Issue XXXVIII: The Kaiser, the Economist, and the Communist (Part I)

11 Jun

An international perspective on American health care reform

Despite the nonsense you see on American TV by former Alaskan governors and unintelligent grandmas about health reform, you might want to hear how American health care and the new health care reform look from an international perspective by people with existing universal health care systems.  The narrowness of the debate, the misinformation on both sides, and lack of really strong efficiency measures is striking to me.  The fact that nothing really attacked for-profit orientation of health care, the biggest driver of costs in my opinion, proves that the reform will be less than optimal.

But first let’s see the three types of health care systems that exist in the world.

The Kaiser, the Economist, and the Communist

There are three major health care systems in the world that were designed by three different people.  They were German Chancellor Otto von Bismarck, Liberal economist William Beveridge, and Bolshevik doctor Nikolai Semashko.

Otto von Bismarck was chancellor to Kaiser Wilhem I and unified Germany into one country under Prussian rule out of the many existing kingdoms.  An arch-conservative and elitist, he opposed democracy, liberalism, and socialism.  Bismarck was a bit of a Nixonian because he would pass progressive social legislation in reaction to pressure from below.  As a consequence, Germany got Social Security, workers compensation, and legal unions fifty years before America had the New Deal.  The social health insurance system came out of the 1883 social welfare legislation and worker’s compensation.  The original idea was to give income support to workers who became sick.  Over time medical care became more expensive and most of the money ended up going towards health care instead of worker’s compensation.  Also the system was for a minority of Germans but over time it expanded and expanded until everyone was covered.

In the traditional social health insurance scheme, workers were assigned a social health insurance fund (aka sickness fund) based on where they lived or by occupation.  Everyone pays a payroll tax to their sickness fund of about 12%.  Sickness funds are neither private nor public but are co-governed between unions and employers.  Sickness funds are nonprofit and cannot go into any other business and (in Germany) cannot own hospitals or employ doctors.  Countries with social health insurance have defined benefits written into law so there is little difference between funds besides fringe benefits like alternative medicines, spa treatments, acupuncture, and so on.

Physicians in Germany are usually solo private practitioners and bill their patients’ sickness fund.  There is complete choice of physician and hospital in Germany, but in other countries you may be required to only go to facilities that sickness funds control.  Co-payments are laughably low in German (10 euros for three months of visits to a GP) and drugs do not cost more that five to ten euros.  Germans access health care more than Americans and use far more drugs.  Other countries using social health insurance are France, Belgium, Austria, the Netherlands, and Luxembourg.  Latin America has social health insurance systems for certain employees in formal employment but nothing for their informally employed while the World Bank promoted SHI in Africa in the 1990s.

Social health insurance has drawbacks.  Like I mentioned, it can’t really work when people are not on payrolls because the tax cannot be collected like in developing countries.  As a payroll tax, it may discourage hiring.  For equity reasons, the tax is unfair because nothing is collected on non-salary income like stocks or capital gains.  Because of this many countries have to top up their SHI with general tax revenue because payroll taxes are too narrow a tax base.  Some countries actually have a minority of money coming from the payroll.  Compared to tax-funded systems like Britain, they spend a higher percentage of GDP on health care.  But on the positive side, SHI is very popular with the general population because it is “independent” from government and part of the national culture.  It also makes everyone a private patient while increasing social solidarity.

(to be continued)


European Observatory – Social health insurance in Western Europe

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