astudylookingatwaittimesforadmissionintohospitalthroughtheemergencyroom(ER)inCanada

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foundthatpresentingtoanERwhenthereisalongerwaitintheERhadahigherriskofshorttermdeathoradmission(Guttmannetal.,2011).TheauthorsusearetrospectivecohortstudyandhealthadministrativedatafromOntariototrackpatientswhowereeitherseenanddischargedorleftwithoutbeingseen.Theyfindanincreaseinbothmortalityandadmissiontohospitalamongpatientswhopresentduringshiftswithlongmeanwaittimes.However,patientswholeftwithoutbeingseenwerenotatincreasedriskofadverseevents. Australiaalsoexperiencesissueswithwaittimesandthegovernmenthaspushedprivateinsurancethroughexplicitsubsidiesasbothasolutiontolongwaittimesandincreasedpublicexpenditures(Vaithianathan,2002).Asnotedabove,alargenumberofAustralians(45%)holdprivateinsurancecoverageinordertoobtainfasterandpremiumservice.Joharetal.(2011)exploretheextenttowhichthedecisiontopurchaseinsuranceinAustraliaisafunctionofexpectedwaittimes.Usinghospitaladministrativedatatheymodeltheeffectofexpectedwaittimeforaprocedureonthedemandforinsurance.Theauthorsimputeexpectedwaittimesusingavarietyofhealthconditionsavailableinadministrativedata.ContrarytoanecdotalevidenceinAustraliatheyfindthatthedemandforinsuranceisinsensitivetoexpectedwaitingtimes,althoughtheydofindthatitissensitivetowaittimesfortheupperendofthewaittimedistribution.Onelimitationofthestudyisthatthedemandforinsuranceasmodeleddoesnotincludeanumberofpossiblecharacteristicsofprivateinsurancesuchasaccesstocertaindoctors.Itisalsounclearwhetherperceivedlongwaittimesbyindividualsbeforetheyactuallyexperienceillnessisn’tthedrivingfactorinpeople’sdecisiontoseekinsurance.Evidenceofthedifferenceinwaittimesforpeoplewithandwithoutprivateinsurancesuggeststhatprivatelyinsuredpatientsreceivemuchfastercarenotonlyinprivatehospitalsbutalsoinpublicones(JoharandSavage,2010). ThereislessevidencethatwaittimesareaprobleminGermany,France,andSwitzerland.AninternationalcomparisonofwaittimesbySicilianiandHurst(2004)suggeststhatthereissomeevidencethatthosecountriesthatdonotreportproblemswithwaittimesspendslightlymore,havehigherlevelsofcapacityasmeasuredbynumberofhospitalbedsanddoctorspercapita,andhavehigherlevelsofinpatientactivities.TheyarealsomorelikelytouseDRGstopayhospitals(atthetimethestudywascarriedout;nowmostuseDRGs)andfee‐for‐servicetopayphysicians.Theydonotfindevidence,however,thatcountriesthatdonotreporthighlevelsofwaittimesaremoreproductive(asmeasuredbyinpatientsperphysician).Insum,theevidencereviewedaboveandlistedinTable5suggeststhatwhilewaittimesarenotaproblemacrossallcountries,wheretheyareaproblem,governmentshavebeenabletoreducethemwhentheyhavechosenexplicitlytofocusonachievingthisgoal.Effortstoexpandcoveragebeyondhospitalandphysicianservices,ortopromotevoluntaryhealthinsurancethroughtaxsubsidieshavebeenmixedacrosscountries,withsomeevidenceofinefficientuseoftaxsubsidiesandotherpoliciestopromotevoluntaryinsurancealongsidepubliclyfinancedcoverage.

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7.Implicationsforhealthsystemefficiency,costs,qualityLessonsLearned

Whatlessonscanwedrawfromtheevidencesummarizedaboveandwhatquestionsremainedunanswered?Intermsofcollection,manycountriesareexploringnewwaysofgeneratingrevenuesforhealthcaretoenablethemtocopewithsignificantcostgrowth.However,thereislittleevidencetosuggestthatcollectionmechanismsaloneareeffectiveinmanagingthecostorqualityofcare.First,thetraditionalclassificationoftax‐financedversussocialinsurancesystemsdoesnotdeterminehowcountriesorganizehealthfinancingfunctionstoachievepolicygoals.Theevidenceavailableontherelationshipbetweenfinancingandoutcomessuggeststhathealthsystemsfinancedthroughsocialinsurance(asopposedtogeneraltaxrevenues)tendtobemoreregressiveandhavesmallertaxbases.Someevidencesuggeststhatfinancingthroughsocialinsuranceversusgeneraltaxrevenuesisassociatedwithhighercostgrowthovertime,althoughitisdifficult,usingsuchabroadclassification,toseparatecollectionmechanismsfromothercharacteristicsmoreoftenfoundintax‐financedjurisdictionssuchasbudgetandpricecontrolsandquasi‐hardbudgetconstraints.Publichealthcarefundingintax‐basedsystemstendstotrackGDPmorecloselythanincountriesthatcollectfundsthroughsocialinsurance.Perhapsunsurprisingly,manyjurisdictionsaremovingtowardsadiversityoffundingstreams(addingtax‐basedfundingtosocialinsurance)tomanagehealthcareexpendituregrowthandmaintainuniversality.Theoryandevidenceoncostsharingthroughstandarduserfeessuggeststhatforthepurposeofrevenuecollectionitisnotclear,giventheadministrativecostsinvolved,thatuserfeesareanoptimalmeansofsupplementingtaxesandcontributionsindevelopedhealthsystems.Theevidenceonvalue‐basedcostsharing(usingcostsharingselectivelytoencouragepatientstousemedication,services,andprovidersthatofferbettervaluethanotheroptions,ratherthansimplyapplyinguserfeesacrosstheboard)suggestssomeefficiencyimprovementsinuseofcare.

Europeansystemswithcompetitivehealthinsurance(historicallyonlyfoundincountriesthatusesocialinsurancetofinancehealthcare)havemultipleriskpools,whichcanleadtoselectionissuesandinefficiencies.Allhavesignificantlyimprovedtheirriskequalizationschemesinthelasttenyearsandmanynowhaverelativelysophisticatedformulasthatincludehealth‐basedriskadjusters.Inspiteofthis,insurers’incentivestoselectrisksaresubstantialandtherecontinuestobe(largelycircumstantial)evidenceofriskselectionandhencepotentialinefficienciesinriskpooling.InsomecasessuchasSwitzerland,thevoluntaryinsurancemarketseemstoexacerbateriskselectionanditwouldmakesensetosegmentthesemarketstoavoidthisbehavior.RecentevidencefromtheUnitedStatesofferstworeasonsforoptimismonthisfront.Thefirstisthatriskadjustmentcontinuestoimproveandthereisevidencethatmoredetaileddataonuse,coupledwithrestrictionsonabilitytochangeinsurer,cansignificantlymitigateriskselection.Asaresult,thereislikelytocontinuetobeconvergenceacrosscountriestowardsbetterriskselectionstrategies.Second,recentempiricalevidenceexamininginsurancechoicebyindividualsintheUnitedStateshasfoundthatpreferences,inadditiontorisk,areimportantdeterminantsofinsurance

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choice,sothewelfareimplicationsofadverseselectionbyindividualsinmanymarketsmaybesmallerthanpreviouslythought.

Wherepurchasingisconcerned,therehasbeensomeconvergenceamongOECDhealthsystemstowardsmoreuseofmarket‐likemechanisms,particularlytheadoptionofDRGstopayhospitals.Somecountrieshavealsoattemptedtoencouragehospitalcompetitionand,morerecently,agrowingnumberofcountrieshavetriedtolinkproviderpaymenttoperformance.Theevidenceonhospitalcompetitionsuggeststhatwhereoutcomesareeasilyobservableortargeted(suchaswaittimes)hospitalscompeteonpriceandquality(waittimes),leadingtoimprovedoutcomes.Insomecasesimprovementshavebeenattheexpenseofqualitymeasuresthataremoredifficulttoobserve,suggestingthatitwouldbeusefultohavefurthercomparable,well‐definedmeasuresofqualitybeyondwaittimes.However,wherepricesaresetadministratively,competitionhasimprovedproductivityandquality.DRGpaymentalsoappearstohaveimprovedproductivityandquality,althoughitseffectonoverallsystemcostsismixed.Thereissomeevidence(mainlyfromtheUnitedKingdom)ofimprovedphysicianproductivityandpatientoutcomesfollowingtheintroductionofP4P,althoughtheevidencealsosuggestsadegreeofgamingtomaximizefinancialincentives. Anumberofthehealthsystemsweexplorecontinuetousewaittimesasasourceofnon‐pricerationing.Theevidenceontheeffectsofwaittimesonhealthoutcomesismixed,withmorerecentstudiesfindingnegativeeffectsonpatienthealthandreadmissionrates,andolderstudiesfindinglittleeffectonhealthoutcomes.TheUnitedKingdominparticular,andtosomeextentCanada,havesignificantlyreducedwaittimesbyincreasingvolumesusingformsofDRGfundinglooselymodeledonUSMedicareandthroughtargetedbudgets.Waittimesarethereforenotinherentintax‐financedsystemsbutcanbefairlysuccessfullymanipulatedbypolicyleverssuchastargets,DRGs,andnon‐pricecompetitionbetweenhospitals.UnresolvedQuestions Ourreviewhasrevealedsomeareaswherethereisaneedforagreaterevidencebase.First,whileeffortstobemoresystematicaboutdefiningthepubliclyprovidedormandatedbenefitspackagehaveincreasedoverthepastdecade,thereisalackofevidenceonhoweffectivethesechangeshavebeen.OrganizationssuchasNICEintheUnitedKingdom,theCanadianAgencyforDrugsandTechnologies,theGermanInstituteforQualityandEfficiencyinHealthCare,ortheFrenchNationalHealthAuthority,haveemergedinmanycountriesinthelastdecade,showinghowjurisdictionsincreasinglyrecognizetheimportanceofeconomicevaluationofbestpracticeandtechnologies.However,wefoundlittleevidenceontheextenttowhichthesebodieshaveachievedtheirgoalsandsomeevidencetosuggesttheystrugglewithimplementation.

EffortsinsystemssuchasCanada’stoexpandcoveragebeyondhospitalandphysicianservices,ortopromotevoluntaryinsurancethroughtaxsubsidieshavebeenmixed.Acombinationoftaxdeductionsandsubsidieshasresultedinhighlevelsofvoluntaryprivateinsurancecoveragefornon‐publiclyfinancedservicesbutthesesubsidieshaveledtosubstantialandpoorlytargetedtax

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expendituresandcontinuedrelianceonthefirmastheproviderofvoluntarycoverage.Attemptstoprovidepubliccoverageselectivelytoolderpeoplehavealsobeenexpensive,whilereformsaimedatre‐targetingbenefitsbasedonincomehaveloweredpubliccostsandhadsomepositiveredistributiveconsequences.Thecountriesweexaminethereforeprovideevidenceoftheinefficienciesoftaxsubsidiesandofinefficienciesassociatedwithvoluntaryinsurancealongsidepubliclyfinancedcoverage,butdonotprovideparticularlyhelpfulevidenceontheefficientmixofpublicandprivatefinance.

Thepasttentofifteenyearshaveseenhighhealthcarecostgrowthinmanycountries,includingallthosereviewedhere,withaveragehealthcarecostgrowthexceedingtheaveragegrowthinGDP(HaigstandKotlikoff,2005).Inconsideringthesuccessofdifferenthealthsystemsincontrollingcosts,theevidencesuggeststhatwhilepoliciesthateffectivelylimitdemandthroughrationingandfixedbudgetsappearstilltobeeffectiveatholdingdowncostsatapointintime,therehasbeenadiscernibleshiftinpoliciesemployedbythecountrieswereviewawayfromthesetypesofcostcontainmentstrategies,andawayfromotherstrategiesthatsimplyshiftcoststohouseholds,towardspoliciesthatfocusmoreonthecost‐benefitratioandefficiency,suchasgreateruseofhealthtechnologyassessmentandactivity‐basedfundingwithadministrativelysetprices.Whiletherearehighhopesthatthesestrategieswillproduceamoreefficientuseofhealthcareresourceand,ideally,controlcostgrowth,furtherresearchisneededtodeterminetheextenttowhichthesepoliciesachievetheirgoals.8.Conclusions ThisreviewexaminesthechangingroleofgovernmentinfinancinghealthcareoutsidetheUnitedStates.ItfocusesonpolicychoicesmadebyanumberofOECDcountriesaroundfourfinancingfunctions–raisingrevenue,poolingrisk,purchasingservices,andmakingcoveragedecisions.Itreviewstheevidenceoftheeffectsofthesechoicesonefficiency,costsandquality.Indoingsoitofferssomeinsightintohownationswithuniversalornearuniversalhealthcoverageareperformingastheygrapplewithhavingtofinanceincreasedhealthcarecosts,seektoavoidriskselectionintheirinsurancepools,andpromoteefficiencyinthepurchaseanduseofhealthcareservicesatalllevelsofthesystem. Eachhealthsystemhasuniqueattributesthathelpexplainsomeofthebehaviorofprovidersandpatients.Nevertheless,manyoftheempiricalstudiesreviewedhereoffersupportingevidencethatcrossesjurisdictions.Indeedtherehasbeensomeconvergenceinpoliciesadoptedacrosscountriestoimprovefinancingincentivesandencourageefficientutilization.Inthecaseofriskpooling,allcountrieswithcompetingpoolsareexperiencingsimilardifficultieswithselectionandareadoptingmoresophisticatedformsofriskadjustment.Inthecaseofhospitalcompetition,thekeydriversofsuccessappeartobewhatiscompetedonandmeasurableratherthanwhetherthesystemispublicorprivate.Inthecaseofboththesuccessofpayforperformanceandissuesresultingfromwaittimes,evidencediffersbothwithinandacrossjurisdictions.However,theevidencedoessuggestthatanumberofgovernmentshaveeffectivelyreducedwaittimeswhentheyhavechosenexplicitlytofocusincentivesonachievingthis

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goal.WhiletheUnitedStatesremainsanoutlieramongOECDcountries,a

numberofpolicychangesacrossjurisdictionssuggestsignificantconvergenceintheroleofthestateinfinancinghealthcare.Thesechanges,coupledwiththeintroductionofauniversalmandateintheUnitedStates,suggestthatmanyofthelessonslearnedabovemayapplyintheUnitedStatesaswell.Greatergovernmentinvolvementwillnotpreventsignificantinnovationinincentivesforefficientpurchasingandprovision.Norwillitpreventpatientsfrombeingabletochooseinsurerorproviderorautomaticallyresultinlongerwaittimesfortreatment.Theevidencealsosuggests,however,thatfurthergovernmentinvolvementinthehealthcaresectorwithoutpriceorvolumecontrolswillnotnecessarilyleadtomoreuseofeconomicevaluationortolowergrowthratesinthecostofcare,consequencesmanypeopleassociatewithagreaterroleforthestate.

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Figure1:ConceptualizingtheFinancingFunctionsofHealthSystems

Source:adaptedfromKutzin2001

Health services

Contributions

Cost sharing

Th

e po

pu

lation

Collecting funds

Providing services

Purchasing care

Pooling fundsCoverage

Coverage

Choice?

Choice?

Go

vern

ance

, reg

ula

tio

n, i

nfo

rmat

ion

Entitlement?

37

Figure2Breakdownofhealthfinancingbyexpenditureagent

Source:OECDhealthdata2012

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

US 2011

Switzerland 2011

Australia 2010

Canada 2011

Germany 2011

France 2011 

UK 2011

General tax Earmarked tax Private insurance Out of pocket Other

38

Table1aHealthcoveragepolicybycountry,2013

Coverage Australia Canada England France Germany Switzerland United States

Breadth: population (% covered in 2011)

100% covered by regionally administered universal program (Medicare)

100% covered by regionally administered universal program (Medicare

100% covered by universal program (National Health Service, NHS)

100% covered by universal program

90% covered by public program; 10% covered by private insurance

100% covered by universal private insurance

31.8% covered by national program for 65+ and some disabled (Medicare) or low-income (Medicaid); 53.1% covered by private insurance; 16% uninsured

Scope: benefits Benefit decisions made by national government and informed by HTA

Benefit decisions made by regional government in conjunction with doctors and informed by HTA

Benefit decisions made at regional level and informed by HTA at national level

Benefit decisions made at national level and informed by HTA

Benefit decisions mainly made at national level and informed by HTA

Benefit decisions made at national level and informed by HTA

Benefit decisions made nationally (Medicare), regionally (Medicaid) and by individual insurers (private insurance)

Depth: user fees User fees for outpatient services including prescriptions. No cap on user fees.

No user fees for publicly covered benefits. No cap on user fees.

User fees for outpatient prescriptions. Capped at £104 per year for people needing a large number of prescription drugs

User fees widely applied. No cap on user fees.

User fees for outpatient prescriptions. Capped at 2% income or 1% income for chronically ill or low income

User fees widely applied. Capped at CHF 700 CHF after deductible.

User fees widely applied. No cap on user fees.

VHI role ~50% buy coverage for

~67% buy coverage for non-

~11% buy for ~90% buy or receive government

Cost-sharing + amenities (~20%);

Majority buy for non-covered

Non-covered

39

private hospital costs and non-covered benefits

covered benefits private facilities vouchers for cost-sharing; some non-covered benefits

Substitute: 10% opt out of SHI system for private coverage only

benefits and amenities

Medicare benefits

Sources:OECDhealthdata2012,Thomsonetal2012

Note:HTA=healthtechnologyassessment;SHI=statutoryhealthinsurance;VHI=voluntary/privatehealthinsurance

40

Table1bKeyhealthfinancingfunctionsbycountry(publiclyfinancedbenefits),2013

Function Australia Canada England France Germany Switzerland United States

Collection

Revenue sources General tax revenue; earmarked income tax

Provincial/federal tax revenue

General tax revenue (includes employment-related contributions)

Employer/employee earmarked income and payroll tax; general tax revenue, earmarked taxes

Employer/employee earmarked payroll tax; general tax revenue

Community-rated insurance premiums; general tax revenue

Medicare: payroll tax, premiums, federal tax revenue; Medicaid: federal, state tax revenue

Contributions Not applicable Not applicable Not applicable Centrally set; dependants covered at no extra cost

Centrally set; dependants covered at no extra cost

Insurers set premiums; dependants must purchase own cover; premium subsidies set by Cantons

Medicare: centrally determined

Pooling

Nature of purchasing agent

National government agency

Non-competing regional government agencies

Non-competing regional statutory bodies

Non-competing regional statutory agencies

Competing non-governmental non-profit insurers and competing private insurers

Competing private insurers

Competing private insurers

Risk adjustment for competing insurers

Not applicable Not applicable Not applicable Not applicable For publicly financed benefits

For publicly financed benefits

For publicly financed benefits

41

Purchasing services

Patient choice of primary care provider

Yes; gatekeeping required

Yes; gatekeeping incentivized in some regions

Yes, within a region; gatekeeping required

Yes; gatekeeping incentivized

Yes; gatekeeping incentivized

Yes; some plans incentivize gatekeeping

Usually; some plans incentivize gatekeeping

Patient choice of hospital

Yes Yes, through GP Yes Yes Yes Yes Usually

Primary care and ambulatory specialist provider payment

Private: FFS Private: FFS/capitation/mixed

Private: mix of capitation, FFS and P4P; salary for a minority

Private: FFS Private: FFS Private: most FFS but some capitation

Private: most FFS, some capitation

Hospital payment Public beds (67%): global budgets + DRGs

Private: FFS

Public and private non-profit: global budgets + DRGS in some provinces

Public: mainly DRGs and service contracts

Public and private non-profit: mainly DRGs and grants

Public beds (50%), private non-profit (33%), private for profit: global budgets + DRGs

Public varies by Canton: global budgets, per diem, DRGs

Private non-profit (70%), public (15%), private for profit: per diem + DRGs

P4P Primary care and hospitals

No Primary care and hospitals

Primary care, ambulatory specialists and hospitals

Primary care No Primary care, ambulatory specialists and hospitals

Sources:Cashinetalinpress,Thomsonetal2012

Note:DRG=diagnosis‐relatedgroup;FFS=fee‐for‐service;P4P=payforperformance

42

43

Table2:Selectedempiricalpapersreviewed:RaisingRevenueAuthor Title Time

PeriodCountryCovered

Findings

Wagstaff,2009

“SocialHealthInsurancevs.Tax‐FinancedHealthSystems–EvidencefromtheOECD,”WorldBankPolicyResearchPaper

1960‐2006 OECDcountries

AdoptingSHI(vstaxfinancing)increasespercapitahealthspending;reducestheformalsectorshareofemployment&totalemployment;hasnoimpactonamenablemortality;butperformsworseforbreastcanceramongwomen

WagstaffandMoreno‐Serra,2009

"EuropeandCentralAsia'sgreatpost‐communistsocialhealthinsuranceexperiment:impactsonhealthsectoroutcomes."JournalofHealthEconomics

1990‐2004 CentralandEasternEurope&CentralAsia(28countries)

AdoptingSHI(fromtaxfinanced)increasednationalhealthspendingandhospitalactivityrates,butdidnotleadtobetterhealthoutcomes

Finkelstein,2002

Finkelstein,A.,“Theeffectoftaxsubsidiestoemployer‐providedsupplementaryhealthinsurance:evidencefromCanada,”JournalofPublicEconomics

1991‐1994 Canada Reducingtaxsubsidytoemployer‐providedhealthinsurance(HI)decreasedcoveragebyonefifth

Stabile,2001"PrivateInsurance

1994‐1996 Canada Removingtaxexemptionsto

44

SubsidiesandPublicHealthCareMarkets:EvidenceFromCanada,"CanadianJournalofEconomics

employerprovidedHIwouldcauselevelsofsupplementalHItodeclinebyroughly20percent.

Buchmuelleretal.,2004

“AccessToPhysicianServices:DoesSupplementalInsuranceMatter?EvidenceFromFrance.”HealthEconomics

1998 France Individualswithinsurance:havemorephysicianvisitsthanthosewithout,butarenomorelikelytovisitaspecialist.

GertlerandHammer,1997

StrategiesforPricingPublicProvidedHealthServices,”PolicyResearchWorkingPaper

Notreported

Reviewarticle:multiplecountries,mostlynon‐OECD

Userfeesareimportantinco‐financinghealthcarebutshouldnotbetheprimarymeansoffinance,andshouldnotbeapplieduniformly‐orthewealthywillbenefitandthepoorwillsuffer

GrootendorstandStewart,2006

“ImpactofReferencePricingonAnti‐HypertensiveDrugPlanExpenditures,”HealthEconomics

1994‐2000 Canada TheapparentlymodestprogramsavingsattributabletoReferencePricing(RP)canbetracedbacktothedesignofthepolicyi.e.factorsotherthanRP

Goldmanetal.,2007

PrescriptionDrugCostSharing:Associationswithmedicationandmedical

Notreported

Reviewarticle:multiplecountriesincl.USA,Europe&Canada

Increasedcostsharingisassociatedwithlowerratesofdrugtreatment,worseadherenceamong

45

utilizationandspendingandhealth,”JournaloftheAmericanMedicalAssociation

existingusers,andmorefrequentdiscontinuationoftherapy

Tamblynetal.,2001

“AdverseEventsAssociatedWithPrescriptionDrugCost‐SharingAmongPoorandElderlyPersons”JournaloftheAmericanMedicalAssociation

1993‐1997 Canada Adoptingcost‐sharingdecreaseduseofessential&lessessentialdrugs,increasedrateofseriousadverseevents&emergencydepartmentvisits,inelderlypersonsandwelfarerecipients

46

Table3:SelectedempiricalPapersReviewed:PoolingRiskAuthor Title Time

PeriodCountryCovered

Findings

Gressetal.,2002

“FreeChoiceofSicknessFundsinRegulatedCompetition:EvidencefromGermanyandtheNetherlands,”HealthPolicy

1992‐2001 Germany&TheNetherlands

Consumerschangingsicknessfundsdependsstronglyoneconomicincentives,especiallywithregardtotheextentoffinancialrisksicknessfundshavetobearandtotheextentpremiumsorcontributionratescandiffer.

KnausandNuscheler,2005

"RiskselectionintheGermanpublichealthinsurancesystem."HealthEconomics

1995‐2000

Germany Successofcompany‐basedsicknessfundsoriginatesinincompleteriskadjustmentandthenegativecorrelationbetweenhealthstatusandswitchingcosts

Dormontetal.,2009

“Theinfluenceofsupplementaryhealthinsuranceonswitchingbehaviour:evidencefromSwissdata.”HealthEconomics

1996to2005

Switzerland HoldingSIdecreasespropensitytoswitch,butisnotsignificantwhenself‐assessedhealthis"verygood";tothecontrary,holdinganSIcontractsignificantlyreducespropensitytoswitchwhentheindividual'ssubjectivehealthstatusdeteriorates

FrankandLamiraud,2009

“Choice,pricecompetitionandcomplexityin

1997‐2000 Switzerland Asthenumberofchoicesgrowresponsivenessto

47

marketsforhealthinsurance.”JournalofEconomicBehavior&Organization

pricedeclinesallowinglargepricedifferentialstopersistholdingconstantplanandpopulationcharacteristics

Thomsonetal.,2013

"StatutoryhealthinsurancecompetitioninEurope:afour‐countrycomparison",HealthPolicy

Belgium,Germany,theNetherlands&Switzerland

HealthInsurers(HI)/providercollectivenegotiationinBelgium,GermanyandSwitzerlandcurbsHI’s’abilitytoinfluencequalityandcosts.DespiteDutchHI’saccesstoefficiency‐enhancingtools,dataandcapacityconstraintsandstakeholderresistancelimittheiruse.

vandeVenetal.,2007

“RiskAdjustmentandRiskSelectioninEurope:SixYearsLater.”HealthPolicy

2000–2006 Belgium,Germany,Israel,theNetherlands&Switzerland

Despiteriskadjustmentsystems’improvement,allfivecountriesshowincreasingriskselection,whichincreasinglybecomesaproblem,inparticularinGermanyandSwitzerland

Paoluccietal.,2006

“SupplementalHealthInsuranceasaToolforRiskSelectioninMandatoryHealthInsuranceMarkets,”Health

2000‐2008 Switzerland CombininguniversalaccessandconsumerchoiceofHI’sisimplemented.Challenge:createintegrateddeliverysystemsforhigh‐

48

Economics,Policy,Law

qualitycareinresponsetoconsumers’preferences

LehmannandZweifel,2004

“InnovationandRiskSelectioninDeregulatedSocialHealthInsurance.”JournalofHealthEconomics

1997‐2000 Switzerland Themanagedcareplansbenefitfromriskselectioneffects.InthecaseoftheHealthMaintenanceOrganization(HMO)plan,however,thepureinnovationeffectmayaccountforasmuchastwo‐thirdofthecostadvantage.

Brownetal.,2011

“HowDoesRiskSelectionRespondtoRiskAdjustment?EvidencefromtheMedicareAdvantageProgram,”NBERWorkingPaper

1994‐2006

USA Firmsreduceselectionalongdimensionsincludedintherisk‐adjustmentformula,whileincreasingselectionalongexcludeddimensions.Government’sdifferentialpaymentsriseafterriskadjustment.

Newhouseetal.,2012

“StepstoReduceFavorableRiskSelectioninMedicareAdvantageLargelySucceeded,BodingWellForHealthInsuranceExchanges,”HealthAffairs

2003‐2008

USA Policies—animprovedriskadjustmentformulaandaprohibitiononmonthlydisenrollmentbybeneficiaries—largelysucceededinreducingfavorableselectioninMedicareAdvantage.

Colombo,F, “TowardsMore 1996‐ Switzerland Measurestoimprove

49

2001 ChoiceinSocialProtection?IndividualChoiceofInsurerinBasicMandatoryHealthInsuranceinSwitzerland,”OECD

2000 switchingshouldbeaccompaniedbyinterventionstofostercompetitiononqualityandefficiencyratherthanonriskselection.Promotingincreaseinswitchingratesmightotherwisecomeatahigherpricethanthebenefits.

50

Table4:SelectedempiricalPapersReviewed:PurchasingServicesAuthor Title Time

PeriodCountryCovered

Findings

Gravelleetal.,2010

“DoctorBehaviourUnderPayForPerformanceContracting:Treating,CheatingandCaseFinding?”TheEconomicJournal

2004‐2006 UK Differencesinreporteddiseaseratesbetweenproviders,anddifferencesinexceptionratesbothbetweenandwithinproviders,suggestgaming

Palangkaraya,A.,Yong,J.2013

“EffectsofCompetitiononHospitalQuality:AnExaminationUsingHospitalAdministrativeData,”EuropeanJournalofHealthEconomics

2000‐2005

Australia Hospitalsfacinghighercompetitionhavelowerunplannedadmissionrates.However,competitionisrelatednegativelytohospitalqualitywhenmeasuredbymortality,albeittheeffectsareweakandbarelystatisticallysignificant.

Campbelletal.,2007

“QualityofPrimaryCareinEnglandwiththeIntroductionofPayforPerformance,”NewEnglandJournalofMedicine

1998‐2005

UK Introductionofpayforperformancewasassociatedwithamodestaccelerationinimprovementfordiabetesandasthmabutnotforcoronaryheartdisease

Serumagaetal.,2011

“Effectofpayforperformanceonthemanagementandoutcomesof

2000‐2007

UK Payforperformancehadnodiscernibleeffectsonprocessesofcareoron

51

hypertensionintheUnitedKingdom:interruptedtimeseriesstudy.”BMJ

hypertensionrelatedclinicaloutcomes.Generousfinancialincentivesmaynotbesufficienttoimprovequalityofcareandoutcomesforhypertensionandothercommonchronicconditions

Suttonetal.,2012

“ReducedMortalitywithHospitalPayforPerformanceinEngland,”theNewEnglandJournalofMedicine

2006‐2010

UK Payforperformancewasassociatedwithaclinicallysignificantreductioninmortality

Duggan,2004

“Doescontractingoutincreasetheefficiencyofgovernmentprograms?EvidencefromMedicaidHMOs,”JournalofPublicEconomics

1989‐2000

USA HMOenrolment andtheresultingswitchfromfee‐for‐servicetomanagedcarewasassociatedwithasubstantialincreaseingovernmentspendingbutnocorrespondingimprovementininfanthealthoutcomes

RosenthalandFrank,2006

“Whatistheempiricalbasisforpayingforqualityinhealthcare?”MedicalCareResearchandReview

1975‐2004

USA Thereislittleevidencetosupporttheeffectivenessofpayingforquality.

O’Reillyetal.,2012

“Payingforhospitalcare:theexperiencewith

1990s&2000s

England,Finland,France,

Activity‐basedfundinghasbeenassociatedwithan

52

implementingactivity‐basedfundinginfiveEuropeancountries.”HealthEconomics,PolicyandLaw

Germany&Ireland

increaseinactivity,adeclineinlengthofstayand/orareductionintherateofgrowthinhospitalexpenditureinmostofthesecountries

BevanandvandeVen,2010

“ChoiceofProvidersandMutualHealthcarePurchasers:CantheEnglishNationalHealthServiceLearnfromtheDutchReforms?”HealthEconomics,PolicyandLaw

Mid‐1970s‐2010

UK&theNetherlands

EffectivelyimplementingthefullycompetitiveDutchmodelrequirespreconditionstobefulfilled:agoodriskequalizationsystem,aneffectivecompetitionpolicy,anadequatesystemofproductclassificationandmedicalpricingandtransparentconsumerinformationontheHIproductsandonthequalityofhealthcareproviders.

LeGrand,1999

“Competition,CooperationorControl?TalesfromtheBritishNationalHealthService,”HealthAffairs

1990s UK Creationofaninternalorquasi‐market,separatingpurchaserfromproviderandencouragingcompetitionamongproviders,hadminimaleffect,partlybecauseofretentionofcentralcontrolandpartlyinadequateunderstandingofprofessionalmotivations

Propperetal., “Does 1990s UK Greatercompetitionis

53

2004 CompetitionBetweenHospitalsImprovetheQualityofCare?HospitalDeathRatesandtheNHSInternalMarket.”JournalofPublicEconomics

associatedwithhigherdeathrates,controllingforpatientmixandothercharacteristicsofthehospitalandcatchment.However,theestimatedimpactofcompetitionissmall

Propperetal.,2008

“CompetitionandQuality:EvidenceFromtheNHSInternalMarket1991‐9.”EconomicJournal

1991‐1999 UK RelationshipbetweencompetitionandAMImortality(asameasureofquality)isnegative.Wealsofindthatcompetitionreducedwaitingtimes.Indicationisthathospitalsincompetitivemarketsreducedunmeasuredandunobservedqualityinordertoimprovemeasuredandobservedwaitingtimes.

Dusheikoetal.,2006

“TheEffectofFinancialIncentivesonGatekeepingDoctors:EvidenceFromaNaturalExperiment.”JournalofHealthEconomics

1991‐1999 England Theabolitionoffundholdingincreasedex‐fundholders’admissionratesforchargeableelectiveadmissions

Dixonetal.,2010

“TheExperienceofImplementing

1990s–2000s

Englandandthe

Similarchallengeshavebeenfaced.

54

ChoiceatPointofReferral:AComparisonoftheNetherlandsandEngland.”HealthEconomics,PolicyandLaw

Netherlands Althoughchangeshavethepotentialtogenerateimprovementsandbenefits(eg.convenience,certaintyandchoiceforpatientsandefficiencygains)theyhavealsogeneratedproblemsduringimplementationincludingGPresistance

Gaynoretal.,2010

DeathByMarketPowerReform,CompetitionandPatientOutcomesintheNationalHealthService.”NBERWorkingPaper

2003‐2007

UK Effectofcompetitionistosaveliveswithoutraisingcosts.Patientsdischargedfromhospitalslocatedinmarketswherecompetitionwasmorefeasiblewerelesslikelytodie,hadshorterlengthofstayandweretreatedatthesamecost

Gaynoretal.,2012

“FreetoChoose?ReformandDemandResponseintheEnglishNationalHealthService,”NBERWorkingPaper18574

2003‐2008

UK Demandelasticityincreaseswithchoice,andthereissubstantialheterogeneityinconsumerresponse.Moreseverelyillpatientsbecomemoresensitivetoqualityofcarepost‐reform.

DugganandScottMorton,2010

“TheEffectofMedicarePartDon

2001‐2006

USA PartDsubstantiallyloweredtheaveragepriceandincreased

55

PharmaceuticalPricesandUtilization,”AmericanEconomicReview

thetotalutilizationofprescriptiondrugsbyMedicarerecipients.Themagnitudevariesacrossdrugs.

Chengetal,2012

“WhatFactorsInfluencetheEarningsofGeneralPractitionersandMedicalSpecialists?EvidencefromTheMedicineinAustralia:BalancingEmploymentandLifeSurvey,”HealthEconomics

2008 Australia EarningsofGPsarelower(vs.specialists)becauseGPsworkfewerhours,aremorelikelytobefemale,arelesslikelytoundertakeafter‐hoursoron‐callwork,andhavelowerreturnstoexperience.

Cooperetal,2010

"“Doeshospitalcompetitionsavelives?EvidencefromtheEnglishNHSpatientchoicereforms"LSEworkingpaper

2002‐2008

England Post‐reformsmortalityfell(i.e.qualityimproved)forpatientslivinginmorecompetitivemarkets.

Savage,E.,Wright,D.,2003

“MoralHazardandAdverseSelectioninAustralianprivatehospitals:1989‐1990,”JournalofHealthEconomics

1989–1990

Australia Whentheendogeneityoftheinsurancedecisionisaccountedfor,theextentofmoralhazardcansubstantiallyincreasetheexpectedlengthofahospitalstaybyafactorofupto3

Table5:SelectedempiricalPapersReviewed:CoverageDecisions

56

Author Title TimePeriod

CountryCovered

Findings

Propperetal.,2002

“WaitingTimesforHospitalAdmissions:theImpactofGPFundholding.”JournalofHealthEconomics

1993‐1997

UK Patientwaitingtimereductionsweresecuredwheredoctorspaidfortheirpatients’care,butnotwheredoctorschosehospitalsonlyanddidnotpay.

SicilianiandMartin,2007

“AnEmpiricalAnalysisoftheImpactofChoiceonWaitingTimes.”HealthEconomics

1999–2001.

England Morechoiceissignificantlyassociatedwithlowerwaitingtimesatthesamplemean(fivehospitals)althoughtheeffectismodest,alsosomeevidencethatthisimproveswithmorechoice(i.e.morethan11hospitalsincatchment).

Cooperetal.,2009

“Equity,WaitingTimes,andNHSReforms:RetrospectiveStudy.”BritishMedicalJournal

1997‐2007 England Waitingtimesforpatientshavingelectivehipreplacement,kneereplacement,andcataractrepairinEnglandreduced,asdidvariationinwaitingtimesacrosssocioeconomicgroups

Propperetal.,2010

“IncentivesandTargetsinHospitalCare:EvidencefromaNaturalExperiment,”

1997‐2004

England&Scotland

TheEnglishpolicyofsettingtargetsforelectivecarewaitingtimesachieveditsobjectives:thelengthoftimepatients

57

JournalofPublicEconomics

waitedfellandadmissionsforelectivecarerose.

Wilcoxetal.,2007

“MeasuringandReducingWaitingTimes:ACross‐NationalComparisonofStrategies,”HealthAffairs

2000‐2005

Australia,Canada,England,NewZealand,&Wales

Englandhasachievedthemostsustainedimprovement,linkedtomajorfundingboosts,ambitiouswaiting‐timetargets,andarigorousperformancemanagementsystem.Whilesupply‐sidestrategiesareusedinallfivecountries,NewZealandandpartsofCanadahavealsoinvestedindemand‐sidestrategies(useofclinicalcriteriatoprioritizeaccesstosurgery)

Hamiltonetal.,1996

“WhatarethecostsofqueuingforhipfracturesurgeryinCanada?”JournalofHealthEconomics

1990‐1993

Canada Pre‐surgerydelay(forhipfracture)haslittleeffectoneitherpost‐surgerylengthofstayinhospitalandinpatientmortality

Carrieretal.,1993

“OutcomeofrationingAccesstoOpenHeartSurgery,”CanadianMedicalAssociationJournal

1991‐1992

Canada Pre‐surgerywait(electiveopen‐heartsurgery)hadnoeffectonpatientoutcomeaftersurgery.

Guttmannetal.,2011

“Associationbetweenwaitingtimesandshort

2003‐2007

Canada Presentingtoanemergencydepartmentduring

58

termmortalityandhospitaladmissionafterdeparturefromemergencydepartment:populationbasedcohortstudyfromOntario,Canada,”BMJ

shiftswithlongerwaitingtimes,reflectedinlongermeanlengthofstay,isassociatedwithagreaterriskintheshorttermofdeathandadmissiontohospitalinpatientswhoarewellenoughtoleavethedepartment

Einav,FinkelsteinandLevin,2010

“BeyondTesting:EmpiricalModelsofInsuranceMarkets,”AnnualReviewofEconomics

2000s USA Recentadvancesinempiricalmodelsofinsurancehaveyieldedinsightsintothenatureofconsumerheterogeneityandthepossibilitythatcertainkindsofwelfarelossesfromasymmetricinformation,atleastinsomeinsurancemarkets,maybemodest.

FinkelsteinandMcGarry,2006

“MultipleDimensionsofPrivateInformation:EvidencefromtheLong‐TermCareInsuranceMarket,”AmericanEconomicReview

1995‐2000

USA Insurancemarketsmaysufferfromasymmetricinformationevenabsentapositivecorrelationbetweeninsurancecoverageandriskoccurrence

Fangeetal.,2008

“SourcesofAdvantageous

1991‐2002

USA Evidenceofadvantageous

59

Selection:EvidencefromtheMedigapInsuranceMarket,”JournalofPoliticalEconomy

selectionintheMedigapinsurancemarket.Itssourcesincludeincome,education,longevityexpectations,financialplanninghorizons,andcognitiveability.

Bolinetal.,2010

AsymmetricinformationandthedemandforvoluntaryhealthinsuranceinEurope,”NBERWorkingPaper

2004 Austria,Belgium,Denmark,France,Germany,Greece,Italy,Spain,Sweden,&Switzerland

Correlationbetweenriskandinsurancewasnegative,butnoevidenceofheterogeneousrisk‐preferencesasanexplanation

Einav,FinkelsteinandCullen,2010

“EstimatingWelfareinInsuranceMarketsUsingVariationinPrices,”QuarterlyJournalofEconomics

2004 USA Find adverseselectioninemployerprovidedHI,howeverestimatethatthequantitativewelfareimplicationsassociatedwithinefficientpricingintheparticularapplicationaresmall,inbothabsoluteandrelativeterms.

EinavandFinkelstein,2011

“SelectionandAsymmetricInformationinInsuranceMarkets,”NBERReporter

N/A USA&Israel(reviewofotherstudies)

WhileprivateinformationaboutriskplaysanimportantroleininsurancedemandinUSA,anotherdimensionofheterogeneity‐riskaversion‐maybejustasimportant,orevenmoreso.

Alanetal., “Distributional 1969‐ Canada Whileprogrameffects

60

2005 EffectsofGeneralPopulationPrescriptionDrugProgramsinCanada,”CanadianJournalofEconomics

1996 aremutedwhentherearehighdeductibles,anon‐seniorprescriptiondrugsubsidyismoreredistributivethananequal‐costproportionalincometransfer,partlybecauseofdifferentialprivateHIcoveragebyincome.

Hanleyetal.,2007

“DistributionalConsequencesoftheTransitionfromAgeBasedtoIncomeBasedPrescriptionDrugCoverageinBritishColumbia,Canada,”HealthEconomics,

2000‐2004

Canada Pharmaceuticalfinancingbecamelessregressiveafterthepolicychange.Resultssuggestthatifthepublicfinancingofpharmaceuticalsweremaintainedorincreased,achangefromage‐basedtoincome‐basedeligibilitycanunambiguouslyimproveequityinfinance

SmartandStabile,2005

“TaxCredits,Insurance,andtheUseofMedicalCare,”CanadianJournalofEconomics

1986‐2000

Canada Evidenceofgreatertaxpriceelasticities(vs.traditionalpoint‐of‐servicepriceelasticityestimates),butnoevidencetaxsubsidyaffectsHIdemandontheintensivemargin

Stabile,2002

“TheRoleofTaxSubsidiesintheMarketforHealth

1995 Canada&USA TaxsubsidiesencouragetheprovisionofHIin

61

Insurance,”InternationalTaxandPublicFinance

smallerfirms.RemovalofthemwouldcausetheHIlevelinsmall(butnotlarger)firmstodeclinesignificantly.

Hurleyetal,2002

“ParallelPrivateHealthInsuranceinAustralia:ACautionaryTaleandLessonsforCanada.”InstitutefortheStudyofLaborResearch

1995‐2001

Australia Verylimitedcostsavings;publicsystemwaittimesunlikelytoreduce;regulationcomplex;independentsystemofprivatefinancenotpossible;qualityplaysakeyroleindrivingthedynamicsbetweenthepublicandprivatelyfinancedsectors;clearpolicyobjectivesareessential

Joharetal.2011

“WaitingTimesforElectiveSurgeryandtheDecisiontoBuyPrivateHealthInsurance,”HealthEconomics

2004‐2005

Australia Expectedwaitingtimedoesnotincreasetheprobabilityofbuyinginsurancebutahighprobabilityofexperiencingalongwaitdoes.Onaverage,waitingtimehasnosignificantimpactoninsurance.

JoharandSavage,2010

“DoPrivatePatientsHaveShorterWaitingTimesforElectiveSurgery:EvidencefromNewSouthWalesPublicHospitals”

2004‐2005

Australia Privatepatientshaveshorterwaitingtimes,andtendtobeadmittedaheadoftheirlistingrank,especiallyforproceduresthathavelowurgencylevels.

62

EconomicPapers