Rethinking the Welfare State: The prospects for ... - e-Library

Rethinking the selfare state 100
transfers to individuals of modest means will not resolve this concern because the
premiums they are likely to face if they are revealed as high health risk individuals are
likely to exceed such transfers; high-risk individuals of more adequate means are likely to
face similar problems of insurability
On the demand-side, private insurers must contend with problems of adverse selection
and moral hazard; adverse selection entails patients concealing the risks they present to
prospective insurers in order to secure coverage or reduce premiums, while moral hazard
entails over-consumption of services once coverage has been provided. Both of these
factors are likely to increase the costs or reduce the availability of private health care
insurance.
Problems with existing systems
In the last decade, as governments have come under mounting pressure to reduce budget
deficits and public debt, no public policy issue has been more vigorously debated than the
organization of health care services. In this context, health policy analysts are
increasingly invoking the experience of other countries in contemplating reforms. For the
sake of simplicity, these reforms can be generalized into three types: (i) single payer/fee
for service (as in Canada); (ii) purchaser/provider split (as in Britain and New Zealand);
and (iii) managed competition (as proposed by President Clinton in his first mandate and
as adopted, at least in part, in Germany and the Netherlands). Below, each of these three
systems of reform are examined as a means of identifying the different approaches that
governments have employed in their efforts to reform their respective health care systems
and of highlighting the challenges they continue to face. It should be noted that one of the
greatest difficulties in conducting a comparative analysis of various health care systems is
that most standard outcome measures—such as life expectancy or infant mortality—are
only crude indicators of health status and are not very sensitive to changes in health care
financing and delivery systems. 15 Thus, this discussion will focus less on actual health
outcomes and more on the ability of a system to provide sound incentive structures to
producers and consumers of health care as a means of meeting the health care goals
outlined above.
Single payer/fee for service
In Canada, provincial governments (with federal government cost-sharing) provide
insurance to all individuals for all hospital services deemed “medically necessary” and
for all “medically required” physician services. In effect, residents are provided with an
unlimited voucher for essential medical services. Unlike most other countries, private
insurance companies are generally prohibited from competing in this sector. 16 Decisions
as to what constitutes “medically necessary” or “medically required” are largely left to
the discretion of health care professionals, typically those in private practice. With
respect to financing, hospitals (which are nominally “private” in that they are owned by
private non-profit organizations but fully publicly funded) 17 are allocated capital and
operating budgets by governments on an annual basis. Physicians, whether they work
independently or through a hospital, are for the most part remunerated on a fee-for-