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The Actuary The magazine of the Institute & Faculty of Actuaries

Universal health

Ricardo González gives an analysis of healthcare systems around the world



“A relatively higher healthcare expenditure does not always lead to a more effective health system”

Health systems are a cornerstone of the institutional design of modern societies. From a public perspective, it is crucial to preserve the sustainability and to improve the effectiveness of healthcare models.

The traditional models that used to characterise health systems (Bismarckian, Beveridgian or free-market) are blurring. MAPFRE’s analyis illustrates this trend for a set of healthcare systems, including Japan, Singapore, Australia, the US, Mexico, Brazil, Chile, the Netherlands, France and Spain. The research, which can be found at bit.ly/2HL6Q6B, 

also shows a trend towards the extension of universal healthcare coverage to all residents of each country, as recommended by various international organisations, including the World Health Organization. 

In those countries that have established universal healthcare coverage, there are differences in the ultimate objective; it is not always to achieve free universal coverage, but rather, on occasions, universal coverage at a reasonable cost. The latter includes highly subsidised or even free protection for the most vulnerable segments of the population, which makes up for the shortcomings of the free market (market failures). 

However, the current generalised increase in government debt volumes and fiscal deficits is making it difficult to use public funds to cover free and cost-sharing universal healthcare. Figure 1 shows that out-of-pocket healthcare expenditure in certain countries can be quite significant.

Figure 1
Figure 1

Population ageing

Total expenditure on pensions and health (including long-term care costs) currently accounts for between a third and half of total primary public spending in OECD countries. This is largely due to the ageing population phenomenon.

Japan is a paradigmatic case when studying healthcare expenditure by age groups. In response to concerns over the effect of population ageing on healthcare system sustainability, the Japanese authorities have attempted to measure the size of the problem.

Analysis of that information, as seen in Figure 2, shows that in 2016, 30.8% of Japanese healthcare expenditure was for people over 70. Expenditure for people between 65 and 69 has been growing in relative terms, representing 27.8% of total healthcare expenditure in 2016. This means people over 65 account for 58.6% of total Japanese healthcare expenditure. The country’s projected population pyramid shows a significant increase of that cohort in the coming decades.

Figure 2
Figure 2

The effectiveness of health systems

MAPFRE’s ad hoc Indicator of the Effectiveness of Health Systems (IEHS) has been built using mortality data from different countries on life expectancy at birth, mortality among children and mortality due to non-communicable diseases. It shows that a relatively higher healthcare expenditure does not always lead to a more effective health system (see Figures 3-4).

Figure 3 and 4
Figure 3 and 4

The role of public policies

A number of public policies aim to address the challenges of the various countries’ health systems.

Savings plans to cover health expenses

Some countries have introduced compulsory medium and long-term savings schemes to cover healthcare needs. Through this mechanism, citizens save while they are healthy in order to meet future healthcare costs. For example, Singapore’s healthcare system combines a state subsidy of up to 80% of hospital costs for serious illnesses with a mandatory savings scheme. Out-of-pocket expenses are high, but citizens can use their health savings to cover them whenever it is necessary. 

Strengthening of the role of private insurance

The role of private insurance companies is largely determined by the specific healthcare model concerned. Normally it is supplementary to the public sector, but there are remarkable exceptions, such as the Netherlands and USA.

The effect here is that the insurance companies participate in the mandatory coverage system. Insurance companies have greater capacity to negotiate the costs of the services with the healthcare providers than that of individuals, which can help bring down total cost of coverage.

Incentives for voluntary insurance

Aiming to alleviate the burden on the public health systems, some countries have established incentives for voluntary health insurance, supplementary to the mandatory schemes. In Brazil, Mexico, Spain and the US, for example, the tax regime currently offers tax advantages to companies that provide supplementary health insurance to employees, and/or for buying private health insurance.

Australia’s public Medicare system is funded by the Medicare levy, currently 2% of a person’s taxable income; low-income earners, below a certain threshold, are exempt from this levy. To reduce pressure on the Medicare system, people on high incomes above a certain threshold are encouraged to buy private health insurance via the additional Medicare levy surcharge – a progressive penalty surtax. Those who have taken out private health insurance can choose either to use this private insurance (often for the diagnostic tests which can be done more quickly), or to use Medicare public hospitals.

Online markets and comparators

Several countries in which private health insurance plays a meaningful role in the general healthcare scheme have regulated websites that compare private health insurance policies. In the US, an online health insurance market has been created – the Small Business Health Options Program (SHOP) – with the aim of encouraging small and medium-sized enterprises to provide health insurance for their employees. Furthermore, there are state or federal digital platforms (exchanges) providing standardised policies, legally bound to provide ample benefits. These policies also cover a certain percentage of healthcare bills, ranging from 60% to 90%.

Correction of market failures

In those countries that have established a health system with free-market characteristics, there are public protection programmes for vulnerable segments of the population, which otherwise would not be able to afford healthcare. This is the case in the US, with the Medicare programme for elderly people, Medicaid for people with limited resources, and CHIP for children. They currently cover a significant percentage of the population – around 40%. 

For further information on this research visit: bit.ly/WorldHealthGonz

Ricardo González is director of industry and regulation research at MAPFRE Economic Research