What Conservatives Can (and Can’t) Learn From European Health Care

What can American conservatives learn from Europe’s diverse healthcare systems? Unlike what many left-of-center analysts have claimed, the lesson to take away from European healthcare systems is not that the U.S. ought to implement a single-payer, government-run healthcare system. Although European healthcare systems are routinely portrayed as being “government-run”, most European healthcare systems contain powerful market mechanisms that enable them to deliver healthcare efficiently, which is why many European systems function fairly well, though most have significant problems.

The stakes in the debate are high: no issue is more important to the future of the conservative movement in the U.S. than healthcare reform. The U.S. healthcare system as it currently exists is gravely distorted, having empowered the government and large employers while sidelining the consumer and discouraging disruptive innovation. The few conservatives who continue to defend the current U.S. healthcare system in the name of free markets should cease doing so: they are defending a system that is not a free-market system.

The best healthcare system, from a conservative perspective, is that of Switzerland: it beats the U.S. system in terms of its performance, efficiency, universal coverage, and consumer empowerment. Although the Swiss system is not perfect, in empowering consumers and providing universal health insurance through market mechanisms, it merits serious consideration. In this article, I will review the British, French, Dutch and Swiss healthcare systems in an attempt to see what conservatives can learn from their successes and failures.

First, a look at one of Europe’s more troubled healthcare systems, the British National Health Service. A true single-payer system, the British NHS ought to serve as a warning to Americans, not as an inspiration. If universal health insurance is what you want, adopting a single-payer system along British lines is not the best way to go about it. In the 2008 Report “Why the NHS is the Sick Man of Europe”, Civitas Health Policy Director James Gubb writes that whereas “in 2001 public spending on the NHS stood at £46.0bn, it is now £90.7bn, a massive increase of nearly 100 per cent in cash terms and around 70 per cent in real terms.” What happened to all this money is not quite clear: waiting lists, albeit reduced from their record peaks, continue to loom large, and many British healthcare debates continue to focus on the rationing of procedures, cancer drugs, and surgeries. Popular targets of rationing are smokers and the obese. There is little “disruptive innovation” in the British system, and there are not enough market mechanisms to weed out inefficiency. Horror stories proliferate. This system is one that ought not to be emulated: it serves as a warning.

Across the channel lies the far more decentralized French healthcare system. While France’s system of government and education are highly centralized, its healthcare system is not. Unlike the British system, the French healthcare system is not a single-payer system. And unlike the British NHS, France’s national health insurance system was never designed to be the producer and provider of healthcare. The growth of the French national health insurance system illustrates this: it grew in a haphazard manner from its creation for low-income workers in 1928 to its extension to all commercial and industrial workers and their families in 1945, to farmers and agricultural workers in 1961, to independent professionals in 1966 and to the remaining uninsured population (1%) in 2000 (see Rodwin 2003).

Writing in the New England Journal of Medicine in 2004, Victor Rodwin and Claude Le Pen comment that “French policymakers typically view their NHI system as a realistic compromise between Britain’s National Health Service, which they believe requires too much rationing and offers insufficient choice, and the mosaic of subsystems in the United States.” The French system, they write, “is structured as a market-based economic system with extensive organizational diversity and individual choice. Most physicians in private practice tenaciously support the present arrangements, embracing the principles enshrined in “la médecine libérale’…”

Co-payments and private supplementary insurance are routine in France and have helped make consumers more discerning in healthcare usage. Health outcomes are, for the most part, quite good.

What’s not to like, then? For one, the role of the French state in healthcare is on the rise with a turn towards “a kind of state-led managed care” in a bid to contain costs. Moreover, despite considerable flexibility, the French healthcare market is quite restricted in certain areas: price competition among local health insurance funds and selective contracting between these funds and health care providers, for example, are not allowed. The French healthcare system is insufficiently consumer-driven, and in part because of this chronic budget deficits have plagued the system for years. Physicians are insufficiently compensated: every year there is a renewed tug of war to secure adequate funding for physicians’ reimbursements and the system as a whole. To sum up: the French system is not necessarily a model to emulate, but the next time you hear someone claim that France has a “government-run” healthcare system that explains its successful performance, think againÑthe French have a dynamic, pluralistic healthcare system, and that explains a large part of its successful healthcare delivery.

Next, in rising order of preference, is the Netherlands. The Netherlands used to have a healthcare system with a large degree of centralized control, focused to a large extent on the rationing of procedures. Rising problems in the late 1980s sowed the seeds of reform, and in 2006, the Dutch implemented a complete overhaul of their healthcare system. This breakÑrightly described as revolutionaryÑwas preceded by calls for strong market-based reform by major stakeholders: Bartholomee (2006) writes that “many health insurers and provider organizations developed a pro-market attitude and called for a drastic reform after years of increasing government interference in health care”.

Under the new system, write Knottnerus and ten Velden, Dutch public health insurers were either privatized or merged with private health insurers. All citizens are now required to purchase a basic package of essential health care services, along with “own-risk coverage” (essentially an annual deductible) of Û150 each year. Lower-income households are subsidized by the government to enable them to purchase health insurance. As part of the drive for healthy competition, the premium for the basic insurance package is set by competing insurance companies that are forced to accept all applicants without screening out those with prior conditions. A risk-equalization fund has been developed by the government to mitigate the costs for insurance companies.

Dutch health care providers have far more incentives to provide quality care under the new system, and hospitals have a greater motivation to compete in offering high-end services for all patients. Patients, moreover, are offered incentives by their insurers to live a healthy lifestyle and shed extra pounds: the Wall Street Journal’s Gautam Naik reported in 2007 on the case of 45-year-old diabetic Rianne Boel. Ms. Boel’s insurance company offered to pay her back $676 for her gym membership, provided she lost 7.5% of her weight (22 pounds) in 15 months. She changed her diet and began to exercise vigorously, meeting her weight loss goal and receiving the funds: in case she succeeds in losing more pounds, she may gain the upper hand in her battle with diabetes, which her insurance company says would save them about $1,200 per year in insulin costs. Under the pre-2006 Dutch healthcare system, these types of incentives were simply inconceivable.

Waiting lists for all sorts of surgical procedures and surgeriesÑendemic under the pre-2006 Dutch systemÑhave been greatly reduced as a result of the abolition of the 1971 Hospital Planning Act and of relaxations on the use of specialized clinics. These clinics are often more effective and flexible in delivering healthcare services than conventional, do-it-all hospitals.

Is the Dutch system today ripe for export to the U.S.? No. For one, although the system is far more consumer-driven than the pre-2006 scheme, the government still looms large, and constrains the system too much. The government remains wary of for-profit hospitals and for-profit private clinics. Competition remains inadequate: this year, hospitals will have the latitude to negotiate on the basis of price and quality with insurance companies for 30% of services, up from 20% in 2008. While this is a big change from the pre-2006 system, it still leaves 70% of services outside of negotiations for the time being.

From the Dutch reforms, we can take away at least two lessons: a true government-run system is not worth emulating (the Dutch ditched it in 2006), while placing consumers front and center of the systemÑprovided the poor receive financial support to purchase health insurance in a competitive health insurance marketÑleads to positive health incentives and positive health outcomes.

We come, then, to the Swiss system. It is a system that deserves the attention of every American interested in market-based health reform. Regina Herzlinger, McPherson Professor of Business Administration at Harvard and the “godmother of consumer-driven healthcare”, wrote in late 2008:

“The country of Switzerland has universal coverage, costs that are 40% lower than ours and that inflate at lower rates, and an excellent health care system in terms of outcomes and resources. The key to their success is that the Swiss system is consumer-driven: consumers buy their own health insurance from more than 90 private health insurance firms. If they cannot afford it, the cantons subsidize it. If they are sick, they pay no more for their health insurance than the well (the Swiss insurers risk-adjust each other). Consumer oversight insures value for the money better than oversight by governments and employers.”

For conservatives, who generally favor market-driven solutions, the Swiss system has achieved a great deal on the demand side, by placing the consumer front and center and getting employers out of the way. Whereas in the U.S., health insurance is commonly tied to employers, and whereas many Americans find it unaffordable to purchase individual health insurance policies (in part due to heavy state regulations), in Switzerland the whole health insurance market revolves around individual insurance policies. Swiss citizens can choose from one of hundreds of reasonably priced, competing insurance plans from dozens of competing health insurers. They may choose a high-deductible plan, a low-deductible plan, or an HMO plan.

Many insurance plans offer rebates for certain lifestyle choices: in many cases, non-smokers can receive a steep discount on their premium, which is a far more humane practice than, say, rationing government health services to punish smokers and the obese. And because health insurance is a contract between individuals and health insurance companies, Swiss citizens can switch jobs or start their own business without it having an adverse impact on their health insurance (the opposite of what happens in the U.S., where loss of employment can jeopardize health insurance when COBRA runs out).

It should come as no surprise that the Swiss system is far more consumer-driven than the American system. In a 2004 piece for the Journal of the American Medical Association on the Swiss healthcare system that elicited spirited responses, Herzlinger revealed some remarkable statistics. In 2000, the U.S. government paid for 44.5% of healthcare expenses, whereas in Switzerland, the government paid for just 25.4%. Whereas consumers in the U.S. paid for just 23.3% of expenses, consumers in Switzerland paid for a whopping 68.2% of healthcare expenses. Employers, meanwhile, paid for just 6.4% of healthcare expenses in Switzerland, but 32.2% under the severely distorted American system.

The Swiss system, then, has some real merits. So what’s not to like? For one, it has too much regulation: Herzlinger writes that the Swiss government has put in place onerous minimum benefit packages while micro-managing prices. Both practices are nefarious, but a more serious flaw lies in the supply side of the Swiss system. As Herzlinger emphasizes, the Swiss government micromanages medical care suppliers, not only dictating medical care prices but also specifying the bundles of care for which it will pay, similar to the deeply flawed Medicare reimbursement system in the U.S. that reimburses the cost of procedures instead of rewarding healthy outcomes period.

Then, there is information. A true consumer-driven system would feature easily available, standardized performance metrics on healthcare providers and physicians so that consumers can easily compare performance of physicians and hospitals. Much like in the United States, however, there is an absence of reliable health performance measures in Switzerland. Swiss consumers cannot easily find information on, say, the rate of bacterial infections in a certain hospital or the rate of botched hip replacement surgeries of a certain surgeon. Swiss consumers rely, for the most part, on widely published surveys of satisfaction of patients treated in certain hospitals.

As successful as the Swiss system is, its system would be truly path-breaking if its deficiencies were successfully addressed. The most dangerous thing that U.S. policymakers could do is adopt the most intrusive practices of the best European healthcare systems without adopting the concomitant free-market aspects embedded in those systems. As Americans debate how best to reform their healthcare system, the British, French, Dutch and Swiss systems offer a number of lessons: most important is that the more consumer-oriented a system, the more likely it is to deliver effective care.. In order to create a consumer-driven healthcare system, Americans ought not to adopt the Swiss or Dutch system lock, stock and barrelÑrather, they ought to adopt those policies that work best and discard the rest. A single-payer system is not the best way to go, however.