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Health services financing in Greece: a role for private health insurance
IiEAhH policy Health Policy 34 (1995) 53-62
Health services financing in Greece: a role for private health insurance Lycurgus L. Liaropoulos School of Nursing, University of Athens, 17 Pittakou St., Athens 151 26. Greece
Received12April 1994;revision19September 1994;accepted 21September 1994
Private healthinsurancecan play a significantrole in the financingand delivery of health servicesin relatively undevelopedhealth systemswhich suffer from limited public expenditures,resourceshortages,and quality of careproblems.Researchresults,however,indicate that private health insurancein Greecehasnot yet assumed that role. The rapid increaseof private healthinsurancewasthe resultof underfinancingby the public sectorand restrictive policiesfor the private sector.The private sector,however,largelyfinancedby private health insurance,found alternative investmentand profit opportunities,which, unfortunately, did not improvehealthsystemmicroeconomicefficiency. In this paperweproposethat a way of cooperationcould exist betweenthe public sectorand private health insurance,which would improvepublic healthservicesprovisionandthe overall technical,allocativeand dynamiceff% ciency of the health system. Keywork private healthinsurance;Private healthexpenditures;Private healthsector;Health care in Greece;Health policy in Greece 1. Introduction
In the debate over health reform and health care financing in Europe, with the possible exception of the Netherlands, there is usually little to be said about the role of private health insurance (PHI). Quite often, PHI is delegated a role complementary to social security, and many times it is seen as the vehicle for the introduction of market elements in a climate of managed competition. European countries, however, do not depend on private health insurance carriers for health care management and delivery [l]. More often, private carriers are delegated a secondary posi0168-8510/95/$09.50 0 1995ElsevierScience IrelandLtd. All rightsreserved SSDI 0168-8510(94)00702-G
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L. L. Liaropoulos
/ Health
Policy
34 ( 1995) 53-62
tion on the basis of the ubiquitous arguments of moral hazard [2] and adverse selection. The main theme of this paper is that PHI can play a significant role in health care systems faced with resource shortages (mainly of quality hospital beds and other health facilities), immediate investment and modernization requirements, and serious financing problems. In such health economies, the emergence of a strong private health insurance sector can be a blessing or a curse, depending on health policy pursued by the public sector. If the supply of health care resources and services remains fixed, the income effect of additional purchasing power through private insurance will simply raise prices and exacerbate inequalities of access. If, on the other hand, the large private insurance reserves are invested in the health sector, creating additional capacity, the increased supply of services could prove beneficial to the whole health care sector. In order for this to happen, however, investment by PHI should be directed to areas where the alleviation of resource shortages would increase microeconomic efficiency in the health sector. In the opposite case, serious resource misallocation will accompany the increased PHI activity. Developments in the Greek health economy during the last 10 years offer a good case-study for the analysis of the actual role PHI can play in such a setting. 2. System structure, pfdormance and health expenditures The Greek health care system has always been a typical example of the Social Insurance (Bismarck) model. Social Security in Greece operates through more than 300 Funds, providing virtually full coverage, but facing serious problems of financing. More than 80 of them offer health insurance coverage and/or services. According to another typology [3], the Greek health system is a mixture of the Public Contract Model and the Public Integrated Model. Public health expenditure financing is 68% from tax revenues and 40% through social security contributions. Hospital services are delivered mainly through public hospitals (70% of the beds and 8@!! of admissions), while outpatient care is provided by social security polyclinics, state rural health centers and private doctors. The introduction of a National Health System in 1983 strengthened the role of the public sector and aimed at the establishment of a National Health Service, which was, however, never founded. An important feature of the Greek health system is the existence of a strong subsystem along the lines of the Voluntary Contract Model which is, in fact, a signilicant ‘black’ health economy, financed by out-of-pocket private payments. The exact magnitude of this market is strictly a matter of conjecture, although some estimates put it as high as 3% of GDP, or 67% of public expenditure [4]. As we will see, private health insurance is very active in this market, and may, in fact, be the main source of its financing. In the decade of the 198Os, according to EUROSTAT figures, social protection expenditures in Greece nearly doubled, from 12.2% of GDP in 1980 to 20.7% in 1989. At the same time there was a considerable increase in total health expenditures from 4.5% of GDP in 1981 to 5.5% in 1990 [5]. This percentage represents almost entirely public health expenditure, while private expenditure is estimated at almost 3% of GDP.
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The large increase in health expenditures during the 1980s moved in opposite directions compared to other OECD countries. According to OECD data 161,the income elasticity of health expenditures in the period 1975-84 was 2.5 compared to an OECD average of 1.3. During the 1980-84 period, in particular, the elasticity was 3.4 compared to only 0.5 in the OECD countries, where cost-containment policies were put into effect [7]. This reflects the fact that during the 198Os, Greece entered a period of high public spending for health, in an attempt to redress serious problems caused by underlinancing in previous decades. It is important to mention here that for many years Greece has shown the lowest GDP share spent on health by the public sector among all OECD countries (except for Turkey) [6]. This increase in health expenditures, however, was directed mainly at improving staffing ratios and salaries and less at the modernization and increase of infrastructure. The increase in public spending for health in the 1980s came entirely out of tax funded government expenditure. As a result, the composition of the sources of public health financing between 1975 and 1991 was exactly reversed (Table 1). This was effected through large government subsidies for hospital care aiming to keep administered hospital per diem charges as low as possible, in order to alleviate pressures on social security budgets and to discourage the private hospital sector. As we will see later, the latter objective was not realized, and some undesirable side effects followed. During the 1970s and early 198Os, there was little public investment in hospital construction. Moreover, during the 198Os, there was a paucity of private investment, and a great number of closures, especially of small private clinics. This was a result of government policy with the introduction of the National Health System, voted in 1983 and partly implemented after 1985. The prohibition of investment in new plant for the private hospital sector, coupled with administered low daily charges, resulted in a reduction of private beds by 43% between 1982 and 1990, not replaced by the meager 3.4% increase in public beds. As a result, Greece with 5.1 (acute and chronic) beds per 1000 population, compared to 6.3 in 1974, faces a serious shortage of quality beds and also of the amenities associated with satisfactory bed accommodations, or other hotel services. This has led to queuing problems in certain large public hospitals, under-the-table payments, and a shift towards a few large private hospitals, offering such accommodations and charging considerably higher fees than state hospitals. Despite the considerable increase in public health expenditures during the last decade, health care in Greece today suffers from a lack of credibility and low conTable 1 Sources of public health expenditure financing in Greece (1975-1991)
1975 1980 1985 1991 Source: National Accounts.
Taxes (%)
Social Security (%)
40.8 42.0 51.5 60.8
59.2 58.0 48.5 39.2
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sumer satisfaction. The main problems are in outpatient care, where the lack of the institution of a family doctor (or general practitioner) causes serious delivery, access and referral problems, the poor organization and limited effectiveness of emergency care services, the low level of development of primary health care and the shortage and bad distribution of quality hospital beds, the majority of which are concentrated in the Athens and Salonica areas. 3. The role of private health inswance According to E.U. directives, there are 18 classes of risk covered by the insurance industry, and health insurance is only one of them [8]. Together with pension insurance and accident protection, it forms the bulk of what is called life insurance. Unfo~unately, statistical info~~on is usually provided for the whole of the life insurance category, and it is, therefore, difficult to obtain a good estimate of the importance of PHI in European countries. Health insurance, as a sub-set of life insurance, can be defined as protection against: (a) (b)
The risk of ill health, accident or death. The economic risk associated with illness, disease, accident or death.
Protection against the r&of ill health usually implies direct provision of health services. PHI is not often active in this direction, and it is mainly concerned with insurance against the financial risks involved. This aspect of PHI naturally limits it mainly in the area of curative services, and especially hospital care, while it does not enter into the areas of prevention, health promotion, and rehabilitation (the HMO concept is not yet a European practice). There are cases, however, where commercial health insurance schemes include direct service provision, either along the NM0 concept in the USA, or according to policies followed by BUPA in the UK, which owns its own hospitals [lo]. The increasing cost of health care, usually attributed to greater life expectancy and the impact of medical technology, has caused a very active debate on the question of choices in health care, especially in countries like Holland [ 11J, with developed health economies. In these countries there are few major investment requirements, as the health sector infr~t~~t~e problems have largely been solved, and the main problem is to control resource utilization. In such health economies, a significant role is reserved for PHI in the context of the debate for a minimum basic care package. In this case, the role of PHI is to provide not only supplementary coverage, but also increased quantity and quality of care to those that can afford it [I]. This trend has been recognized explicitly in a recent major study of the insurance industry in the E.U., which has referred to the ‘interface’ between government and the private insurance sector 81. In this study, the trend towards greater emphasis on the potential partnership role of social and private insurance is recognized, and one of the conclusions is that social security systems and the private insurance sector should define their respective roles and seek some sort of complementarity in order
L. L. Liaropoulos 1 Health Policy 34 (1995) 53-62
57
to maximizethe social and economic benefit which they jointly supply. The major areas where this complemen~~ty is most obvious are the areas of pensions and health care financing. Tbe main point of our paper is that in certain health economieslike the Greek one, characterizedby shortagesof resources,waiting lists and problems associatedwith public financing, the role of PHI can, and indeed should, be directed in the area of investment financing. When major investment requirementsexist in order to redress chronic infrastructure deficiencies,and the public sectoris already heavily burdened with the operational costs, then silent inves~nt ~~b~iti~ exist for the private health insurancesector.In this way, PHI can work in a complementaryway to socialsecurity,going much beyond the provision of supplementarycoverage,and improving the microeconomic efficiency of the health care sector. 4. Private health insurance in Greece
4.1. The growth of private health insurance
One recent but increasingly important feature of the Greek health systemis the emergenceof a sub-sectoroperating under the voluntary reimbursement model. It is in this setting that PHI emerged as a factor in the health care market. The last few years have been characterizedby an ~p~d~t~ upsurge in private life insuranee,with annual rates of premium income growth since 1984ranging between 30%and 40% (Table 2). As already mentioned, disaggregateddata on private health insurancein Greecedo not exist. Our own research results,however, indicate that an important factor, and indeedthe moving force, behind the rapid growth in privatelife insurancehasbeenthe introduction of a variety of new health insuranceproducts centering around hospital coverage [9]. This recentinterest in private health insurancein Greeceshould beseenin the context of health systemperformance as outlined earlier, and mainly in relation to the widespread dissatisfaction with the public hospital sector and the lack of modern diagnostic facilities in the public health services.It is also interesting that the interest in private health insurancecoincided with the ~tr~uction of the National Health Systemin 1983and the beginning of its implementation after 1985.This was certainly not the intent of the health policy reform of 1983,which sought to emphasizethe public nature of health financing and delivery. Table 2 Premium income growth of life insurance in Greece, 1985-1990 (million dollars) Yt%U
Premiums
1985 1986 1987 1988 1989 1990
14 295 18 789 25 205 35 186 48 503 67 555
Source: Liaropoulos (91.
% Growth 31.4 34.1 39.6 37.8 39.3
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The increase in PHI at a time of increasing public health expenditures is, also, in accordance with findings in other European countries. Recent research at an E.U. level showed that private life insurance plays an important role in countries with particularly well developed publicly financed social protection and health care systems, the case of the UK and the Netherlands being the best examples [8]. Our own research results also indicate that private life insurance expenditure in the E.U. countries is positively correlated with public expenditures on health [9]. Reliable statistics on the magnitude of PHI expenditures and its actual contribution to health care financing in Greece do not exist. For this reason, we conducted a major 2-year research project investigating the nature of PHI coverage and health services financing and utilization [9]. Our research was conducted at two levels. At the macroeconomic level, we conducted a survey of all private life insurance companies offering health insurance. In the microeconomic level, we examined 850 claims files from two companies, in an attempt to determine the exact nature of health services financing and utilization through private health insurance. We present here some of the main results from our research, which are germane to the purposes of this paper. 4.2. Private health insurance in Greece to&y
The main characteristic of the private health insurance market in Greece is its oligopolistic structure, with the market leader dominating 39% of the market and the three largest (out of 42 companies) accounting for 70.5% [8]. Although reliable official data do not exist, we have estimated that 10% of the population already have some sort of PHI coverage, and total contributions already amount to 10% of total social Security contributions [9]. Until recently, there was no research into the nature of health services provision by PHI in Greece. Our research results indicate that PHI in Greece has failed so far to act in a complementary way to social health insurance. Business is mainly directed at covering the financial risk of illness, without offering new alternatives to health services financing and delivery. Product differentiation is achieved through advertising, and the promise of certain amenities upon hospitalization. It is not surprising, therefore, that our results indicate low rates of use of PHI health care services among the insured. In fact, the main field of activity for private health insurance in Greece seems to be the protection against the economic dangers accompanying ill health, in the form of partial income transfers and cash payments following hospitalization or accident (Table 3). Very important also is the reimbursement for the use of outpatient, mainly diagnostic, and other specialized services. A further impetus towards seeking private health insurance coverage was provided by the more than doubling of hospital charges in 1992 designed to cover mounting hospital services. The inability of social insurance organizations to meet the extra burden resulted in an increase in user charges, often at rates higher than inflation [ 151. This development, in turn, expanded the market for private health insurance. 4.3. The effects of PHI in the health sector
The net effect of the increase in PHI activity was to introduce excess demand for
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Table 3 PHI payments by type of service in Greece, 1990 Health Service
% Amount claimed
Outpatient Hospital Rehabilitation Cash payments
30.5 25.1 1.3 42.4
Source: Liaropoulos [9].
already existing hospital beds and other health services. According to standard economic theory, the excess purchasing power created by the increase in PHI coverage is equivalent to an income effect pushing the demand curve to the right. In the short-term, and as the supply of health care services is inelastic, the only immediate effect is a price increase. This price increase is a strong incentive to further investment with an ultimate equilibrium at a point of increased supply. In other words, the medium-term effect of the growth in private insurance is an increase in prices and output. This is what has actually happened in Greece during the last few years. In the absence of an increased supply‘response on the part of the public sector, the excess demand has been translated into substantial profits, but also investment opportunities for the private sector. These opportunities were significantly increased after 1989, when the conservative government began to remove many of the constraints on the development of the private sector imposed by the socialist government during the 1981-89 period [ 151. The question, of course, is whether the resulting increase in output was economically efficient and what the consequences were for the equity of distribution of health services. The increase in the quantity of services supplied can be seen in the rapid growth of the number of new private diagnostic centers, the spectacular rise in private hospital profits, and the great increase in private expenditure for capital equipment. Considering the fact that private services are not reimbursed by social security, what in fact happened is that private insurance supplied the purchasing power for a thriving private sector, much against the stated intent of the National Health System Law
Table 4 Investment in health in Greece, 1980-1991 (million dollars, current prices) Year
Public
Private
1980 1985 1991 1980-1985 1986-1991
2094 10 919 16 314 34 371 87 884
1629 4823 28 103 16530 94 397
Source: National Accounts.
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of 1983. On the other hand, it was precisely the result of government mismanagement, shortsighted planning, and its attempt to limit the role of the private sector. The end result was the introduction of gross inefficiencies and a substantial degree of inequity in the health system. It is obvious from Table 4 that the private sector was quick to capitalize on the serious financial problems and the perennial bureaucratic bottlenecks observed in the public sector, and proceeded with major investment in the health area. It is interesting to explore what were then the existing investment possibilities. Perhaps this will give us a hint as to another possible investment opportunity for PHI, namely that of investment in medical technology. The ban on new private hospital construction in Greece after 1983 led the private health sector to the search for alternative investment opportunities, which were found mainly in the form of ambulatory, mainly diagnostic, facilities. During the 6 years from 1986 to 1991, there were 159 new diagnostic centers, as opposed to only 21 in the previous 6 years 1980-1985. These centers were set up either as departments of already operating private hospitals, or as new businesses. The shift to outpatient diagnostic facilities was facilitated by the rapid growth of expensive medical technology, especially in the area of imaging, taking place internationally at the same time. The world market for medical equipment was, in fact, growing rapidly at the time, from $3.2 billion in 1975 to $6.7 billion in 1980 and $9.7 billion in 1985 [13]. It is to this market, as well as to private hospital care and hospital treatment abroad, that private health insurance caters, covering the considerable out-of-pocket expense involved. Indeed, the situation in this respect seems to resemble developments in New Zealand, where, after 50 years of public health care, the private sector thrives alongside a booming private health insurance industry [14]. 5. Conclusious and poticy implications: towards a new role for private beal& insurance!? The rapid increase in PHI in Greece was the result of chronic underlinancing by the public sector and restrictive policies for the private sector. The private sector, however, found alternative investment and profit opportunities, which, unfortunately did not improve health system efficiency. The shift of the private sector to the operation of sophisticated diagnostic equipment, mainly in the area of imaging, which was financed to a large extent by the nascent private health insurance industry, has by no means increased microeconomic efficiency in the Greek health care system. According to this criterion, a mix of services should be chosen which maximizes a combination of health outcome and consumer satisfaction for the available share of GDP to health (allocative efficiency). In addition, costs should be minimized for the available GDP share (technical and cost efficiency). Finally, dynamic efficiency should be pursued, that is, there should be a search for technological and organizational advances which raise the productivity of given resources [3]. Preliminary results from current research by the Institute for Health Systems Management in Greece indicate that the impact of PHI on microeconomic efficiency in the health care system is negative. It is important to stress, however, that this seems to be associated with government restrictive policy towards the private sector.
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It is precisely in the die&ion of ~prov~~t in ~~r~~o~ ef?iciency that we believe that private health insurance should aim in a health sector such as the Greek one. The expectations for the future are not encouraging as the mean age of the insured population and the need for actual services increases at a time of fiscal crisis. Four basic facts, which hold true in every health system and point to the need for a shift in the focus of PHI activities, in cooperation with the public sector, should be taken into account:
(4 09 (4
(4
A health system which is largely publicly financed faces a serious shortage of investment and operational funds as the proportion of the aged in the population increases. As the public health system lowers the quantity (and the quality) of the services it offers, the private sector steps in, realizing greater profits, but also increasing the degree of inequity in the system. The private health insurance industry is obliged to invest its premium income as profitably as possible in order to face increased claims payments in the future, In 1991, private life insurance company investments exceeded 1.O% of GDP, with a return of around 1!I%, just slightly over the inIlation rate. The higher profit margins arising out of the added purchasing power created by PHI can stimulate new investment in the health industry either by the private medical sector, or by private health insurance itself.
It is these four facts that make us believe in a diffe~nt and more rn~n~~i, in terms of microeeonomic efficiency, role for PHI in undeveloped health economies. There is good reason to believe that public health expenditures cannot and will not continue to increase. On the other hand, major hospital construction is a money and time consuming process which would strain the capabilities of the public sector. In the meantime, the resource shortages and the resulting health care price increases, especially in the private sector, will continue to provide a rationale for certain segments of the population to seek PHI coverage. These future developments, should cause government and the insurance industry to rethink the actual role PHI could play in the health sector. Some sort of formal investment agreements between the public and the private sector could, obviously, benefit both. There is really no reason for PHI to seek inves~~t opacities in other sectors, with some degree of risk involved, when investment opportunities exist in the health market. In order, however, for these investments to increase the level of technical and allocative efficiency in the system, they should be undertaken under some sort of agreement or consultation with gove~ent, and in areas where serious deficiencies and resource constraints exist. This could entail a series of investment incentives, or other arrangements, by which we could ensure that private investment would improve the performance of the public health system. The investigation of such suitable investment schemes is a considerably complex matter, which we certainly cannot exhaust in this paper. Our attempt here was to simply raise the issue and start some debate which would also benefit our further research already under way.
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In this paper we propose that a way of collaboration should be found between the public sector and PHI, which would improve public health services provision and the overall technical, allocative and dynamic efficiency of the health system. It is obvious that such improvements in the public health system would also benefit the PHI industry, lowering claims costs, allowing for better health services utilization control, and actually increasing their market size if they enter, even indirectly, into direct services provision. A final point is that such policies on the part of PHI companies would also reduce their investment risks, and could significantly raise their rates of return on investment.
[l] Reinhardt, U.E., Competition in health care, or deconstructing the debate on health policy, Paper presented in the EHMA Annual Conference, Warsaw, 29 June-3 July 1993. [2] Culyer, A.J., Donaldson, C. and Gerard, K., Alternatives for Funding Health Services in the UK, Working Paper 2, IHSM, London, 1988. ]3] OECD, The Reform of He&h Care: A Comparative Analysis of Seven OECD Countries, Health Policy Studies No. 2, OECD, Paris, 1992. [4] Pavlopoulos, P., The Black Economy in Greece (in Greek), IOBE, Special Studies Series, Athens, 1987. [5] Schieber, G.J., PouBier, J.P. and Greenwald, L.M., U.S. health expenditure performance: an international comparison and data update, Health Care Financing Review, 13(4) (1992) l-88. ]6] OECD, Health Care Systems in Transition: The Search for EtEciency, OECD, Paris, 1990. [7] Abel-Smith, B. and Mossialos E., Cost containment and health care reform: a study of the European Union, Health Policy, 28 (1994) 89-132. [8] Dickinson, G.. Insurance. In EEC, European Economy, Social Europe, Directorate-general for economic and financial &airs, Reports and Studies No. 3,1993. I91 Liaropoulos, L., Private Health Insurance in Greece, Forum, Athens, 1993. [lo] Schneider M., Dennerlein, R.K.-H., Kose, A. and Shohes, L., Health Care Baskets, BASYS, A Study for the European Community, Augsburg, 1991. [II] Dunning. A.J. (Chairman), Choices in Health Care: Report of the Government Committee, Ministry of Welfare, Health and Cuhural AfMirs, Rijswiijk, The Netherlands, 1992. [12] Besis, N., The Private Health Sector in Greece (in Greek), IGBE, Athens, 1993. [13] Thierry, J.P., Technology and the future of health systems, Paper presented in the International Meeting on ‘Future of Health and Health Systems in the Industrialixed Societies’, Bellagio, Italy, 1985. 114) Basset, M., Costly health care: a lesson from New Zealand, Health Care Analysis, l(2) (1993) 189-l%. [15] Kyriopoulos, J.E. and Tsahkis, G., Public and private imperatives of Greek health policies, Health Policy, 26 (1993) 105-117.
Health services financing in Greece: a role for private health insurance Lycurgus L. Liaropoulos School of Nursing, University of Athens, 17 Pittakou St., Athens 151 26. Greece
Received12April 1994;revision19September 1994;accepted 21September 1994
Private healthinsurancecan play a significantrole in the financingand delivery of health servicesin relatively undevelopedhealth systemswhich suffer from limited public expenditures,resourceshortages,and quality of careproblems.Researchresults,however,indicate that private health insurancein Greecehasnot yet assumed that role. The rapid increaseof private healthinsurancewasthe resultof underfinancingby the public sectorand restrictive policiesfor the private sector.The private sector,however,largelyfinancedby private health insurance,found alternative investmentand profit opportunities,which, unfortunately, did not improvehealthsystemmicroeconomicefficiency. In this paperweproposethat a way of cooperationcould exist betweenthe public sectorand private health insurance,which would improvepublic healthservicesprovisionandthe overall technical,allocativeand dynamiceff% ciency of the health system. Keywork private healthinsurance;Private healthexpenditures;Private healthsector;Health care in Greece;Health policy in Greece 1. Introduction
In the debate over health reform and health care financing in Europe, with the possible exception of the Netherlands, there is usually little to be said about the role of private health insurance (PHI). Quite often, PHI is delegated a role complementary to social security, and many times it is seen as the vehicle for the introduction of market elements in a climate of managed competition. European countries, however, do not depend on private health insurance carriers for health care management and delivery [l]. More often, private carriers are delegated a secondary posi0168-8510/95/$09.50 0 1995ElsevierScience IrelandLtd. All rightsreserved SSDI 0168-8510(94)00702-G
54
L. L. Liaropoulos
/ Health
Policy
34 ( 1995) 53-62
tion on the basis of the ubiquitous arguments of moral hazard [2] and adverse selection. The main theme of this paper is that PHI can play a significant role in health care systems faced with resource shortages (mainly of quality hospital beds and other health facilities), immediate investment and modernization requirements, and serious financing problems. In such health economies, the emergence of a strong private health insurance sector can be a blessing or a curse, depending on health policy pursued by the public sector. If the supply of health care resources and services remains fixed, the income effect of additional purchasing power through private insurance will simply raise prices and exacerbate inequalities of access. If, on the other hand, the large private insurance reserves are invested in the health sector, creating additional capacity, the increased supply of services could prove beneficial to the whole health care sector. In order for this to happen, however, investment by PHI should be directed to areas where the alleviation of resource shortages would increase microeconomic efficiency in the health sector. In the opposite case, serious resource misallocation will accompany the increased PHI activity. Developments in the Greek health economy during the last 10 years offer a good case-study for the analysis of the actual role PHI can play in such a setting. 2. System structure, pfdormance and health expenditures The Greek health care system has always been a typical example of the Social Insurance (Bismarck) model. Social Security in Greece operates through more than 300 Funds, providing virtually full coverage, but facing serious problems of financing. More than 80 of them offer health insurance coverage and/or services. According to another typology [3], the Greek health system is a mixture of the Public Contract Model and the Public Integrated Model. Public health expenditure financing is 68% from tax revenues and 40% through social security contributions. Hospital services are delivered mainly through public hospitals (70% of the beds and 8@!! of admissions), while outpatient care is provided by social security polyclinics, state rural health centers and private doctors. The introduction of a National Health System in 1983 strengthened the role of the public sector and aimed at the establishment of a National Health Service, which was, however, never founded. An important feature of the Greek health system is the existence of a strong subsystem along the lines of the Voluntary Contract Model which is, in fact, a signilicant ‘black’ health economy, financed by out-of-pocket private payments. The exact magnitude of this market is strictly a matter of conjecture, although some estimates put it as high as 3% of GDP, or 67% of public expenditure [4]. As we will see, private health insurance is very active in this market, and may, in fact, be the main source of its financing. In the decade of the 198Os, according to EUROSTAT figures, social protection expenditures in Greece nearly doubled, from 12.2% of GDP in 1980 to 20.7% in 1989. At the same time there was a considerable increase in total health expenditures from 4.5% of GDP in 1981 to 5.5% in 1990 [5]. This percentage represents almost entirely public health expenditure, while private expenditure is estimated at almost 3% of GDP.
L. L. Liaropoulos
/ Health
Policy
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55
The large increase in health expenditures during the 1980s moved in opposite directions compared to other OECD countries. According to OECD data 161,the income elasticity of health expenditures in the period 1975-84 was 2.5 compared to an OECD average of 1.3. During the 1980-84 period, in particular, the elasticity was 3.4 compared to only 0.5 in the OECD countries, where cost-containment policies were put into effect [7]. This reflects the fact that during the 198Os, Greece entered a period of high public spending for health, in an attempt to redress serious problems caused by underlinancing in previous decades. It is important to mention here that for many years Greece has shown the lowest GDP share spent on health by the public sector among all OECD countries (except for Turkey) [6]. This increase in health expenditures, however, was directed mainly at improving staffing ratios and salaries and less at the modernization and increase of infrastructure. The increase in public spending for health in the 1980s came entirely out of tax funded government expenditure. As a result, the composition of the sources of public health financing between 1975 and 1991 was exactly reversed (Table 1). This was effected through large government subsidies for hospital care aiming to keep administered hospital per diem charges as low as possible, in order to alleviate pressures on social security budgets and to discourage the private hospital sector. As we will see later, the latter objective was not realized, and some undesirable side effects followed. During the 1970s and early 198Os, there was little public investment in hospital construction. Moreover, during the 198Os, there was a paucity of private investment, and a great number of closures, especially of small private clinics. This was a result of government policy with the introduction of the National Health System, voted in 1983 and partly implemented after 1985. The prohibition of investment in new plant for the private hospital sector, coupled with administered low daily charges, resulted in a reduction of private beds by 43% between 1982 and 1990, not replaced by the meager 3.4% increase in public beds. As a result, Greece with 5.1 (acute and chronic) beds per 1000 population, compared to 6.3 in 1974, faces a serious shortage of quality beds and also of the amenities associated with satisfactory bed accommodations, or other hotel services. This has led to queuing problems in certain large public hospitals, under-the-table payments, and a shift towards a few large private hospitals, offering such accommodations and charging considerably higher fees than state hospitals. Despite the considerable increase in public health expenditures during the last decade, health care in Greece today suffers from a lack of credibility and low conTable 1 Sources of public health expenditure financing in Greece (1975-1991)
1975 1980 1985 1991 Source: National Accounts.
Taxes (%)
Social Security (%)
40.8 42.0 51.5 60.8
59.2 58.0 48.5 39.2
56
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/Health
Policy
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sumer satisfaction. The main problems are in outpatient care, where the lack of the institution of a family doctor (or general practitioner) causes serious delivery, access and referral problems, the poor organization and limited effectiveness of emergency care services, the low level of development of primary health care and the shortage and bad distribution of quality hospital beds, the majority of which are concentrated in the Athens and Salonica areas. 3. The role of private health inswance According to E.U. directives, there are 18 classes of risk covered by the insurance industry, and health insurance is only one of them [8]. Together with pension insurance and accident protection, it forms the bulk of what is called life insurance. Unfo~unately, statistical info~~on is usually provided for the whole of the life insurance category, and it is, therefore, difficult to obtain a good estimate of the importance of PHI in European countries. Health insurance, as a sub-set of life insurance, can be defined as protection against: (a) (b)
The risk of ill health, accident or death. The economic risk associated with illness, disease, accident or death.
Protection against the r&of ill health usually implies direct provision of health services. PHI is not often active in this direction, and it is mainly concerned with insurance against the financial risks involved. This aspect of PHI naturally limits it mainly in the area of curative services, and especially hospital care, while it does not enter into the areas of prevention, health promotion, and rehabilitation (the HMO concept is not yet a European practice). There are cases, however, where commercial health insurance schemes include direct service provision, either along the NM0 concept in the USA, or according to policies followed by BUPA in the UK, which owns its own hospitals [lo]. The increasing cost of health care, usually attributed to greater life expectancy and the impact of medical technology, has caused a very active debate on the question of choices in health care, especially in countries like Holland [ 11J, with developed health economies. In these countries there are few major investment requirements, as the health sector infr~t~~t~e problems have largely been solved, and the main problem is to control resource utilization. In such health economies, a significant role is reserved for PHI in the context of the debate for a minimum basic care package. In this case, the role of PHI is to provide not only supplementary coverage, but also increased quantity and quality of care to those that can afford it [I]. This trend has been recognized explicitly in a recent major study of the insurance industry in the E.U., which has referred to the ‘interface’ between government and the private insurance sector 81. In this study, the trend towards greater emphasis on the potential partnership role of social and private insurance is recognized, and one of the conclusions is that social security systems and the private insurance sector should define their respective roles and seek some sort of complementarity in order
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to maximizethe social and economic benefit which they jointly supply. The major areas where this complemen~~ty is most obvious are the areas of pensions and health care financing. Tbe main point of our paper is that in certain health economieslike the Greek one, characterizedby shortagesof resources,waiting lists and problems associatedwith public financing, the role of PHI can, and indeed should, be directed in the area of investment financing. When major investment requirementsexist in order to redress chronic infrastructure deficiencies,and the public sectoris already heavily burdened with the operational costs, then silent inves~nt ~~b~iti~ exist for the private health insurancesector.In this way, PHI can work in a complementaryway to socialsecurity,going much beyond the provision of supplementarycoverage,and improving the microeconomic efficiency of the health care sector. 4. Private health insurance in Greece
4.1. The growth of private health insurance
One recent but increasingly important feature of the Greek health systemis the emergenceof a sub-sectoroperating under the voluntary reimbursement model. It is in this setting that PHI emerged as a factor in the health care market. The last few years have been characterizedby an ~p~d~t~ upsurge in private life insuranee,with annual rates of premium income growth since 1984ranging between 30%and 40% (Table 2). As already mentioned, disaggregateddata on private health insurancein Greecedo not exist. Our own research results,however, indicate that an important factor, and indeedthe moving force, behind the rapid growth in privatelife insurancehasbeenthe introduction of a variety of new health insuranceproducts centering around hospital coverage [9]. This recentinterest in private health insurancein Greeceshould beseenin the context of health systemperformance as outlined earlier, and mainly in relation to the widespread dissatisfaction with the public hospital sector and the lack of modern diagnostic facilities in the public health services.It is also interesting that the interest in private health insurancecoincided with the ~tr~uction of the National Health Systemin 1983and the beginning of its implementation after 1985.This was certainly not the intent of the health policy reform of 1983,which sought to emphasizethe public nature of health financing and delivery. Table 2 Premium income growth of life insurance in Greece, 1985-1990 (million dollars) Yt%U
Premiums
1985 1986 1987 1988 1989 1990
14 295 18 789 25 205 35 186 48 503 67 555
Source: Liaropoulos (91.
% Growth 31.4 34.1 39.6 37.8 39.3
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The increase in PHI at a time of increasing public health expenditures is, also, in accordance with findings in other European countries. Recent research at an E.U. level showed that private life insurance plays an important role in countries with particularly well developed publicly financed social protection and health care systems, the case of the UK and the Netherlands being the best examples [8]. Our own research results also indicate that private life insurance expenditure in the E.U. countries is positively correlated with public expenditures on health [9]. Reliable statistics on the magnitude of PHI expenditures and its actual contribution to health care financing in Greece do not exist. For this reason, we conducted a major 2-year research project investigating the nature of PHI coverage and health services financing and utilization [9]. Our research was conducted at two levels. At the macroeconomic level, we conducted a survey of all private life insurance companies offering health insurance. In the microeconomic level, we examined 850 claims files from two companies, in an attempt to determine the exact nature of health services financing and utilization through private health insurance. We present here some of the main results from our research, which are germane to the purposes of this paper. 4.2. Private health insurance in Greece to&y
The main characteristic of the private health insurance market in Greece is its oligopolistic structure, with the market leader dominating 39% of the market and the three largest (out of 42 companies) accounting for 70.5% [8]. Although reliable official data do not exist, we have estimated that 10% of the population already have some sort of PHI coverage, and total contributions already amount to 10% of total social Security contributions [9]. Until recently, there was no research into the nature of health services provision by PHI in Greece. Our research results indicate that PHI in Greece has failed so far to act in a complementary way to social health insurance. Business is mainly directed at covering the financial risk of illness, without offering new alternatives to health services financing and delivery. Product differentiation is achieved through advertising, and the promise of certain amenities upon hospitalization. It is not surprising, therefore, that our results indicate low rates of use of PHI health care services among the insured. In fact, the main field of activity for private health insurance in Greece seems to be the protection against the economic dangers accompanying ill health, in the form of partial income transfers and cash payments following hospitalization or accident (Table 3). Very important also is the reimbursement for the use of outpatient, mainly diagnostic, and other specialized services. A further impetus towards seeking private health insurance coverage was provided by the more than doubling of hospital charges in 1992 designed to cover mounting hospital services. The inability of social insurance organizations to meet the extra burden resulted in an increase in user charges, often at rates higher than inflation [ 151. This development, in turn, expanded the market for private health insurance. 4.3. The effects of PHI in the health sector
The net effect of the increase in PHI activity was to introduce excess demand for
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Table 3 PHI payments by type of service in Greece, 1990 Health Service
% Amount claimed
Outpatient Hospital Rehabilitation Cash payments
30.5 25.1 1.3 42.4
Source: Liaropoulos [9].
already existing hospital beds and other health services. According to standard economic theory, the excess purchasing power created by the increase in PHI coverage is equivalent to an income effect pushing the demand curve to the right. In the short-term, and as the supply of health care services is inelastic, the only immediate effect is a price increase. This price increase is a strong incentive to further investment with an ultimate equilibrium at a point of increased supply. In other words, the medium-term effect of the growth in private insurance is an increase in prices and output. This is what has actually happened in Greece during the last few years. In the absence of an increased supply‘response on the part of the public sector, the excess demand has been translated into substantial profits, but also investment opportunities for the private sector. These opportunities were significantly increased after 1989, when the conservative government began to remove many of the constraints on the development of the private sector imposed by the socialist government during the 1981-89 period [ 151. The question, of course, is whether the resulting increase in output was economically efficient and what the consequences were for the equity of distribution of health services. The increase in the quantity of services supplied can be seen in the rapid growth of the number of new private diagnostic centers, the spectacular rise in private hospital profits, and the great increase in private expenditure for capital equipment. Considering the fact that private services are not reimbursed by social security, what in fact happened is that private insurance supplied the purchasing power for a thriving private sector, much against the stated intent of the National Health System Law
Table 4 Investment in health in Greece, 1980-1991 (million dollars, current prices) Year
Public
Private
1980 1985 1991 1980-1985 1986-1991
2094 10 919 16 314 34 371 87 884
1629 4823 28 103 16530 94 397
Source: National Accounts.
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of 1983. On the other hand, it was precisely the result of government mismanagement, shortsighted planning, and its attempt to limit the role of the private sector. The end result was the introduction of gross inefficiencies and a substantial degree of inequity in the health system. It is obvious from Table 4 that the private sector was quick to capitalize on the serious financial problems and the perennial bureaucratic bottlenecks observed in the public sector, and proceeded with major investment in the health area. It is interesting to explore what were then the existing investment possibilities. Perhaps this will give us a hint as to another possible investment opportunity for PHI, namely that of investment in medical technology. The ban on new private hospital construction in Greece after 1983 led the private health sector to the search for alternative investment opportunities, which were found mainly in the form of ambulatory, mainly diagnostic, facilities. During the 6 years from 1986 to 1991, there were 159 new diagnostic centers, as opposed to only 21 in the previous 6 years 1980-1985. These centers were set up either as departments of already operating private hospitals, or as new businesses. The shift to outpatient diagnostic facilities was facilitated by the rapid growth of expensive medical technology, especially in the area of imaging, taking place internationally at the same time. The world market for medical equipment was, in fact, growing rapidly at the time, from $3.2 billion in 1975 to $6.7 billion in 1980 and $9.7 billion in 1985 [13]. It is to this market, as well as to private hospital care and hospital treatment abroad, that private health insurance caters, covering the considerable out-of-pocket expense involved. Indeed, the situation in this respect seems to resemble developments in New Zealand, where, after 50 years of public health care, the private sector thrives alongside a booming private health insurance industry [14]. 5. Conclusious and poticy implications: towards a new role for private beal& insurance!? The rapid increase in PHI in Greece was the result of chronic underlinancing by the public sector and restrictive policies for the private sector. The private sector, however, found alternative investment and profit opportunities, which, unfortunately did not improve health system efficiency. The shift of the private sector to the operation of sophisticated diagnostic equipment, mainly in the area of imaging, which was financed to a large extent by the nascent private health insurance industry, has by no means increased microeconomic efficiency in the Greek health care system. According to this criterion, a mix of services should be chosen which maximizes a combination of health outcome and consumer satisfaction for the available share of GDP to health (allocative efficiency). In addition, costs should be minimized for the available GDP share (technical and cost efficiency). Finally, dynamic efficiency should be pursued, that is, there should be a search for technological and organizational advances which raise the productivity of given resources [3]. Preliminary results from current research by the Institute for Health Systems Management in Greece indicate that the impact of PHI on microeconomic efficiency in the health care system is negative. It is important to stress, however, that this seems to be associated with government restrictive policy towards the private sector.
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It is precisely in the die&ion of ~prov~~t in ~~r~~o~ ef?iciency that we believe that private health insurance should aim in a health sector such as the Greek one. The expectations for the future are not encouraging as the mean age of the insured population and the need for actual services increases at a time of fiscal crisis. Four basic facts, which hold true in every health system and point to the need for a shift in the focus of PHI activities, in cooperation with the public sector, should be taken into account:
(4 09 (4
(4
A health system which is largely publicly financed faces a serious shortage of investment and operational funds as the proportion of the aged in the population increases. As the public health system lowers the quantity (and the quality) of the services it offers, the private sector steps in, realizing greater profits, but also increasing the degree of inequity in the system. The private health insurance industry is obliged to invest its premium income as profitably as possible in order to face increased claims payments in the future, In 1991, private life insurance company investments exceeded 1.O% of GDP, with a return of around 1!I%, just slightly over the inIlation rate. The higher profit margins arising out of the added purchasing power created by PHI can stimulate new investment in the health industry either by the private medical sector, or by private health insurance itself.
It is these four facts that make us believe in a diffe~nt and more rn~n~~i, in terms of microeeonomic efficiency, role for PHI in undeveloped health economies. There is good reason to believe that public health expenditures cannot and will not continue to increase. On the other hand, major hospital construction is a money and time consuming process which would strain the capabilities of the public sector. In the meantime, the resource shortages and the resulting health care price increases, especially in the private sector, will continue to provide a rationale for certain segments of the population to seek PHI coverage. These future developments, should cause government and the insurance industry to rethink the actual role PHI could play in the health sector. Some sort of formal investment agreements between the public and the private sector could, obviously, benefit both. There is really no reason for PHI to seek inves~~t opacities in other sectors, with some degree of risk involved, when investment opportunities exist in the health market. In order, however, for these investments to increase the level of technical and allocative efficiency in the system, they should be undertaken under some sort of agreement or consultation with gove~ent, and in areas where serious deficiencies and resource constraints exist. This could entail a series of investment incentives, or other arrangements, by which we could ensure that private investment would improve the performance of the public health system. The investigation of such suitable investment schemes is a considerably complex matter, which we certainly cannot exhaust in this paper. Our attempt here was to simply raise the issue and start some debate which would also benefit our further research already under way.
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In this paper we propose that a way of collaboration should be found between the public sector and PHI, which would improve public health services provision and the overall technical, allocative and dynamic efficiency of the health system. It is obvious that such improvements in the public health system would also benefit the PHI industry, lowering claims costs, allowing for better health services utilization control, and actually increasing their market size if they enter, even indirectly, into direct services provision. A final point is that such policies on the part of PHI companies would also reduce their investment risks, and could significantly raise their rates of return on investment.
[l] Reinhardt, U.E., Competition in health care, or deconstructing the debate on health policy, Paper presented in the EHMA Annual Conference, Warsaw, 29 June-3 July 1993. [2] Culyer, A.J., Donaldson, C. and Gerard, K., Alternatives for Funding Health Services in the UK, Working Paper 2, IHSM, London, 1988. ]3] OECD, The Reform of He&h Care: A Comparative Analysis of Seven OECD Countries, Health Policy Studies No. 2, OECD, Paris, 1992. [4] Pavlopoulos, P., The Black Economy in Greece (in Greek), IOBE, Special Studies Series, Athens, 1987. [5] Schieber, G.J., PouBier, J.P. and Greenwald, L.M., U.S. health expenditure performance: an international comparison and data update, Health Care Financing Review, 13(4) (1992) l-88. ]6] OECD, Health Care Systems in Transition: The Search for EtEciency, OECD, Paris, 1990. [7] Abel-Smith, B. and Mossialos E., Cost containment and health care reform: a study of the European Union, Health Policy, 28 (1994) 89-132. [8] Dickinson, G.. Insurance. In EEC, European Economy, Social Europe, Directorate-general for economic and financial &airs, Reports and Studies No. 3,1993. I91 Liaropoulos, L., Private Health Insurance in Greece, Forum, Athens, 1993. [lo] Schneider M., Dennerlein, R.K.-H., Kose, A. and Shohes, L., Health Care Baskets, BASYS, A Study for the European Community, Augsburg, 1991. [II] Dunning. A.J. (Chairman), Choices in Health Care: Report of the Government Committee, Ministry of Welfare, Health and Cuhural AfMirs, Rijswiijk, The Netherlands, 1992. [12] Besis, N., The Private Health Sector in Greece (in Greek), IGBE, Athens, 1993. [13] Thierry, J.P., Technology and the future of health systems, Paper presented in the International Meeting on ‘Future of Health and Health Systems in the Industrialixed Societies’, Bellagio, Italy, 1985. 114) Basset, M., Costly health care: a lesson from New Zealand, Health Care Analysis, l(2) (1993) 189-l%. [15] Kyriopoulos, J.E. and Tsahkis, G., Public and private imperatives of Greek health policies, Health Policy, 26 (1993) 105-117.