Issue 6, April-June 1988

When the Tories first proposed attacking the National Health Service, some of us said plainly that it was giving good value for money,

Comparing Health Care Systems

by Martin Dolphin

The socialist movement in Britain is justifiably proud of the principle which the National Health Service embodies - that access to medical care should be on the basis of need rather than on the basis of ability to pay. It is wrong, however, to assume that the organisational structure of the NHS is the only one which can implement such a principle (although I believe a strong case can be made that it is the best structure).

Let's look at two other organisational forms, the French and Canadian, which go a considerable way to realising this principle (of access on the basis of need rather than ability to pay) and to look also at the American system which is largely organised on the basis of ability to pay. My presentation of these alternative national health delivery systems will be largely descriptive and very brief - outlining the essential characteristics of these systems without qualification. In the next issue of L&TUR I shall attempt to evaluate the pros and cons of these systems and of the UK system.

The French Health Care System

Almost 99 per cent of the French population are covered by four National Health Insurance funds. All employees have to be members of the appropriate fund. Membership automatically covers dependants.

What do you do if you become ill?

Unlike the UK system, if you feel ill you can go to any doctor you like. The doctor may be either a general practitioner or a consultant (an expert in a particular area of medicine.) (In the UK you cannot go straight to a consultant, you have to be referred by a GP). You pay the doctor for your treatment and then apply to your insurance fund for a refund. Only 70 per cent of the cost will be refunded. If you are so ill that you have to go to hospital then the hospital will send a bill directly to your insurance fund which will pay almost the full cost. You will have to pay up to a maximum of £48 over six months.

The providers of health care

Unlike the UK, where the vast majority of doctors are employed by the state for a fixed salary to work in hospitals owned by the state, virtually all health care in France is provided by individuals working in a totally private capacity and in institutions (30 per cent of which are private). When you are ill you go to a private doctor or private hospital. This difference between the UK and French systems is described by saying that in the UK the financing and provision of health care is public while in France the financing of health care is public while its provision is private.

Overall impressions

The system provides very comprehensive levels of health care with which its users are very happy, but it is costly and the fact that only 70 per cent of costs are reimbursed biases the system in favour of the wealthy. In 1985, 8.6 per cent of the French gross national product was spent on health care while in the UK it was only 5.9 per cent of GNP. So the French system is almost 45 per cent more expensive than the UK system. (French doctors earn 7 times the average wage while in the UK doctors earn only 2.7 times the average).

The United States

In the United States it is the responsibility of the individual to organise his own health care insurance in much the same way as in the UK it is the responsibility of individuals to insure their homes against fire and theft. If you become ill and have not taken out insurance then that is your hard luck. In practice the vast majority of people are insured through their employment. Health cover is an expected perk in almost any job and so it is employers who pay most health insurance premiums.

What happens if you become ill?

Like the French system you can go to whatever doctor you want. Depending on the insurance cover which your employer is providing you may have to pay none of the cost of your treatment or a fair amount of it, although most hospital expenses would be covered by all insurance systems.

The providers of health care.

Like the French system the vast majority of hospitals and doctors work in a private capacity.

Overall impressions

If you have good health cover, either directly or indirectly through your employer, then you can expect good standards of care. If you don't then you can expect correspondingly lower standards of care. The care you receive is on the basis of your insurance cover rather than on the basis of your medical need. The US system is also very expensive - it cost 10 per cent of GNP in 1985. Attempts have been made to estimate the percentage of people who have not taken out insurance. Some estimates have been alarmingly high (up to 25 per cent) though the more generally accepted figure is around 16 per cent. Either way this is clearly very unsatisfactory.

Canada

Up until 1970 Canada had a similar national health system to that of the US. In 1970 it implemented a universal public insurance system covering virtually all hospital and medical expenses. The distinguishing feature of the Canadian Health care system is that only one national insurance company is allowed. In other words you cannot actually take out private insurance. This insurance monopoly means that doctors and hospitals (who have all remained private) are forced to provide good services at reasonable rates.

What do you do if you become ill?

Like the US and French systems you go to the doctor of your choice. The doctor or hospital then applies to the national insurance company for reimbursement. Unlike the French or US systems there is little scope for variation in the charges which doctors or hospitals can make.

The providers of health care

As in the US and French systems, doctors and hospitals are almost 100 per cent private bodies.

Overall impressions

Since it was introduced in 1970 the new system has been a tremendous success politically. It is enormously popular and has been very successful in terms of equalising access to the system. In addition the levels of service are very good and queues are short. It has also been very cost-effective, keeping total health care costs at around 7 per cent of GNP. The ability to control the earnings of doctors through a fixed price list for medical services has been an important element in this cost control.

The National Health Service (NHS) is in a state of crisis. Or so the main political parties would have us believe. Labour would have us believe this because it confirms its view of the Tory Party as an essentially uncaring party.

Mrs. Thatcher has only recently been converted to the crisis view. For a long time she defended the state of the NHS by quoting statistics on the increased public expenditure on the NHS since the Tories came to power in 1979. Now she has changed her tack.

If, as Labour claims, the NHS is in a state of crisis then, according to Mrs. Thatcher, this must be because of the fundamental structure of the NHS rather than because of any actions taken by her administrations. Accordingly she has instituted an investigation into other means of providing health care on a national basis.

In this article I wish to address a limited issue: what has happened to the NHS since the Tories came to power in 1979 and what is the true nature and extent of today's crisis? In order to do this I have collected a somewhat daunting set of statistics which are presented in Table 1 and from which will emerge a picture of what has happened.

These questions are important because any future Labour administration must have a clear idea of the state of the service before it can make any electoral commitments.

Measuring the cost of health provision

a) Nominal vs Real Expenditure

How are we to measure the NHS under the Tories? Is there any measure or set of measures by which we can unambiguously say that the health service is better or worse off than it was nine years ago? Let us consider what must be the most obvious measure of the NHS: the cost of providing it. Mrs. Thatcher claims that she has spent more than any previous government on it. Is this correct?

In column (1) on Table I we show the total cost of the NHS to the government, excluding capital expenditure. From this table it can be seen that spending has gone from £7,833 million in 1978 to £19,191 million in 1986. Column (2) shows the percentage change in each year and column (3) shows the cumulative percentage change since 1979 (when the Tories came to power). The last figure in column (3) tells us that since 1979 government expenditure has increased by 112 per cent (to the nearest whole number).

So the evidence initially confirms what Mrs. Thatcher says, i.e. that she has spent more on the NHS than any previous government. However Mrs. Thatcher goes further than that, claiming that she has spent more in "real terms" on the NHS. This "real terms" qualification is very important.

Supposing that in 1978 someone earned a wage of £5,000 and that this had doubled to £10,000 in 1988 but that meanwhile prices had also doubled, then in real terms the person is no better off in 1988 than he was in 1978. That is because he cannot buy anything more with his £10,000 in 1988 than he could with his £5,000 in 1978.

People sometimes use the phrase deflated terms which means exactly the same thing as real terms. The opposite of real terms is nominal terms. In the above example we would say that the person is twice as well off in nominal terms but no better off in real or deflated terms.

Enough of terminology. Thatcher claims that the NHS is better off in real terms. This is a more difficult claim to evaluate.

Each year the Cental Statistics Office (CSO) publishes a measure of the increase in prices called the Gross Domestic Product Deflator at Factor Cost in the United Kingdom National Accounts (called the "Blue Book"). By dividing nominal expenditure on the NHS by the GDP deflator we get a measure of real NHS expenditure. In column (4) we show the annual GDP deflator, column (5) shows the cumulative GDP deflator and column (6) shows the nominal NHS cost [column (1)] divided by the cumulative deflator.

Once again Thatcher's claim appears correct, though it is clearly more modest than we might at first have been led to believe. In real terms government spending has increased from £8,488 million in 1979 to £10,706 million in 1986 - an increase of 26 per cent compared to a nominal increase of 112 per cent.

b) GDP Deflator vs NHS Deflator

However, it is not really acceptable to use the GDP deflator to arrive at real NHS expenditure, because the GDP deflator is an average index of the increase in all prices in the economy.

For instance, if you had wanted to buy a house in London in 1978, you could have done so with £10,000. The GDP deflator which we have used above suggests that you should be able to buy an equivalent house for £25,000 in London today. Readers who live in London know that they could hardly buy a dog kennel for that price in London today. So we cannot assume that the GDP deflator is a suitable index with which to measure changes over time in expenditure on the NHS.

To resolve the question satisfactorily we need to have a clear idea of what has been happening to the prices of things on which NHS money is spent, such as doctors' and nurses' salaries, hospital construction costs, pharmaceutical products etc. Using such information, the Office of Health Economics has constructed what might be called an NHS Deflator. This is shown in column (8) and the compound deflator is shown in column (9). Applying this deflator we discover in Column (12) that NHS expenditure has increased by almost 17 per cent between 1979 and 1986.

So Mrs. Thatcher does not tell a lie. Whatever way we look at it there has been a real increase in resources going into the NHS during her period in government. [Columns (15) to (19).]

Changes on the Demand Side

So far we have been looking only at the supply side of the NHS, and we have established that the supply of real resources increased by 17 per cent in the period 1979-1986. There is also the demand side to consider.

For instance, if the population had doubled in this period or the country had been hit by some massive epidemic, then the 17 per cent increase might have been totally inadequate. How, then, are we to measure the level of demand for medical care over the period? Well, let us first look at waiting lists.

In column (34) we show the number of people on waiting lists in the UK. This has clearly increased over the period in question from 782,000 in 1979 to 801,000 in 1985 (I have not been able to get figures for 1986). It's not much of an increase but I suspect that the statistics for 1986 and 1987 will show further increases. Since the actual number of treated cases has increased markedly in the same period we can only conclude that there has been a substantial increase in the demand for medical care from the NHS.

Now there are a number of ways in which demand for health services can increase: i) an increase in population; (ii) a change in the age structure of the population; (iii) changes in medical technology, and (iv) new diseases affecting large numbers of people.

i) Increase in population

We can discount this explanation. As column (30) shows, the population has remained virtually unchanged over the period.

ii) Change in the age structure of the population

As columns (31)-(33) show, there has been a substantial change in the structure of the population. There were half a million (7 per cent) more people over the age of 65 in 1987 than there were in 1978, and actually 0.7 million (20 per cent) more people over the age of 75 in 1987 than in 1978. In its Compendium of Health Statistics the Office of Health Economics states

"Perhaps the most important contributor to the financial expansion of the NHS has been the growing number of the old and very old people in the population. Not only is their episodic demand for health care higher, but also each period of treatment tends to last longer than for younger patients. Consequently the costs of caring for the elderly are far higher than for the rest of the country. It is estimated that during 1984/85, the NHS hospital and community health services spent on average £942 for every person aged over 75..... this was more than ten times greater than the average outlay on people of working age (16-64).

".........it may be calculated that in the UK as a whole the elderly population (over 65s) accounted for about 43 per cent of the overall NHS expenditure in the financial year 1984/85 compared with 36 per cent in 1973/74."

iii) Changes in medical technology

Presumably the development of new techniques such as by-pass surgery leads to a demand for services which did not previously exist. These new techniques seem to rely heavily on sophisticated and expensive electronic equipment.

iv) New diseases

AIDS is the obvious candidate here. The government has had to start channelling substantial sums of money into research on this disease and into the care of people suffering from the AIDS virus.

The target of 2 per cent growth

In 1986, taking items (i) to (iv) into account, the government confirmed to the House of Commons Social Services Committee that the changes which are occurring in the age structure of the population required a 1 per cent expansion in NHS resources, that another 0.5 per cent would be required by advances in medical technology and a further 0.5 per cent to meet the government's policy objectives such as developing community care.

So by the government's own admission the NHS needs a real increase in resources of 2 per cent. Assuming that this 2 per cent figure is in fact reasonable, to what extent has the government been meeting it?

Column (13) shows the expenditures which would need to have been made to meet this 2 per cent compound rate of growth. Column (14) shows the difference between what should have been spent and what was spent, i.e. column (13) minus column (1). As we can see, this shows that the Tories have indeed been meeting the overall 2 per cent growth rate for the NHS.

From 1979 to 1986 expenditure has gone up by 17 per cent in real terms which represents an annual growth rate of 2.2 per cent. So either the 2 per cent real rate of growth to which the government is committed is inadequate or there is something else hidden in the statistics.

If for the moment we assume that this 2 per cent figure is in fact adequate then we seem to be drawn to the conclusion that the current crisis in the NHS is not a real crisis but some sort of imagined, media-fed crisis. And yet there is the inescapable fact that the waiting lists keep getting longer.

The problem of Hospital Services

The problem with the analysis we have carried out so far is that it has been based on total NHS revenue expenditure. As readers are no doubt aware, most complaints about the NHS are about the hospital services so it is worth zooming in on this area of expenditure.

Columns (24)-(29) show exactly the same figures for the Hospital services that have already been shown for the health service as a whole. But now they tell a completely different story. The crucial column (27) shows that between 1979 and 1986 there has been a less than 6.4 per cent increase in real expenditure and basing expenditure on an assumed 2 per cent real growth yields a deficit of £838.75 million in the year 1986 [column (29)]

While the NHS as a whole may have been growing at the required 2 per cent per annum, the hospital services have been growing very slowly. Hence the long waiting lists, closed wards, cancelled operations etc.

Conclusions

The evidence reviewed in this article lends little support to the claim that the Tories have consistently starved the NHS of funds since they came to power in 1979. The real increases in resources of 17 per cent make nonsense of this claim.

The statistics do confirm however that the hospital services section of the NHS has been severely squeezed in this period in favour of other areas such as family planning services.

Nor does the evidence reviewed lend any credence to Mrs. Thatcher's claim that the NHS is fundamentally unsound, that it is by its very nature a beast that will always be out of control financially. Rather, the evidence suggests that a continual underfunding of inflationary effects in the NHS hospital services section since 1980 has erupted in today's "crisis".

The remedy is clear - the government should commit itself to funding the full inflationary effects of the changes in prices of the goods and services in each service area within the NHS.

This is what the Labour Party should be demanding.

Readers may have followed the recent 3-part television series called Kentucky Fried Medicine which examined the insurance based American health care delivery system. It is no accident that a program on this issue should be screened at this time. The general review of the NHS being currently undertaken by the Tory administration includes an examination of foreign health care delivery systems of which the American system is but one.

The second program in the series took the form of a debate with five or six protagonists on each side. There were Americans on both sides. What I found particularly striking was how unenthusiastic the Americans who were supposed to favour the role of competition actually were for their own health system. The enthusiasts for the full scale operation of the market system in health care were not the Americans but two quite young british ideologists, one from the Economist and the other from the Adam Smith Institute. One got the impression that their fellow American panelists found their enthusiasm embarrassing at times.

The American health system, like those in France and Canada is an insurance based system. In this article I want to examine the economics of insurance systems in general, to develop as it were a pure theory of insurance markets, and then to see how the actual functioning of these three separate health systems matches our theory.

Why Insurance?

Why do people take out insurance for anything? Well the answer is that there are certain events which may happen, which are unlikely to happen but which, if they do happen, would have catastrophic consequences for any one individual if he did not have insurance to cover the event. For instance very few peoples' house burns down. But if it did and they did not have it insured they would stand to lose something equivalent to 5 to 10 years salary. Insurance markets develop to cover these events which are uncertain but potentially catastrophic. It is a way of spreading the costs over a group of people. Everyone in the group has the benefit of not having to worry if the event then happens to him/her. If the event happened to everyone then there would be no point in insuring against it though it would make sense to provide for it (like pensions for old age). You are essentially buying peace of mind. Insurance systems, however, have problems which I want to examine in a more general setting before considering specifically how they relate to the health systems in the USA, France and Canada.

Problems in Insurance Markets.

1. Adverse Selection

Consider the market for insurance against burglary. Suppose there is only one insurer, A, who insures everyone against burglary. He may calculate his premiums by taking last year's claims, adding a profit mark-up and dividing by the number of people he insures. However suppose that someone else, B, notices that the level of burglaries in a part of the country, Leamington Spa, is considerably lower than the national average. Then B may devise a policy exclusively for the people of Leamington Spa and successfully sell it to them. The people who buy insurer B's policy will now be paying lower premiums while insurer A's premiums will have to go up to cover his increased average costs. This stratification of the insurance market is called 'adverse selection' because it results in the people with the highest need paying the highest premiums and defeats the pooling of risk which makes insurance viable.

Adverse selection can certainly exist in the Health insurance market when a policy is devised exclusively for people between the ages of 20 and 50 who on average require very little health care. People outside this age band are then subject to very high premiums to cover their very high average costs. This however defeats the whole purpose of insurance which is to spread costs over as wide a number as possible (to pool risk), yet it is inevitable in an insurance system in which the insurers are assumed to be profit maximizers. Exactly this has happened in America as we shall see.

2. Moral Hazard.

When people are insured against an event then there may be a tendency for them to become careless in taking precautions against the event happening or in rectifying the situation if the event does happen. This is referred to in the literature as 'moral hazard'. A typical example might be where your take out holiday insurance against loss of property. So when on holiday you may become careless about leaving your camera lying around because the attitude is :"it's insured. If it gets stolen I won't lose anything since the insurance company will pay up". Moral hazard in this form seems unlikely when applied to health since people generally have a very positive desire not to be ill. However it can apply in another way: if people get ill they may make little effort to see whether the health care they are receiving is good value for money on the basis that they are not paying, rather the insurance company is paying.

3. Some people cannot afford insurance.

A third problem associated with private insurance is that if you cannot afford the premiums you are not entitled to any cover. It's as simple as that. If you are poor or become unemployed and cannot pay your premiums then your entitlement to any cover ceases. This problem with insurance is not unrelated to that of 'adverse selection' since the stratification of the market caused by 'adverse selection' can make insurance too expensive for anyone to pay.

The American, French and Canadian health care markets.

The American, French and Canadian health care systems are all insurance based. However in coping with the problems outlined above they have developed into quite different structures with different problems which we shall now examine.

Adverse Selection

The American system does suffer from the stratification implicit in adverse selection. In the early 1930s the private Blue Cross insurance scheme was developed to cover people against hospital costs (not doctors' costs). This was extended in the late 1930s with the Blue Shield insurance policies covering the cost of physicians' services. Both these insurance systems were non profit making (i.e. they set their premiums to cover their costs). When profit making insurers entered the market this changed:

"The Blue Cross/Blue Shield insurers originally adopted community rating such that all families of a given size paid the same premium. When commercial insurers entered the market they used 'experience rating' thereby offering probable low users (of health care) more favorable premium terms than Blue Cross/Blue Shield, who in response and in order to maintain market shares had to modify their community rating basis for premium calculation.

"This illustrates well the problem that competition creates in markets: it is less a problem of efficiency than of equity, for if premium averaging becomes impossible by pooling risks, the premiums for high risk groups, the chronic sick, etc., are likely to become sufficiently high for major distributive questions to be raised." (A.J. Culyer, The NHS and the Market, in The Public/Private Mix for Health, NPHT 1982)

This stratification of the market by risk factor means that the high risk groups such as the elderly, chronically ill and mentally ill are faced with insurance premiums which are impossible to pay. Recognition of this failure of the insurance system led in the early 1960s to the introduction of the Medicare state insurance system for the elderly and the Medicaid system for the Poor. These schemes are still in existence but since Reagan came to power they have been forced to operate within tight financial budgets.

France and Canada manage to largely avoid the problems of stratification implied by 'adverse selection'. In Canada the solution adopted is quite simple. Only one Health Insurance System is permitted by law. The Canadian system is a monopoly insurance system maintained by legislative exclusion of private insurers. In addition insurance is compulsory. It is deducted from your pay packet in much the same way as taxes are deducted in the UK. In this way everyone pays the same premium irrespective of their risk factor.

In France there is not one insurance fund, but there is only a small number and you are automatically allocated to one depending on the sphere of your employment:

"At first, NHI was mandatory for specific occupational groups and administered by private insurance and mutual aid funds. Since 1945, however, the Social Security Ordinance committed the State to devising a unitary NHI programme with equal benefits for all. This process of extending health insurance coverage and making benefits uniform has taken over thirty years and is still not complete. Virtually the entire population (99 per cent) is now covered under four NHI funds. The majority (75 per cent) are covered by the Caisse Nationale d'Assurance Maladie des Travailleurs Salaries (CNAMTS)- the NHI fund for Salaried Workers. However, agricultural workers (8 per cent), the self-employed (7 per cent), and a set of special interest groups (9 per cent), have their own health insurance funds.....In spite of this pluralism in the structure of French NHI, one can safely say that the French NHI, have succeeded in eliminating financial barriers to medical care." V.G.Rodwin, The French Health Policy Gamble, p293-294, in The Public/Private Mix for Health, NPHT 1982)

The 'Moral Hazard' problem

One of the criticisms which is levelled ad nauseam against the NHS by the free market ideologist is that the free nature of health care in the NHS means that people will abuse the system and demand more health care from it than they need. It is ironic that precisely the same criticism can be levelled against all kinds of health insurance.

The best kind of insurance is comprehensive insurance. However once comprehensively insured you are entitled to abuse the system to your hearts content since there is no cost to you. In the NHS this potential abuse is handled by only allowing people access to health care via the medical profession. It is basically the medical profession that decides the amount of health care which you may consume (this really upsets the Free Market ideologists who see their right to choose being tampered with). In America the solution is to introduce insurance policies which are not comprehensive:

1) an upper limit to the cover provided,

2) the insured has to pay a proportion of the costs,

3) the insured has to pay all the costs up to a fixed amount before his insurance becomes effective.

Perhaps in the majority of cases this is satisfactory. But enough families are ruined by not having comprehensive insurance in the US for us to reject anything but comprehensive insurance. There is the additional question of the extent to which people do not seek medical care because they cannot afford the costs associated with 1), 2) and 3) above. Small charges may stop people abusing the system but it may also stop people who genuinely need care from getting it. A study by the Rand Corporation suggests that charges up to 25% of total costs may not significantly affect people's health.

The 'moral hazard' problem in health care has another side to it in the US which is closely related to the way the insurance system is implemented there. In considering insurance based systems we may divide the participators into three broad groups: the consumers of health care, the providers of health care, and the insurers (also known as carriers). Now in the US the tendency has been for all three to be quite separate. This has had the result that providers tend to over provide not just in comfortable surroundings but in actual health care itself (You may get an operation you do not really need). The insurers paid virtually without question the bills which the providers sent them and then set next year's premium on some sort of average cost + profit markup basis. The result was that health care costs increased at an alarming rate to almost 11% of GNP in 1987 (and 20% of the population may not be insured). Some of the non-comprehensive policies described above attempt to meet this problem by forcing the consumer to discriminate against over provision. If you, as consumer, are going to be paying and additional $100 per week for the advantage of a remote control TV, you may decide you do not need it (this is an example of the benefit of choice). Such cost control policies have not however been very successful, so more recently the employers (who pay most of the insurance premiums in the US - insurance being a standard job perk) have been experimenting with structures named HMOs - Health Maintenance Organizations. These HMOs (about which the free market ideologists were initially enthusiastic) are essentially mini-NHSs which attempt to control costs by limiting your freedom of choice. No longer will you have the doctor of your choice or the hospital of your choice rather you have to choose from a short list provided by the HMO.

The Moral Hazard Problem in France.

The problem of 'moral hazard' is handled in France by demanding that people pay up to 25% of their health costs up to a certain limit. (Once you go beyond this limit then health care becomes free so you are back to the problem of 'moral hazard'.) This 25% contribution has been introduced into France in an attempt to control the increase in health care expenditure. Since there is an upper limit on what people are charged however it has had little effect on total health care expenditure.

The French medical profession have in addition nurtured and preserved the idea of La medecine liberale. Basically what La Medicine Liberale means is that people are free to go to the Doctors of their choice, and these Doctors are allowed to prescribe to them as they see fit. This is great but very costly. The four Insurance groups have, accordingly, introduced standard charges for most courses of treatment above which they will be unwilling to re-imburse a doctor without good reason. The Medical profession tried to oppose this National charge system but without success and now most doctors have joined it. It has not yet been very successful in controlling costs because although it fixes the rates at which particular medical treatments are charged it does not control the volume of medical treatments prescribed. As Rodwin explains:

"In an open-ended system characterised by fee-for-service payment under NHI the problem with price controls is that the volume of services tends to be adjusted to compensate for rigid price regulation. This is true for private practice in the ambulatory sector as well as for clinics and public hospitals. Thus, policy-makers in France have attempted to control the volume of services provided.....

"In the ambulatory care sector, since....1976, the system of statistical profiles on the procedures performed by each physician was computerised. The rationale has been to control the quality of medical care and to sensitize physicians to the financial implications of their activities.....

"Since 1980, all French physicians receive periodic statements summarizing the consultations and procedures for which they have billed the CNAMTS through the intermediary of their patients". (ibid p311.)

The Moral Hazard problem Canada.

I have identified the fee-for-service character of the French health system as the main reason why costs cannot be controlled. In Canada a similar fee-for-service system is operated yet costs have been very successfully controlled since the monopoly insurance system was introduced in 1970. In that year both the US and Canada had roughly the same level of costs -6% of GNP. Canada's costs are now less than 8% while in the US they are 11% of GNP - a significant difference. What is there additional in the Canadian system over the French system which has allowed this cost control? We can identify three factors :

1) Level and structure of the fee schedule

"The negotiation of periodic binding fee schedules has been the key factor restraining expenditures on physicians' services....

"As important as level of fees, is schedule structure. Canadian fee schedules provide little differentiation among types of office visits, penalizing practitioners who perform long and detailed examinations, but also restricting 'fee schedule creep', i.e. by physicians reclassifying a visit or a procedure into a higher paying class."

2) Strict limitation of those who can claim fees.

"...fees are paid only for services of practitioners, not their employees. The practitioner may hire assistants, but he must perform the act. The possibilities for procedural multiplication by task delegation are sharply limited. If the physician wishes to respond to fee constraints by recalling patients more frequently and recommending more services, he must also work more hours". ibid p383.

3) Control of Diagnostic services.

"Diagnostic services, which provide the greatest possibility for expanding billings without extra effort, are to a large extent centralized in hospitals or, in some provinces, in approved laboratories. Thus the opportunity for the average US physician to supplement his earnings with a private lab or radiology facility are largely foreclosed in Canada. The fee schedules restrict the practitioner to an 'income-leisure tradeoff'. Incomes can only rise faster than fees if working time increases." (ibid p383-384).

The overall effect

The overall effect of the fee schedule has been to reduce sharply the relative wages of physicians. Needless to say they are not very happy about this and are exerting continual pressure to remove the regulations which are restricting their incomes all under the guise of providing the consumer with more choice.

3. What happens if you cannot afford the premium?

In the US insurance tends to go with the Job. It is virtually a right which has been won by organised labour. However the standard of insurance varies from job to job and although certain areas of health care once had to be covered in all insurance policies this is no longer the case. For instance an employer may choose now to provide a policy which does not cover alcoholism and drug abuse. This is hailed as tailoring insurance policies to suit the need of the employer. What happens if one of the employees becomes an alcoholic is not considered.

No one knows how many people in the US are not covered by insurance. A generally accepted figure is 35 million. These people rely on the grossly under funded state hospitals for health care. The competing private insurance systems in the US have basically resulted in multiple standards of health care - from too much health care for those comprehensively insured to none for those with no insurance. The Health care you receive may bear little relation to your need for it.

In France and Germany this is not the case. Health care is comprehensively provided on the basis of medical need. If you are unemployed then you are excused the payment of premiums while still being fully covered.

Conclusions

Although described as insurance systems the American, Canadian and French systems are fundamentally different. Excellent standards of health are provided comprehensively in France and Canada on the basis of medical need rather than ability to pay. In the US medical care received may bear little relation to medical need. This fundamental difference is due to fact that in France and Canada the health insurance system is highly regulated and compulsory thus avoiding the stratification of the market into risk groups as happens in the US.

Defenders of the NHS should be aware of this fact. It is important to realise that the financing of a system may be effectively public (through compulsory insurance in France and Canada) while the provision is largely through private channels. What characterises the UK NHS is the fact that both the funding and the provision of health care are public. The NHS is paid for out of public taxes and the vast majority of doctors are glorified civil servants working in government owned hospitals. However it is the public funding that permits universal access not the fact that doctors do not work in private capacity.

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