Health Service and Public Finances in an International Context Dr. Rigmar Osterkamp Ifo Institute for Economic Research, Munich

Overview Big Bang reform High cost burden of insurance based systems Direct cost effects of a pay-roll tax Overall economic effects Was a different reform approach available? The remaining reform options

Big Bang reform of the health sector in MOE transformation countries From central planning to a market economy in the health sector many decentralized agencies insurance based pay-roll system loss of control over costs and expenditures for health care considerable cost burden for enterprises

Employer‘s part of social security (incl Employer‘s part of social security (incl. health) contributions, 2001, in % of wages Slovakia 38,0 % Hungary 35,5 % Czech Republic 33,0 % Estonia 33,0% Lithuania 31,0 % Latvia 26,1 % Poland 20,1 % Slovenia 20,1 % Germany 40 %

Direct cost effects of a pay-roll tax employer‘s contribution (38) Wage paid (100) The total of 138 is the minimum value added per worker, at the margin and has to be earned in the market

An increase of the pay-roll tax rate ... is cost-neutral for the enterprise only if the wage paid is reduced; or if the value added per worker, at the margin, rises (can be raised).

Thus, an increase of the pay-roll tax rate is most likely to lead to reduction of employment or/and loss of international competitiveness or/and rising burden for the public budget (a „payer of last resort“) or/and more shadow economy or/and arrears of enterprises vis à vis social insurers specifically in the health sector: more side payments, less solidarity

Vicious circles: Negative effects on ... employment competitiveness shadow economy raise the burden on the budget reinforce each other ...

Had a different reform approach been possible? Tax financed health system of UK and nordic countries also Italy and Greece move to tax funding of health care more similar to old structures equal access and similar burdens but also not without problems: waiting lists and low satisfaction of population with health system

The remaining options (1) Problems and options are similar to those in Germany, France, Netherlands Learning from USA! Long-term measures: insurers as players, not just payers promotion of GP, PHC physicians, nurses instead of reliance on specialists GP and PHC doctors as gate keepers regulated competition between insurers strict monitoring of providers

The remaining options (2) Administratively easy measures with relatively quick effects - but politically difficult: increase of co-payments less generous sick leave pay only the employees pay social contribution; their income is raised once and for all by the amount of employer‘s contribution