Economic Policy Review ISSN 1313 - 0544

How healthcare is financed in Europe?

Author: Zornitsa Manolova, Intern at IME / 31.01.2008
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Around the World there are three basic types of healthcare systems  - model "Beverage", where healthcare is assured for all people, regardless of their financial status; model "Bismarck", based on insurance with health funds and model "Kennedy" where healthcare is provided by the private sector.  The healthcare in Europe is characterized by the first two models, while the last model is used mainly in Asia and the USA. 

An important characteristic of the "Bismarck" model is the existence of one or many healthcare funds, which are independent, from organizational point of view, from the hospitals and medical establishments, which provide healthcare services. This model is characteristic for Germany, France, Belgium and the countries from Eastern Europe. As a whole the "Bismarck" system has more supporters in Europe. Bulgaria also selected this model of healthcare during the reform of the system in 1998 and the establishment of the National Healthcare Fund, which manages the funds collected from the health contributions.

In the "Beverage" system financing and assurance are implemented by one structure, i.e. the process of financing and delivery of the services is not divided and is completely or partially connected with one organization. The largest such system is The National Healthcare System in Great Britain. The system is applied also in the Scandinavian countries, Italy, Spain, Portugal and Greece.

The healthcare system in Bulgaria is characterized by serious problems, which result from the lack of competition in the sector, the monopolistic position of the National Healthcare Fund in determining the financing for healthcare services, the lack of free negotiation between the patient, the financing institution (represented by National Healthcare Fund) and the medical establishments.  The results are the irrational distribution of financial resources, different prices for treatment of similar illnesses, accumulation of debts with medication and medical suppliers, as a result of uncompensated costs for medical services.  These problems could be resolved through reforms of the sector and correction of the weak points in the existing system.

The European experience

During the last few years we are witnessing an accelerated expansion of the volume of the medical services offered in Europe, which corresponds to the increased share of the GNP spend on healthcare in the countries.  The reason is the higher costs for new services and the trend of aging of the population, which means higher costs for healthcare for the elderly. Simultaneously the share of the private sector in financing of the system is increased.  

In the countries of Eastern Europe and Greece the share of public spending for healthcare is relatively smaller than that in the countries of Central and Western Europe.  The later is due to the less developed healthcare system, as well as the lower prosperity of the economies of these countries.

In Europe we could observe several different methods for financing of the health system. Great Britain applies financing through the tax system. In Ireland this system is also used, but it is combined with element of private health insurance.

In Denmark and Sweden the financing of the healthcare system is through the local taxes, combined with management of the healthcare providers by the local municipalities. In Denmark the main mechanism for distribution of resources, when financing the hospitals, is implemented through the national budget. Negotiations take place once a year between the Ministry of Public Health, the Ministry of finance, and the regional and local councils, represented by their associations.

Another method for financing the healthcare is through systems for social health insurance. It could be done by the employer and the employee through a variety of non competing autonomous schemes for insurance, as it is in France, or with competing funds as it is in Germany and Holland.  The financing of the hospitals in these states is implemented in several ways. In France there are three types of hospitals: state, private non profit and private profit making. The state hospitals there are autonomous and manage their own budget within a preset limit of their costs. Such policy helps reducing the regional differences in the country. The private non profit hospitals are usually owned by foundations, religious organizations, or mutual insurance associations. The private profit making hospitals basically specialize in specific areas and usually have a specified size of expenses. When there is an overrun in the price lists of the services provided the prices are reduced. 

In Germany they use the method of "double financing", i.e. the capital costs are covered by the local government, while the operational cost - by the health funds.

In 2006 Holland reformed its health system by introducing mandatory insurance in private funds. The aim of the reform is to give more choices to the users and to introduce competition in the system, which will lead to greater efficiency of the funds spend.

In Switzerland are used systems for health insurance. In this model all citizens pay mandatory health insurance. The insurance companies compete between themselves to provide various packages of services. The insured people could choose freely between the private funds. The funds pay a specific daily price to the hospitals and negotiate directly with them. 

The conclusion is that more and more countries in Europe give the right to their citizens to select by themselves how and where to take insurance in order to get the required medical services. This is so, because the systems which apply private insurance respond to the highest degree to the needs and abilities of the patients and lead to more effective use of the resources in the system due to competition and free negotiation.  It is about time for Bulgaria to follow the good practices in Europe and the World in the functioning of the healthcare system.