Global Diversity of Health System Financing and Delivery

43CHAPTER 7

TABLE 7-1 Developed Country Total Health Expenditure (% GDP)

TAX FUNDED IN WESTERN

EUROPE

SHI FUNDED IN WESTERN

EUROPE CENTRAL EUROPEAN DEVELOPED ASIAN

DEVELOPED NORTH

AMERICAN

Ireland 7.2% Belgium 10.3% Latvia 6.0% Singapore 4.5% Canada 10.7%

Spain 8.9% Netherlands 10.1% Poland 6.5% South Korea 7.6% United States 17.1%

UK 9.6% Germany 11.2% Czech Republic 7.2% Japan 10.9%

Finland 9.6% Switzerland 12.3% Slovenia 8.2%

Denmark 10.1%

Sweden 11.0%

Abbreviations: GDP, gross domestic product; SHI, social health insurance; UK, United Kingdom.

Source: The Organization for Economic Co-operation and Development (OECD) data.

for primary and secondary pediatric health care services. More than

400,000 Finnish children (in a total population of 5 million) have privately purchased policies. In England in 2015, individual-, employer-,

and union-purchased private complementary insurance covered an

estimated 10.5% of the population, or about 6 million people. In

Canada, individuals are not allowed by law to purchase private complementary insurance (except for Supreme Court–ordered insurance

for three backlogged surgical procedures in Quebec Province—2005

Chaoulli decision); however, approximately 65% of the population

have employer-, union-, or private group–purchased supplemental

insurance for non–publicly covered services such as outpatient pharmaceutical prescriptions and home care.

Social Insurance–Funded Systems In Western Europe, SHI

funds have traditionally been organized on a private not-for-profit

basis, but with statutory responsibilities under national law. When

former Soviet Bloc countries in Eastern Europe regained their independence in 1991, they returned to pre–World War II SHI models, but

because there was no remaining organizational infrastructure, these

post-1991 arrangements typically became a single SHI fund, run as

an arm of the national government. In the United States, the Medicare

social insurance system for citizens over age 65, enacted in 1965, is

organized as a single fund tied to the national Social Security (public

pension) Administration, an independent agency within the national

government, with reimbursement arrangements supervised by the Centers for Medicare and Medicaid Services (CMS) inside the Department

of Health and Human Services. Medicare covers inpatient hospital care

plus limited post-hospital nursing home services (Medicare Part A).

Supplemental private insurance policies are bought by covered individuals to help pay for outpatient physician visits (Medicare Part B) and

for outpatient pharmaceuticals (Medicare Part D).

In Germany, 85% of the population is enrolled in one of 120 not-forprofit, monthly premium–based private SHI funds. This figure includes

all individuals with annual incomes below 54,500 euros, who are required

by law to join an SHI fund, as well as those with higher incomes who

choose to enroll or remain. Eleven percent of the population—all having annual incomes above the mandatory SHI enrollment ceiling of

54,500 euros—have opted out of the SHI system to voluntarily enroll

in claims-based private health insurance, whereas 4% of the citizenry

is enrolled in sector-specific public programs such as the military.

Since 2009, all SHI members pay a flat tax on gross monthly income

as a contribution (8.2% in 2018, up to an upper income limit of 49,500

euros), which is transferred by their SHI fund to a national pool,

TABLE 7-2 Developed Country Per Capita Health Expenditures

TAX FUNDED IN WESTERN

EUROPE

SHI FUNDED IN WESTERN

EUROPE CENTRAL EUROPEAN DEVELOPED ASIAN

DEVELOPED NORTH

AMERICAN

Spain $2738 Belgium $4149 Latvia $874 South Korea $2043 Canada $4458

Italy $2738 Germany $4714 Poland $809 Singapore $4083 United States $9869

UK $3958 Netherlands $4742 Czech Republic $1321 Japan $4233

Denmark $5565 Switzerland $9835 Slovenia $1834

Sweden $5710

Abbreviations: SHI, social health insurance; UK, United Kingdom.

and then redistributed back to their chosen fund on an individual

risk-adjusted basis. Employers send 7.3% of each employee’s salary to

the same national pool. Special arrangements exist for payments from

self-employed, retired, and unemployed workers. Since 1995, there has

been a separate mandatory social insurance fund for long-term care

(LTC), with an annual premium of 1.95% of each adult’s gross monthly

income, split 50%–50% with their employer. Pensioners since 2004

are required to pay the full 1.95% from their pensions. Childless SHI

enrollees pay a surcharge of 0.25% of monthly gross income. Overall,

78% of all health care expenditures in Germany were paid from public

and/or mandatory private SHI sources.

In the Netherlands since 2006, all adult citizens pay a fixed premium (about 1453 euros in 2019) to their choice among 35 private health insurers (not-for-profit and for-profit), with four large

insurance groups having over 1 million members each. In addition,

employers pay 6.95% of salary below 51,400 euros for each employee

into a national health insurance fund. Self-employed individuals pay

4.85% into the national fund for taxable income up to the same limit.

Retired and unemployed individuals also make payments. In addition

to the individual premiums paid to their choice of private insurance

fund, payments from the national health insurance fund, adjusted by

individual age, sex, and health characteristics, also are made to the

individual’s chosen insurer. The Netherlands has a separate mandatory

social insurance fund for LTC (the ABWZ, since 2015 the WLZ, and

now only for residential nursing home care) to which each employee

pays 9.5% of taxable income beneath 33,600 euros every year. Selfemployed, unemployed, and retired individuals also are required to pay

premiums to the WLZ. Overall, including SHI revenues, public spending provided 87% of total health expenditures in 2014.

In Estonia, a former Soviet Republic that re-established an SHI

system in 1991 upon regaining its independence, there is one national

SHI fund that is an arm of the national government. This fund collects

mandatory payments of 13% from salaried workers and 20% from

self-employed individuals, covering both health care and retirement

pensions. Overall, including SHI revenues, public spending accounted

for 74.5% of total health expenditures in 2017.

Singapore, Japan, South Korea, and Taiwan have predominantly SHI

systems of funding for individual care services. In these Asian countries (except Japan), there is one SHI fund that typically is operated as

an arm of the national government.

In Singapore, starting in 1983, all employees up to age 50 have been

required to place 20% of their income (employers add 16% more) into

a personal health savings account to pay for direct health care costs,

44PART 1 The Profession of Medicine

managed in their name by the Singapore government, called a Medisave

account. Medisave accounts have a maximum amount, are tax-exempt,

and receive interest payments (currently set at 4%). Consistent with

a Confucian emphasis on family, the funds that accumulate in the

Medisave account can be spent on health care for family members as

well. If the accumulated funds are not spent on health care during the

insured’s life, they become part of the individual’s personal estate and

are distributed as a tax-free inheritance to his or her designated heirs.

In addition, Singaporean citizens are also automatically enrolled into

a second government-run health insurance plan called MediShield

that pays for supplemental catastrophic, chronic, and long-term care.

While citizens can opt out, 90% of citizens remain in the program.

The Singapore government also operates a third, wholly tax-funded

payer called Medifund that, with approval of a local neighborhood

committee, will pay hospital costs for 3–4% of the population who are

recognized as indigent. In part reflecting the high level of mandatory

individual saving, public funding provided only 54.5% of total health

expenditures in 2016.

In South Korea, a state-run SHI system was established in 1977,

which in 1990 covered 30.9% of total health care costs. This percentage paid by the SHI system rose to 40.5% of total costs in 2017, with

national tax revenue covering 16.9%, leaving out-of-pocket expenses at

a relatively high 34.4% of total costs. Although there are legal ceilings

on total out-of-pocket copayments for each 6-month period, over 70%

of Korean adults purchase an additional private Voluntary Health

Insurance policy to cover these additional direct expenditures. In 2000,

three types of public SHI funds were merged into a single national

state-run fund. As of 2018, 6% of an employee’s salary must be paid

as a social insurance contribution into this fund, with employees and

employers each paying 50% of that amount. In 2008, an additional SHI

fund was introduced to pay for LTC, operated by the main state-run

SHI fund to reduce administrative costs. Contributions to the LTC

fund are set at 6.55% of the individual’s regular SHI contribution, coupled with 20% copayments for institutional care and 15% copayments

for home care services.

The United States There is no single preponderant source of

health care spending in the United States. The federal government’s

CMS reported that, for 2017, private health insurance covered 34% of

total health expenditures, Medicare (mandatory SHI program for all

citizens over 65) covered 20%, Medicaid (a joint federal-state welfare

program for low-income citizens) covered 17%, and out-of-pocket paid

10%. Sources of funds for these programs were 28% from the federal

government, 17% from state and local governments, 28% from private

households, and 20% from private business (e.g., employers). The

World Bank set public funding in the United States at 50.2% of total

health expenditures in 2017.

In 2010, the passage of the Affordable Care Act (ACA) extended

privately provided but heavily regulated and federally subsidized health

insurance to many low- and middle-income uninsured individuals and

families. Since the same act reduced the availability of existing individually purchased private health insurance, the total increase in the

number of newly covered individuals was less than expected. Insurance

premium increases for 2017 rose from 20% to over 100%, depending

on the particular state, with additional increases in up-front deductible

requirements, raising questions about the long-term sustainability of

the ACA initiative. The recent Republican administration sought to

repeal major financial and tax elements of the ACA and to replace

existing subsidy arrangements with a system of refundable tax credits

toward the establishment of individual health savings accounts and/or

purchase of private health insurance on open cross-state markets (currently, private health insurance in the United States remains controlled

at the separate 50-state level of government).

■ DELIVERING INDIVIDUAL PATIENT CARE

SERVICES IN DEVELOPED COUNTRIES

Hospital Services In Europe, hospitals in both tax-funded and

SHI-funded health systems are mostly publicly owned and operated

by regional or municipal governments. In tax-funded health systems,

most hospital-based physicians are civil servants, employed on a negotiated salary basis (often by a physician labor union), and subject to

most of the usual advantages and disadvantages of being a public sector

employee. There are somewhat more private hospitals in SHI-funded

health systems. However, most larger hospitals are public institutions

operated by local governments, and most hospital physicians (with the

notable exception of the Netherlands, where they are private contractors organized in private group practices) are, like those in tax-funded

systems, public sector employees. In most tax-funded European countries (but not continental SHI-funded countries), few specialist physicians have office-based practices, and in both tax- and SHI-funded

systems, office-based specialists do not have admitting privileges to

publicly operated hospitals.

Most public hospitals in both tax-funded and SHI-funded health

systems are single free-standing institutions that can be classified into

three broad categories by complexity of patients admitted and number

of specialties available: (1) district hospitals (four specialties: internal

medicine, general surgery, obstetrics, and psychiatry); (2) regional

hospitals (20 specialties); and (3) university hospitals (>40 specialties).

In addition, many countries have a number of small, 15- to 20-bed,

freestanding, private (typically for-profit) clinics. Recently, some taxfunded countries have begun to merge district and regional hospitals

in an effort to improve the quality of care and create financial efficiencies (for example, Norway; planned for Denmark, also for Ireland;

however, failed Parliamentary passage and brought down the coalition

government, in Finland in 2019). Institutional mergers can be difficult

to negotiate among publicly operated hospitals, due to the role that

these large institutions play as important care providers and as large

employers in smaller cities and towns, especially given political and

union concerns about maintaining current employment levels. In the

United States, financial and reimbursement pressures triggered by the

implementation of the 2010 ACA have generated a number of private

sector hospital mergers into larger hospital groups.

In tax-funded health systems, publicly funded patients who are

admitted for an elective procedure cannot choose their specialist physician (except private-pay patients in “pay beds” in National Health

Service [NHS] hospitals in England). Specialists are assigned by the

clinic to a patient based on availability, with both junior and senior

doctors placed in rotation.

Capital costs (buildings, large medical equipment) are publicly

funded in all tax-funded systems and in most traditional SHI systems.

For example, in Germany, capital costs for public hospitals are paid for

by the regional governments. As a result, new capital investment is often

allocated politically, according to location and political priorities. In

Finland, local politicians in the 1980s would say that it “takes 10 years

to build a hospital,” meaning that it took that long to become a political

priority for the regional government that controlled capital expenditures. Local politicians would therefore regularly overbuild when they

got their one opportunity to obtain new capital.

Recently, efforts have been made to make public hospitals more

responsible for their use of capital. In the Netherlands, public hospitals

were shifted into private not-for-profit entities that are expected either

to fund new capital from operating surplus or to borrow the funds from

a bank based on a viable business plan. In England, more than 100 hospitals have been built using the Public Finance Initiative (PFI) program,

in which private developers build turn-key facilities (thus taking capital

costs off the public borrowing limit), and then rent these facilities back

to the NHS and/or the relevant NHS Foundation Trust. In Sweden and

Finland, while capital equipment is now a cost on hospital operating

budgets, large new capital equipment and major building renovations

remain politically driven processes often with extensive delays. In

Stockholm County, the New Karolinska University Hospital opened in

2018 was built and is managed by a separate nonprofit public-private

company.

In Singapore and South Korea, both of which are SHI funded, larger

hospitals are publicly operated. However, there are a substantial number of smaller private clinics typically owned by specialist physicians.

In the United States, the passage of the 2010 ACA has triggered the

selling of many private specialist group practices to hospital groups,

Global Diversity of Health System Financing and Delivery

45CHAPTER 7

transforming previously independent practicing physicians into hospital employees.

Primary Care Services Most primary health care in SHI-funded

health systems, and also in an increasing number of tax-funded health

systems (except in low-income areas of some large cities), is delivered by

independent private general practitioners (GPs), working either individually or in small privately owned group practices. Recent changes

in tax-funded health systems include Norway, where most primary

care moved from municipally employed physicians to private-practice

GPs in 2003, and Sweden, where, following a 2010 change in national

reimbursement requirements, new privately owned not-for-profit and

for-profit GP practices were established and now deliver 50% of all

primary care visits.

In England, most primary care physicians are private GPs who are

contractors to the NHS, working either independently or in small

group practices. These private GPs own their own practices, which they

can sell when they retire. However, as part of the original agreement to

convince physicians to support the establishment of the NHS in 1948

(which most physicians strongly opposed), private GPs also receive a

national government pension upon retirement. In the inner cities in

England, there are some larger primary health clinics.

In 2001, England’s private primary care doctors were organized into

geographically based Primary Care Trusts (PCTs). These PCTs were

allocated 80% of the total NHS budget to contract for elective hospital

services required by their patients with both NHS hospital trusts as

well as private hospitals. In 2013, PCTs were restructured into Clinical

Commissioning Groups with similar contracting responsibilities.

In 2004, the Quality Outcomes Framework (QOF) was introduced as

a quality of care–tied approach to providing additional income for NHS

GPs. This regulatory mechanism in 2010 set 134 different standards for

best practice primary care in four main domains: 86 clinical, 36 organizational, 4 preventive service, and 3 patient experience. GP income grew

on average by 25% through the introduction of the QOF, with general

practices averaging 96% of possible QOF points. Total spending on QOF

in 2014 in England consumed 15% of all primary care expenditures.

In April 2019, a slightly revised QOF contract was implemented,

which retired 28 low-value indicators, introduced 15 new more clinically appropriate indicators, added two Quality Improvement modules,

and added a new personalized care adjustment option. Funding was

only changed marginally.

Access for individuals to primary care services is considered good

in SHI-funded systems such as those in Germany and the Netherlands.

One often-cited reason is that private office-based physicians (both

GPs and specialists) in these countries are paid on a modified fee-forservice basis. In Germany, office-based physicians are paid on a quarterly basis by the Sickness funds, acting jointly at the Länder (regional)

level through a point-based system. A national agreement between

the physician association and the association of sick funds establishes

points for each clinical act. Similarly, the association of sick funds (led

in each of Germany’s 16 Länder by the fund with the most subscribers

in that region) establishes a fixed budget for all office-based physician

services for all sick fund patients each 3-month period. Retrospectively

at the end of each period, the total number of points is divided into the

sick funds’ fixed allocation for office-based physicians for that Länder

for that quarter, establishing the value of a point for that quarter. Subsequently, each office-based physician’s point total is multiplied by that

quarterly point value, resulting in that physician’s total payment from

the statutory sick funds.

In contrast to SHI systems, seeing a primary care doctor in a number

of tax-funded health systems has become increasingly difficult over

the past decade. In Sweden, in 2005, a “care guarantee” was introduced

that required its predominantly publicly operated health centers to see

a patient within 7 days after calling for an appointment. In Finland,

where public primary health care centers used to provide most primary

care visits, delays in getting public health center appointments have

pushed up to 40% of all visits into a parallel occupational health system, as well as to publicly employed primary care physicians working

privately in the afternoons.

In England in 2019, access to GP services has been labeled a “crisis,”

aggravated by a 6% fall in the number of practicing GPs, leading to

delays of up to 30 days for an appointment in urban areas like London.

A 2019 report by the King’s Fund found that only 1 in 20 trainee GPs

planned to work full time. Also in 2019, the Nuffield Trust published

a report suggesting that future planning for primary care services in

England should assume a permanent shortage of GPs, requiring large

numbers of new nurse practitioners and other auxiliary personnel. In

Central European countries that were formerly within the Soviet Bloc,

primary care provision had to be newly established after independence

was regained in 1991, since first-line care in the former Semashko

model was provided in specialist polyclinics. Primary care doctors

rapidly emerged as almost entirely private for-profit GPs, working

on contract from the national SHI fund (Estonia, Hungary, North

Macedonia), from state-regulated private insurance companies (Czech

Republic), or from regional/municipal public payers (Poland). Private

GPs in most Central European countries now are paid on a per-visittied basis. This arrangement was heavily influenced by the structure

of primary care in Germany, where private office-based GPs are paid

according to a point-system-tied framework.

In Asian countries such as Singapore, South Korea, and Japan, most

primary care is provided by private for-profit GPs working independently or in small group practices. Private GPs are reimbursed at a set

per-service fee by the national SHI fund(s). Access to primary care

physicians is considered good.

Developed countries have varying policies regarding access to individual preventive services. Health systems in most countries provide

vaccinations and mammography as part of funded health care services.

In the United States, most insured individuals—and in Canada, most

covered residents—automatically receive an annual physical exam

including full blood profiles. In Norway and Denmark, adult physical

exams are provided only upon special request by the individual, and in

Sweden, adult physical exams are provided only to pregnant women. In

Sweden, adults who wish to know their cholesterol or prostate-specific

antigen (PSA) levels have begun to purchase blood tests out-of-pocket

from private laboratories. In England in 2019, the NHS announced it

would stop providing PSA screening tests for prostate cancer, even to

men who requested one, similarly forcing concerned patients to purchase private laboratory testing.

Patients must make copayments to see a primary care doctor in

some tax-funded health systems and in most SHI countries. In taxfunded systems, for example, Swedish patients are required to make

a county-council-set copayment for each primary care visit up to a

national-government-set annual ceiling, after which ambulatory visits

(both primary and outpatient specialist) are not charged. Finland has

a fixed copay for public health center visits, while Denmark’s private

GP visits do not have a copayment. In England, there is no copayment

for GP visits.

In SHI health care systems in Europe and in Asia, patients usually

are responsible for a copayment for both primary and office-based

specialist care. To defray these charges (and to pay for other nonfunded

services), a high percentage of citizens typically purchase additional

supplemental health insurance. In France, where 95% of patients in

2015 purchased private supplemental insurance, patients paid directly

the full fee for 65% of outpatient primary and specialist services, reimbursed subsequently by both their SHI fund and their supplemental

insurance carrier for all payments (after deductibles), while for 35%

of services (for low-income individuals and certain high-cost procedures), full agreed prices were paid directly to providers by SHI.

Access to Elective Specialist Care Approximately half of all

European health care systems have a gatekeeping system that requires

referrals from primary care physicians in order to book hospital specialist visits (for publicly paid visits). In most tax-funded health systems

(although not in most SHI systems), there are substantial waiting times,

typically several months or more, for elective specialist appointments

as well as for high-tech diagnostic and treatment procedures. Waiting

times can be particularly long for cancer and other elective surgical

or high-demand services. In Sweden, government figures from the

46PART 1 The Profession of Medicine

summer of 2017 showed that, nationally, only 5–10% of prostate cancer

operations were performed within 60 days after diagnosis.

In the English NHS, waiting lists for elective surgery in 2019 were

often 6 months or longer. In August 2017, there were over 4,000,000

patients on NHS waiting lists. In January 2018, what administrators

termed “a severe flu season,” during which hospital emergency rooms

were overwhelmed with elderly patients requiring admission, led to

a national-level NHS decision to cancel all elective operating room

procedures in all hospitals in England (>50,000 procedures in 1200

hospitals) for the entire month of January, further lengthening waiting

lists. Regarding quality of care, again in England, a March 2018 report

from the national Office of Health Economics found that, in 2016 and

2017, up to three-quarters of patients who could have undergone keyhole procedures were forced to undergo open surgery, resulting in an

estimated 1 million procedures each year that were more invasive than

clinically necessary.

Delays in some tax-funded systems also are procedural. In England,

for example, a patient who requires a further consultation with a second specialist typically has to return to their primary care physician for

a second referral and then has to wait in the regular patient queue for

that second appointment.

There is also substantial waiting time for radiologic imaging services

in most tax-funded systems. In Malta, the tax-funded health system’s

recent efforts to prioritize elective MRI investigations have succeeded

in reducing waiting times from 18 months to 4 months. In both the

Alberta and British Columbia Provinces in Canada, waiting times for a

publicly funded nonemergency MRI can extend up to several months,

whereas privately paid MRIs were available in both provinces within

1 week.

This issue of waiting times for specialist services in tax-funded

health systems reflects a combination of growing demand (increasing/

aging populations and changing clinical indications), financial constraints, and insufficient capacity, including inadequate physician

working hours. For example, in the 1980s, when several surgical

procedures for the elderly became more routine practice (e.g., hip

replacement, coronary artery bypass graft, corneal lens implantation),

the waiting list problem worsened. It had been mitigated somewhat

through increased service capacity by the early 2000s, only to return

as a growing policy challenge once public sector financial resources

became constrained again after the 2008 global financial crisis. Timely

cancer diagnosis and care continue to be a particularly sensitive issue,

with tax-funded systems often taking several months for a patient to

see an oncologist and then months more to begin treatment. In 2013

in Sweden, a newspaper journalist set off a political storm when he

described women patients in one large county council (Malmo) who

had to wait more than 40 days to receive the results from their breast

cancer biopsy. In September 2019 in England, only 76.9% of patients

with suspected cancer began treatment within 2 months of an urgent

referral from a GP.

In response to pressure from national patient associations, a number

of tax-funded health care systems introduced maximum waiting times

for elective hospital procedures in the early 2000s. (Most Western

European SHI systems do not have long waiting times or treatment

guarantees for hospital care.) These maximum waiting times typically

include initial primary care visits as well as specialist evaluations and

treatment. In Denmark, a patient has the right to go to a different

Danish public hospital for care after waiting 30 days without treatment.

In Sweden, under the 2005 “waiting time guarantee,” an untreated

patient’s local county council is required to pay for care in another

county’s hospital after 180 days. In a parallel process at the European

Union (EU) level, beginning in 1997, the EU Court of Justice steadily

expanded the right of all EU citizens to travel to another EU country in

order to receive “timely” care, with their home country health system

required to pay for that care.

In private not-for-profit SHI-funded health systems such as in

Germany and Switzerland, waiting times for specialist visits and

hospital procedures are typically a few weeks to 1 month. In the SHI

system in France, which is more centrally organized and funded (part

of the Napoleonic tradition of public administration), ongoing disputes

about insufficient central government funding for public hospitals and

staff salaries led in March 2019 to 9 months of hospital staff strikes,

particularly in accident and emergency departments. In November

2019, the national government announced that it would take over

10 billion euros in public hospital debt as part of an effort to reverse

staff cutbacks, bed and operating theater closures, and personnel flight

to the private sector.

Long-Term Care Services LTC (consisting of residential and

home-based services) consumes a relatively small but increasing proportion of gross domestic product (GDP) in developed countries. In

2016, Norway (2.95% GDP), Sweden (2.87% GDP), and the Netherlands

(2.64% GDP) all spent more than one-fourth of their total health expenditures on LTC (Eurostat and OECD figures). More than one-fifth of all

health care expenditures went to LTC in Belgium (2.16% GDP), Ireland

(1.55% GDP), and Denmark (2.5% GDP). Lower-spending countries

included the United Kingdom (18% of health expenditures; 1.75%

GDP), Germany (12% of expenditures; 1.33% GDP), and Spain (9%

of expenditures; 0.81% GDP). In the United States, official figures put

total LTC expenditures in 2016 at 4.9% of total health expenditures, or

0.9% of total GDP. (Note that these figures do not include emergency,

inpatient, or outpatient hospital costs generated by elderly patients.)

Since nursing home care is more expensive than home care (nursing

home care requires the provision of housing, food, and around-theclock care providers), government policymakers seek to keep the

elderly and the chronically ill out of nursing homes for as long as feasible. Moreover, in developed countries like Sweden, Norway, and the

United States, some 70% of all home care services come from informal

caregivers: spouses, children (typically daughters), neighbors, and

nonprofit community groups. While some SHI systems (e.g., Germany)

have separate public LTC insurance (funded by mandatory premiums

paid by all adults) that make available cash payments for LTC that can

be used to compensate informal caregivers, most policymakers work

hard to not monetize what is a large amount of essentially free care.

Indeed, policymakers actively seek to encourage those providing these

services to continue to do so as long as possible, trying to postpone

caregiver burnout by providing support services such as free respite

care, special call-in lines for caregiving advice, pension points toward

retirement for the informal caregiver (Nordic countries), and free daycare center services.

In most tax-funded and SHI-funded European countries, home care

services are organized at the municipal government level. In tax-funded

systems, these services are also delivered mostly by municipal employees,

working according to union-negotiated protocols. In some European

SHI systems, and recently in tax-funded Sweden and Finland, private

companies also provide home care services on contract to municipal

governments. In combination with national legislation, these municipal systems also provide important support for informal caregivers,

since the financial costs of caring for adults in their own home are

substantially less than providing housing, food, and caregiver support

in publicly funded homes for the aged or in nursing homes.

A high proportion of nursing homes in European tax-funded and

SHI-funded health systems are publicly owned facilities operated by

municipal governments; in some instances, in SHI-funded systems

(Israel, the Netherlands), they are operated by private not-for-profit

organizations. Recently, in some tax-funded systems (e.g., Sweden),

private for-profit chains have begun to open nursing homes that are

funded on a contract basis with local municipal governments. Costs

for nursing home care can be expensive: in Norway, the cost per patient

is often over $100,000 per year in a publicly funded home, with the

patient responsible for paying up to 80% depending on the family’s

economic status. In Sweden, patients living in publicly funded nursing

homes in Stockholm County pay a relatively small official fee, but they

also pay room rent and up to 2706 Swedish krona (SEK) per month

(about $270 U.S. dollars [USD]) for food out of their monthly public

pension payments.

In 2012, in an effort to reduce demand for expensive hospital and

nursing home services, Norway and Denmark began elderly care

reforms that shifted service delivery as well as funding responsibilities

Global Diversity of Health System Financing and Delivery

47CHAPTER 7

to municipal governments. Among innovations in Norway, municipalities are required to establish a municipal acute bed unit (MAU) to treat

stable elderly patients and provide observation beds for evaluation.

Partial funding for these units is provided by the four public regional

health care administrations. Some municipalities have also embedded

primary care units inside their regional hospital to arrange discharge

and to coordinate care for the chronically ill elderly. Norwegian municipalities are also responsible through their contracted (mostly private)

primary care physicians to implement the National Pathways Program,

which established treatment protocols for cross-sector conditions such

as diabetes and cardiovascular conditions.

A differently configured structural innovation to better integrate

LTC for the chronically ill elderly with clinical individual health

services has been to consolidate both social and health care services

within the same public administrative organization. In 2019, as part of

health reforms in Ireland and Denmark and a proposed (unenacted)

reform in Finland, as well as a pilot decentralization program in

England for 2.8 million people in Greater Manchester, social and health

care programs are to be administered by a single responsible agency.

In the SHI-funded system in the Netherlands, almost 7% of the

population live in a residential home. National government legislation

revised the structure of nursing home funding and care in 2015. Three

acts restructured the separate public LTC SHI fund, which requires

mandatory payments by 100% of Dutch adults, and introduced

delivery-related reforms that reduced the number and overall cost of

nursing home patients paid for by the fund. Determination of eligibility

for public payment for nursing home care is now made by an independent national assessment body (the Centre for Needs Assessment).

Moreover, municipal governments now play a stronger role in funding

and delivering home care services. The reforms created social care

teams that hold “kitchen table talks” to steer the elderly first toward

seeking care from family, neighbors, churches, and other local community organizations before they qualify for publicly paid in-home care.

In 2012, some 1.5 million people (12% of total population) provided

informal care to ill or disabled persons, averaging 22 hours per week

of care per person.

Home care recipients in the Netherlands can choose to set up a “personal budget,” using their public funding allocation to select their preferred individual care personnel (either publicly employed or publicly

approved private providers). This arrangement also enables these home

care recipients to determine the particular mix of services they want,

as well as to augment the allocated public funds with personal funds. A

number of innovative not-for-profit nursing homes have been created

to provide additional services to elderly living in their neighborhood

(primary care home visits), as well as terminal hospice care (e.g., the

Saffier De Residentie Groep residences in The Haag).

In the United States, nursing home and home care are funded and

delivered in a variety of different ways. For individuals who have minimal

financial assets, nursing home costs are paid by a joint federal-regional

(state) welfare program called Medicaid. Most state government Medicaid programs pay out more than 40% of their total budget for nursing

home care. In the past, Medicaid did not pay for home care services.

However, some states have programs with private for-profit and not-forprofit providers that provide home care as a way to forestall the need for

the more expensive nursing home care.

Many private individuals take out private LTC insurance, typically

from commercial insurance companies. These policies require individuals to make premium payments for years in advance (often 20 or

more) before the individual learns whether they will, in fact, require

home or nursing home care. Some private insurers have also raised

premiums after individuals have paid in for many years and canceled

policies if the new higher rate is not affordable. The 2010 ACA contained a new public LTC insurance program. However, the program

was designed to be voluntary, and U.S. Department of Health and

Human Services administrators decided in 2013 not to implement that

portion of the law.

In addition to the tax-funded Medicaid program and privately purchased LTC insurance, many middle-class families pay for care from

savings, by selling the elderly person’s home, or by direct contribution

from children and other family members. Expenses can reach between

$60,000 and $100,000 per year depending on the location of a facility

and who operates it.

Nursing home care in the United States is provided by a wide mix

of private not-for-profit and for-profit providers, ranging from churchowned single-site homes to large stock market–listed companies. Many

of these homes are purpose-built as assisted-living or memory-care

facilities. Home care services are delivered by a mix of private not-forprofit and for-profit providers.

In Japan, a national LTC insurance fund was introduced in

2000. Although the new fund applies uniformly across the country,

the program is administered by municipal governments and the premium level differs across municipalities, with an average monthly

premium of 3000 yen (about $30 USD). In South Korea, an SHI fund

for LTC is funded by mandatory contributions of 4.78% of a person’s

regular national health insurance contribution, with an additional 20%

of total LTC expenditures provided by national government funds. The

client copayment for home care is set at 15% of expenses and at 20%

for residential care.

■ PHARMACEUTICALS

Pharmaceutical expenditures in developed countries (inpatient and

outpatient combined) vary widely across different health system types,

as well as between different countries within each institutional type.

OECD figures for 2018 show drug expenditures in tax-funded countries in Western Europe ranging from 6.3% of total health expenditures

(THE) in Denmark to 11.9% of THE in the United Kingdom and 18.6%

of THE in Spain. In SHI-funded Western European systems, pharmaceuticals absorbed 7.5% of THE in the Netherlands, while in Germany,

that figure was 14.1%. In the hybrid tax-funded SHI systems of Central

Europe, the pharmaceutical percentage of THE is higher: 18.2% of

THE in Estonia to 27.9% of THE in Hungary. Similarly, in Asian SHI

systems, pharmaceuticals consumed 20.7% of THE in South Korea and

18.6% of THE in Japan. The OECD’s 2018 figures for pharmaceutical

spending in North America are 12.0% of THE in the United States and

16.7% in Canada.

Contributing factors to this wide-ranging variation are (1) differences in national practice and prescription patterns reflecting differing

cultural expectations; (2) the ratio problem (relatively fixed level of

pharmaceutical costs due to international prices—the numerator—

divided by a greatly varying per capita health expenditure cost in

different developed country health systems); (3) the range and type of

pharmaceutical price controls in each country; and (4) the degree of

limitation placed on pharmaceutical supply, tied to formularies and/or

explicit forms of drug rationing.

Most European health systems have tight national controls on the

cost and, in some tax-based countries, on the availability of pharmaceuticals. Most European countries also use a number of different regulatory measures to limit prices and/or availability of both inpatient and

outpatient drugs, including mandatory generic prescribing, reference

pricing, patient copays (sometimes with an annual ceiling, after which

copayments are no longer required), and (particularly in tax-funded

systems) national formularies tied to clinical effectiveness. Norway,

for example, allows only about 2300 different preparations—including

dosage, delivery method, and box size—to be stocked by pharmacies.

Prices for drugs can vary considerably across different European

countries, tied to economic development and domestic pricing patterns. One consequence of these differential national pricing controls

has been the development of a parallel import market, in which drug

wholesalers and pharmacists in the more expensive countries purchase

supplies from a cheaper market elsewhere in Europe.

Access to expensive drugs has also been intentionally limited in

some tax-funded health systems in Europe. One basis for rationing has

been rationing tied to quality-adjusted life-years (QALYs). Rationing

also reflects a clash between strained public drug budgets and public

pressure. For example, in the case of cancer drugs in England, the

recommendation of the National Institute for Health and Care Excellence (NICE) against funding the breast cancer drug trastuzumab

(Herceptin) was subsequently overturned by the Minister of Health.

48PART 1 The Profession of Medicine

Expensive cancer drugs continue to be rationed in England where the

NHS Cancer Drug Fund, established in 2011 to provide access to nonNHS-provided drugs on a case-by-case basis, ran out of funds in 2015,

forcing it to drop 25 of 83 covered drugs and close down for 3 months

to restructure its operations.

As part of earlier medical patterns in Asian countries, office-based

physicians traditionally filled prescriptions as well as prescribing drugs

to patients. These sales also served to supplement their income in a

setting of relatively low per-visit payments from state-run SHI funds.

Concerned about cost and overuse, both Taiwan (in 1997, except for

emergency cases or rural regions) and South Korea (for the whole

country in 2003) implemented “separation reforms,” which ended these

physician sales. In Japan, a series of fee and reimbursement reforms

have trimmed the percentage of all prescriptions dispensed in 2016 by

physicians to 26% of prescriptions filled.

■ GOVERNANCE AND REGULATION

Health care services in developed countries are steered, constrained,

monitored, and (to varying degrees) assessed by governments and

governmentally established and/or empowered bodies. Although these

measures apply particularly to the financial efficiency of governmentfunded services, they also seek to promote patient and community

safety, equity of access, and high-quality clinical outcomes. This oversight is often strongly focused on privately operated and contracted

providers and insurers, although in principle, it applies to publicly

operated organizations as well.

Governance consists of macro national-level policy, meso

institutional-level management, and micro clinic-level care decisions.

This complex mix of governance decisions is often shared among

different national, regional, and local governments, depending on the

degree of centralization, decentralization, or, recently, recentralization

(e.g., Norway and Denmark). While most systems officially prioritize

“good governance,” governance activities frequently comingle with

political objectives as core policy concepts are developed and transformed into concrete organizational targets.

In Sweden, health system governance is shared among national,

regional (county), and local municipal governments. The national government has responsibility to pass “frame” legislation, which establishes

the basic structure of the system. To cite one example, until recently, the

national government had limited an adult patient’s total copayments

for outpatient physician care (specialist and primary care) and pharmaceuticals to 2800 SEK (about $280 USD) for a 12-month period. The

20 regional governments, in turn, made policy decisions within that

legislation, deciding how to apportion the specific copayments for each

primary care and specialist outpatient visit. Since Swedes can self-refer

to specialists, some counties double the copayment to hospital-based

doctors to discourage unnecessary appointments. Similarly, fiscal policy normally is shared between the regional government, which raises

about 70% of total health expenditures through its own county-set flat

income tax, and the national government, which provides additional

purpose-tied funds for national objectives such as consolidating openheart surgery across county lines as well as supplementing lower tax

receipts in rural counties with smaller working populations. However,

this normal funding relationship across governments can change. In

the early 1990s, the national government placed a “stop” on raising

county taxes prior to Sweden’s admission in 1995 to the EU. In 2016,

each of the 20 counties could set their own ceilings, which were almost

all at 3300 SEK (about $330 USD).

In Spain’s tax-funded health system (71.1% publicly funded in 2015),

17 regional “autonomous communities” were given full managerial

responsibility for the provision of health services in a 1990s decentralization process, along with ownership of all publicly operated hospitals.

The national government generates a substantial proportion of health

care resources, which are included in the broad block grants it allocates

to the regional governments, which then add regional tax revenue to

make up the full public sector budget. In a mechanism to steer regional

government operating policies in this decentralized environment, the

national Spanish government established a joint federal-regional council to review quality and performance data (through the 2003 Health

System Cohesion and Quality Act). Italy’s tax-funded health system

(75.8% publicly funded in 2014) similarly shares governance responsibilities between national and regional governments. Health services are

provided by local health authorities (Azienda Sanitaria Locale) supervised by 20 regional governments within a nationally established governance framework, financed through a complicated mix of national and

nationally stipulated but regionally collected taxes. Again, like Spain,

the national government established a federal-regional government

council, seeking to better coordinate care standards and information

among the regions and with national government agencies. In 2006, the

national government imposed strict financial plans on 10 regions that

were systematically in deficit.

In Germany, where funding for its SHI-based health system is

predominantly the responsibility of 120 private not-for-profit sickness funds, governance decisions are shared among these private

sector sickness funds and public sector national, regional, and municipal governments. The sickness funds receive a risk-adjusted premium payment for each enrolled individual, according to a national

government–determined formula, and from a national government–

run health insurance pool. Most hospitals are owned and operated by

municipal governments, while investment capital for structural renovations and new building comes from the 16 regional Länder taken from

their tax revenues. Payment frameworks and amounts for public hospitals are negotiated between associations of these municipally owned

hospitals and associations of the private sickness funds, without formal

government participation.

Regulation is an essential element of an effective health care system

and a key component of overall health system governance. Regulation

incorporates both broad standard requirements that affect all organizations that operate in a country (e.g., hiring, firing, and wage decisions) as well as specific health sector–related regulations (e.g., proper

handling, use, and disposal of low-grade nuclear waste from radiation

treatments). Recent examples of health sector regulation in England,

for example, include the following:

1. Requiring all cancer drugs adopted for use in the NHS to cost no

more than $41,268/QALY;

2. Requiring in their employment contract that junior doctors in hospitals work a specific number of Sundays; and

3. Requiring that all emergency department patients receive care

within 4 h of their arrival.

A powerful tool that has the force of law, regulation can have substantial negative as well as positive effects. A well-known political

science corollary of regulatory power is that “the right to regulate is

also the right to destroy.” For example, in the United States, the federal

Environmental Protection Agency, as part of its pursuit of cleaner air,

issued wide-ranging regulatory orders setting performance standards

that resulted in the closing of many West Virginia coal mines, with the

loss of tens of millions of dollars of productive capacity and thousands

of high-paying jobs, and likely contributing to social conditions that

helped spawn that state’s high rates of opioid abuse among unemployed males. Similarly, in some tax-funded European systems, such

as those in Sweden and England, there is growing pressure from public

health advocates for national regulations to prohibit the making of a

profit from publicly paid funds. In Sweden, the national government’s

Reepalu report in 2016 honored a pledge made by the Social Democratic government to its Left (socialist) Party ally by calling for a legislated ban on profit-making in the provision of publicly funded health

care services. The report’s publication triggered substantial divestment

of existing investor-owned primary care, nursing home, and home care

companies.

■ FUTURE CHALLENGES

Health systems in developed countries face continued challenges in

the coming years. These include financial, organizational, and policy

dilemmas for which institutionally viable, financially sustainable, and

politically supportable solutions will be complicated to develop and

difficult to implement. On the delivery side, a key question is whether