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

2. 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

3. 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

4. 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 %

5. 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

6. 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).

7. 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

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

9. 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

10. 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

11. 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