National Approaches Health Insurance

Health care spending varies widely across countries. Table 1 shows health care spending for some industrialized countries. In the United States, almost 13 percent of the gross domestic product (GDP) is devoted to health care spending, the highest of any country in the world. At the other end of the spectrum, the Southeast Asian country of Myanmar spends less than 2 percent of its GDP on health care.

High levels of spending do not necessarily guarantee a high-quality health care system. In 2000, the World Health Organization ranked health care systems based on criteria that included measures of overall population health, inequalities Table 1 Health Care Expenditures, 1998 SOURCE: OECD Health Data (2001) within the system, and patient satisfaction. The United States was ranked thirty-seventh out of the 191 countries, despite spending a higher proportion of its GDP on health than any other country. The health status of a population is, of course, determined by many factors outside the health care system itself, such as population wealth and nutrition.

Spending on health care for the elderly makes up a substantial part of health care costs in individual countries (see Table 2). In 1995, the United States spent over $12,000, on average, for health expenditures for each individual age sixty-five and older, as compared to just over $3,000 on average for those younger than sixty-five. Total expenditures on the elderly are particularly high in countries such as Germany, Sweden, and Japan that have a large elderly population. Among the countries shown in table 2, Japan spends the largest proportion of health care expenditures on those sixty-five and older— nearly 50 percent of total expenditures on health in Japan were for older adults in 1997. As the proportion of the elderly population increases in many countries, expenditures on health care for this population may rise even further.

There are numerous regulations that attempt to control the cost of health care. Costs can be controlled by limiting the treatments available to patients, controlling the cost of drugs, or by setting a limit on the amount of money that can be spent on certain health services. In most countries, there are incentives for individuals to purchase, or for doctors to prescribe, cheaper Table 2 Elderly Expenditures SOURCE: OECD Health Data (2001) generic drugs rather than similar but more expensive medicines. In countries such as Belgium, France, and Italy, fixed budgets are used to limit total expenditures on pharmaceuticals. The prices of drugs are also regulated in some countries, such as Australia.

Countries vary not only in the amount they spend on health care, but also in how they raise funds. Health care can be funded publicly by the government or privately by individuals or firms. Public funding generally comes either from general tax revenues, such as income or sales taxes, or designated tax revenues such as payroll taxes, as in the U.S. Social Security system. Private spending is funded either through voluntary private health insurance or through out-of-pocket expenditures.

Public expenditures. Less than half of United States spending on health comes from public sources (see Table 3). In contrast, Sweden and the United Kingdom each raise funds for over 80 percent of total health care expenditures from public sources. Even within the category of public spending, there is variation in funding sources. Sweden and Australia fund their public spending almost entirely through general tax revenues, while France, the Netherlands, and Germany raise funds almost entirely through a designated tax, or social security, system. In most countries, one scheme dominates.

Under tax-financed health care systems, the government collects general tax revenues (e.g., through sales, income, or property taxes), and decides how much of that revenue to allocate to health care spending and how much to other publicly funded programs, such as education or military spending. In health care systems funded mainly through public insurance, participation in the insurance system is typically mandatory. In general, employers and employees are each required to contribute to a general fund, sometimes known as a sickness fund, which is used to pay (in full or in part) for participants' health care services, including doctor visits, pharmaceuticals, and long-term care for the elderly or disabled. In Australia, France, Germany, and the Netherlands, contribution levels are based on income—those with higher salaries are required to contribute at a higher level. Retirees are also frequently required to contribute a percentage of their pension income to social insurance programs. The United States is an important exception—there is no mandatory social insurance contribution imposed on Medicare beneficiaries who are not working.

Private expenditures. Private health care is paid for by individuals, either through private insurance or as out-of-pocket expenditures (see Table 4). Even in countries where the entire population is covered by public insurance, some portion of health care costs are funded through out-of-pocket expenditures. These expenditures typically include copayments for pharmaceuticals or physician visits, or spending on treatments not covered by public or private insurance plans, like dental care. High out-of-pocket costs may prevent low-income individuals from obtaining the health care they require. Due to high copayments, out-of-pocket expenditures make Table 3 Public Health Care Expenditures, 1998 SOURCE: OECD Health Data (2001) up a particularly high percentage of total health expenditures in Korea. In the United Kingdom, certain groups, such as retirees, are exempt from the copayments required for the rest of the population.

The proportion of private spending on private insurance in the United States is quite high, since most of the population relies solely on private insurance to cover their medical costs. France also has a high proportion of private insurance spending, despite the fact that it relies mainly on public health care spending. This is because individuals covered under the French public system are generally responsible for substantial copayments. Many French people therefore opt to purchase supplementary private insurance policies to reduce out-of-pocket costs.