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How Other Countries Do It

 by William A. Glaser


Every country’s current methods of delivering, organizing, and financing health care have resulted from a long history. Clinical methods have spread across national boundaries, making health care international as well as national. Clinical practitioners and public policymakers have constantly adopted lessons from other countries.

The financing and organization of health care have passed through several stages:

  • All societies throughout their histories have always had doctors and pharmaceutical drugs. Doctors and druggists earned out-of-pocket cash payments.
  • Hospitals have long existed. They were maintained by churches, charitable foundations, and governments. Some earned cash from patients, but much less than their total operating costs.
  • Workers and craftsmen developed mutual aid funds, at first to pay for loss of income during disability, for funeral costs, and for the support of widows and orphans. These were the forerunners of modern social insurance.

In Europe during the nineteenth century, the labor movement and the political parties of the Left pressed governments to strengthen the mutual aid system. Starting with Germany, entire classes of workers were covered, they and their employers paid taxes, the payroll taxes went into funds, the mutual aid groups (or special new agencies) administered the money, and payments were made to beneficiaries, hospitals, and doctors. These were comprehensive “social security” systems, including old-age pensions, disability benefits, family allowances, and health insurance.

Every country from time to time expanded its coverage, increased its funding, and improved its organization. “Universal” protection and redistributive financing are now widespread policies. Most or all people are covered, must pay payroll taxes, and receive standard benefits. While the rich – usually the healthier – pay standard percentage-of-wages rates, their higher incomes cause them to contribute more money. The less healthy—usually the lower earners – consume more benefits from health insurance and the disability accounts, often while paying in taxes less than their actuarial costs.

All of Europe at some time enacted national health insurance. The versions enacted in some countries eventually proved inadequate in funding and organization. Several countries (United Kingdom, Eastern Europe, Spain, Italy) substituted national heath services whereby governments own and manage the hospitals, revenue is part of general taxation, and providers are paid from the general budgets of the government. Events in the United Kingdom are described below.

Among developed countries, Canada and the United States alone never enacted national health insurance. Events in Canada are described below.

During the twentieth century, policy researchers in the United States repeatedly published descriptions of European social insurance and offered designs for America. The United States enacted duplicates of the European social security pension and disability systems during the 1930’s. National health insurance was repeatedly considered, but policymakers and interest groups thought they could accomplish the same result with a mixture: voluntary employer-provided insurance for workers and managers, supplemented by government programs for the retired (Medicare) and the unemployed (Medicaid). The failure of this model motivates us to organize this conference.


Origins and evolution. National health insurance—in Germany and in other European countries—began with voluntary mutual aid funds and evolved over several centuries. Craftsmen contributed to pools to provide disability benefits and survivor benefits. Some industrial workers, with leadership from their employers, contributed to similar funds. Governments during the nineteenth and twentieth centuries strengthened these arrangements by requiring entire classes to join, converting the voluntary premiums into payroll taxes, and specifying cash and service benefits. Comprehensive social security systems were created, with separate regimes for old-age pensions, disability benefits, health care services, and unemployment payments. German provincial and national governments were the first to make the previously private and voluntary systems official, and Germany became the model for all other developed countries.

Germany’s public-private mix has evolved over many years. Reforms, expansion, and other changes are determined by the outcomes of elections and by negotiations among politicians and private interest groups. Germany is an outstanding illustration that no democracy can direct its health services and financing by governmental dictation and by “centralization”. Rather, Germany operates by negotiations among public corporations, private associations, and political parties. When these players agree or when enough of them form a majority, the national and provincial parliaments enact guidelines, levy taxes, and designate benefits.

Coverage. At present, all blue-collar workers, most white-collar workers, most salaried employees, and farmers must participate by law of the national Parliament. They and their employers must pay payroll taxes earmarked for the eligible person’s “sickness fund”. Coverage for benefits extends to all members of the person’s family. About 79 per cent of the German population is covered. The self-employed, the white-collar workers over a certain income threshold, and the salaried employees over that income threshold have discretion: they can buy into the social insurance funds voluntarily, subscribe to private health insurance, or self-insure. This income threshold is set by the national Parliament and rises most years; in 2000 it is monthly income of 6450 DM in West Germany and 5325 DM in the East.

The elderly, disabled, and unemployed are fully covered. They remain in their previous occupation-defined sickness fund or join the general fund for the locality. Premiums are deducted from their pension or benefit checks.

Social insurance carriers. The long-standing sickness funds (Krankenkassen) enroll subscribers, receive premiums from the subscribers and their employers, administer the money, participate in decisions about relations with health providers, and pay providers. The carriers cannot earn profits, cannot refuse eligible applicants even if bad health risks, cannot charge extra premiums from applicants in bad health, cannot advertise or pay salesmen, and must contribute to equalization funds. Networks of funds exist for workers and their families in particular occupations, viz., factory and workshop groups of employees (Betriebskrankenkassen), self-employed craftsmen and their employees (Innungskrankenkassen), self-employed farmers and their workers (Landwirtschaftliche Krankenkassen), and several smaller ones. For those persons not in these categories—and particularly for retired and unemployed persons—every city has a general fund (Ortskrankenkassen). For managers, better-paid white collar workers, and self-employed not in the aforementioned funds, there are “substitute funds” which one can join voluntarily instead of remaining in the aforementioned occupational or general funds (Ersatzkassen).

The German government and public life are federal and regional, particularly in health and in social insurance: the national Parliament enacts framework laws and taxation; the sixteen provincial governments administer them. Within each province (Land), each of the occupational and general sickness funds forms an association to unify their practices, lobby the provincial government, negotiate with providers, and equalize their resources. The provincial associations of sickness funds join in national associations that monitor the national government’s policies and participate in important financial and legal decisions.

The trend is toward larger enrollments in the Ortskrankenkassen and Ersatzkassen and smaller memberships in the traditional occupational funds. Betriebskrankenkassen have diminished in number for many reasons: smokestack industries have disappeared or have been reorganized; new factory managements and their labor unions do not want the burdens of administering health insurance; small workplace funds cannot pool risks and revenue in stable ways. The Ortskrankenkassen and Ersatzkassen in each locality compete for subscribers, particularly for the healthier and low-cost risks.

The numbers of sickness funds and their shares of total coverage in 1999-2000 are:

Type of fund Number of sickness funds Distribution of subscribers
Ortskrankenkasse 17 42.2 %
Betriebskrankenkasse 337 12.6
Innungskrankenkasse 32 6.7
Landwirtschaftliche Krankenkasse 20 1.7
Bundesknapfschaft (for miners) 1 2.1
Ersatzkasse 12 34.7
419 100.0 %

Total number of subscribers, including dependents: 72,567,000

The sickness funds are public corporations, governed by boards drawn from the employees and employers who pay the premiums. Each is autonomous, but much uniformity is established by statutes, administrative regulations, and court decisions from the national and provincial governments. The health costs of enrollees, payroll tax revenue, and budgets vary among individual sickness funds.

During the 1980’s and 1990’s, some policymakers contended that the long-established sickness funds were becoming too hidebound and not sufficiently sensitive to the wishes of the public. A new law gave subscribers greater choice in enrolling among carriers, in the hope that competition would make the funds more efficient, more enterprising, and more innovative in offering new benefits.

Private insurance companies. The only Germans who have always had complete freedom of choice are the salaried employees and managers with high earnings, the self-employed with high incomes, and the higher ranks of the civil service. They may choose among voluntary enrollment in the ordinary sickness funds, voluntary enrollment in the Ersatzkassen, self-insurance, or buying a policy from a private insurance company.

While the benefits of sickness funds are generous and nearly standardized, the private companies can market varied policies with extensive or limited benefits, for higher or lower premiums. During the 198O’s and 1990’s, the companies gained subscribers because the civil service grew and because young and healthy salaried employees were attracted by cheap policies with benefits limited to large bills.

Staying voluntarily with the Ersatzkassen and social sickness funds can be advantageous. They charge high percentage-of-earnings payroll taxes, but they offer full family coverage with complete benefits. Since the family must buy a separate private policy for each member, the total can be substantial—particularly if it wants the complete coverage comparable to that of the statutory system.

The private companies charge lifelong level premiums, set at the age of initial enrollment. A company quotes a unique premium for each applicant, underwritten by age, sex, occupation and personal characteristics. A new middle-aged or elderly applicant would start with a higher premium and is better off in the long run if he stays in his social insurance carrier.

Under German law, the private health insurance company must keep accounts separate from other lines. Some are affiliated with multiline firms. All companies sell supplementary health insurance policies covering private hospital beds, private specialist fees, and other extra benefits, as well as selling full coverage to those free to choose the private market. The companies compete for business with each other and with the Ersatzkassen.

Forty-one private carriers sold health insurance in Germany in 1999, divided as follows:

Type Number Percentage of premium income
Mutual insurance company 25 48 %
Stock corporation 15 50
Public corporation 1 2
41 100 %

Because the Ersatzkassen are so attractive, only 9 per cent of the population buys complete coverage from the private insurance companies. Only 150,000—0.2 per cent of the population—self-insures.

Hospitals have existed in Germany for centuries. As in other European countries, they originated as charitable programs of churches and religious associations. When surgery and obstetrics became safer and more successful in organized settings, some physicians set up small hospitals (“private clinics”) for the middle classes. As acute home care became inefficient for modern medicine, municipal and county governments created hospitals or took over and modernized religious establishments. The higher medical education of provincial governments required facilities, and the provincial universities developed large teaching hospitals. Under the East German Republic after World War II, many private nonprofit and for-profit hospitals were nationalized and remain governmental today.

In 1998, the German acute hospital sector is mixed:

Owner Share of beds
Governments 55.3 %
Charitable associations 37.9
Doctors 6.8
(Number of beds = 553,770) 100.0 %

It is the provincial governments—and not the national government—that license, regulate, and monitor the hospitals.

As in most of Europe, the medical staffs of the governmental and private nonprofit hospitals are “closed”. Senior specialists are full-time or nearly full-time salaried, assisted by junior salaried staff who (in teaching hospitals) are studying to receive specialty credentials. Office doctors who treat patients in the community do not treat them as inpatients, and they regain control after the patients are discharged. In the past, hospital staffs never treated Krankenkassen members except as inpatients, but ambulatory clinics have recently been opened, to enable the hospital staffs to see the inpatients just before and just after hospitalization. (The purposes are to reduce the costs from duplicating pre-hospitalization laboratory tests and to discourage excessive length of stay). Teaching hospitals have ambulatory clinics and private offices, where senior specialists can treat privately insured and self-paying patients. The medical staffs of their own private hospitals can treat patients before, during, and after inpatient hospitalization.

Each sickness fund pays each hospital for the care of its members. The goal of the reimbursement system is to provide every hospital with complete operating costs from all the sickness funds to cover each hospital’s needs, without surpluses or deficits. The private clinics owned by doctors are financed the same way; the owners’ profits are earned from the fees they collect for the care they render as physicians. Every German hospital fills out a line-item form every year listing its operating costs last year, its operating costs so far this year, the budget it requests for next year, and utilization statistics.

Negotiations then take place between:

  • Joint committee of sickness funds in the hospital’s locality. Backed up with statistics about the operating costs and personnel of similar hospitals throughout the province and throughout the country. Supplied by the statistical staffs of the provincial and national headquarters of the associations.
  • The individual hospital. Assisted by representatives of the provincial hospital association. Backed up by statistics from the provincial and national hospital associations.

During the negotiations, the sickness funds challenge some lines in the hospital’s prospective budget as excessive. Until recently, the two sides then settled on a per diem rate pflegesatz) for the next year: expected total budget divided by the expected number of patient days equals the pflegesatz for that hospital. Deadlocks were arbitrated privately to settle on a prospective budget and a per diem binding on both the sickness funds and the hospital. The carriers would not pay more. The hospital could not extra-bill the patients. The traditional per diem rate was long criticized throughout Europe as a perverse incentive to avoid difficult expensive patients and to extend length of stay unnecessarily during convalescence. (Germany long had an unusually long average length of stay).

The reimbursement system—whether based on per diems or more recent methods—has always been an “all-payer” system. All sickness funds and the Ersatzkassen pay according to identical principles. The advantages are simplicity, predictability, and harmony, in contrast to the cost-shifting, secretiveness, and recriminations of American hospital finance. Every hospital has a unique budget and (in the past) a unique per diem rate. Capital grants to hospitals come from provincial governments, which vary in their priorities and policies.

Once German hospitals were inexpensive, largely because their nursing staffs were small, overworked, and underpaid, particularly in the religious hospitals. Costs rose rapidly during the 1970’s, as more nurses were hired, the nurses received normal marketplace wages, and hospitals became technically advanced. Then followed a thirty-year struggle to limit hospitals costs and protect the finances of national health insurance. Every step required legislation from the national and provincial Parliaments, the interest groups (associations of hospitals, doctors, sickness funds, businessmen, labor, etc.) struggled, the political parties disagreed, the provincial governments disagreed, and the eventual results were delayed and weakened by compromises and loopholes.

At first, it was assumed that the sickness funds would drive hard bargains with the hospitals in order to avoid deficits and avoid increases in the payroll taxes, but these expectations were disappointed. Next, guidelines about affordable annual increases in all hospital budgets were set by a standing conference of providers and payers, sponsored by the national government (the Konzertierte Aktion im Gesundheitswesen), but aggregate hospital spending increased anyway. Next, the discretion of grass-roots negotiators was superseded by a national law fixing each hospital’s prospective budget at the same level as the previous year’s plus only the expected rate of increase in the total revenue of the national health insurance system. But the law had so many exceptions, many hospitals could claim special needs, and local implementation depended on the provincial politicians, so that hospital spending (and bills sent to sickness funds) grew excessively. Finally, at the time of writing, the national Parliament has imposed an entirely new approach to hospital finance: contracts between the individual hospitals and sickness funds will no longer guarantee full coverage of the hospital’s prospective budget; for each patient, the carrier will pay a comprehensive diagnosis-related-group price (of the American or Australian type) depending on the patient’s illness; the hospital’s specialists supposedly will be motivated to seek appropriate patients and will reduce the hospital’s own costs.

Germany has always been a path-breaker in technology, invented by free individuals. Much of the apparently uncontrollable spending in the hospital and physician sectors has been due to the introduction and spread of new methods. Policymakers have now begun to search for ways to evaluate the adoption of new technology and to plan its spread, a completely new approach for Germany.

Doctors have existed in Germany for centuries. During the nineteenth and early twentieth centuries, many were employees of a sickness fund, worked in their own private offices or in that carrier’s ambulatory clinic, and treated that carrier’s subscribers. (The arrangement was the inspiration for America’s HMO’s). After many years of conflict among sickness funds, their panel doctors, and other office doctors excluded from the panels, the current system was finally devised.

A large proportion of a province’s office doctors belong to an association whose members treat all the sickness funds’ patients. (It is called a Kassenärztliche Vereinigung or KV). There is one in each province. It is governed by its members. The sixteen KV’s join in a national association with headquarters in Cologne. (It is called the Kassenärztliche Bundesvereinigung or KBV).

Physicians’ reimbursement is negotiated in Germany and in every other developed country—but not in the United States alone. In Germany, the negotiations take place between a joint bargaining committee of the sickness funds and the association representing the office doctors in social insurance practice:

  • Rules of practice. Between all the national associations of sickness funds and the KBV. A long-running contract, not a law. Also done in the rest of Europe, but not in the United States.
  • Fee schedule, an itemized list of relative values. Between all the national associations of sickness funds and the KBV. A long-term document, constantly updated by a standing joint committee. Standard method throughout Europe, but not in the United States.
  • Financial amount that translates the fee schedule’s relative values into prices. Bilateral negotiations conducted every year in each province between the provincial associations of sickness funds and the KV. Something like this is standard throughout European health insurance, but not in the United States.
  • Expenditure cap (Kopfpauschale). Sickness funds together grant a lump sum every year to the KV. Doctors bill the KV—not the sickness funds—according to the fee schedule. If utilization exceeds predictions and the money is in danger of running out, the KV prorates the fees downward during the final quarter. No other country with health insurance uses an expenditure cap and degressive fees in paying doctors, but some Canadian provinces enforce their global budgets in a similar manner.
  • The KV staff monitors the bills. If any doctor submits fraudulent or an excessive number of bills, the KV staff can investigate, rebuke him, refuse full payment, and even suspend him from participation in the KV.
  • All-payer system. Doctors earn the standard fees for treating all patients from the sickness funds. Standard throughout Europe, but not in the United States. Some Ersatzkassen try to offer higher fees in orders to buy preferential care for their subscribers—an important attraction for membership.

Salaries of hospital doctors are part of the hospital operating costs, paid by the sickness funds’ per diems or global budgets. Associations and trade unions representing hospital doctors and civil servants negotiate salary scales, not with the sickness funds but with the governments and nonprofit associations that own the hospitals. Each chief of service negotiates a personal contract with each hospital; it contains special concessions to him.

The costs of German ambulatory care once appeared reasonable but increased substantially during the 1980’s and 1990’s. The numbers of doctors increased and the universities resisted limiting the enrollments in medical schools (a numerus clausus). Germany’s aging population visited their primary care doctors very often, and the system did not deter them through copayments. Recent reforms authorize the Konzertierte Aktion to recommend expenditure targets for ambulatory services, and the sickness funds are expected to increase the Kopfpauschale only by the annual increase in their own collective revenue, but these financial rules apply to fees and do not cover utilization. Because of the financial crisis of the late 1980’s and 1990’s, the national government intervened to control volume. Doctors are licensed to practice in localities and, if limits are reached, new doctors will not be authorized to practice there. The KV’s will not add new members as easily as they could in the past.

Pharmaceutical drugs. Utilization, prices, and costs have exploded in all countries, including Germany, the home of some of the principal manufacturers. While some countries have tried to protect the health insurance accounts and consumers by regulating drug prices directly, Germany never did until recently. The drug industry contributed too much to the German economy, has subsidized several political parties, and has always successfully resisted direct controls. Policymakers have long deadlocked over remedies and merely enacted forms of advice and information, to persuade doctors to prescribe less wastefully. The traditional German method of making decisions and controlling costs consists of face-to-face negotiations between providers and payers with only framework laws by government, but the multinational drug industry has never been collectively organized to play such roles.

Germany’s economic crisis during the 1990’s required something new. The first method was to discourage expensive and wasteful prescribing by imposing cost-sharing on the patients—a device common in other countries but unprecedented in Germany. Several competing drugs for a diagnosis are ranked by price, the cheapest becomes a “reference price”, the sickness funds pay the pharmacists only the reference price, and the patient must pay the balance out-of-pocket if the doctor prescribed and the pharmacist filled a more expensive item. However, to attract subscribers, commercial insurance companies and the Ersatzkassen offer to cover more than the reference prices.

The next reform targeted the prescribing doctors directly. The office doctors belonging to the KV’s were given collective incentives to prescribe conservatively and collective losses if they prescribed wastefully. Part of the Kopfpauschale paid to each KV by the sickness funds was earmarked for pharmaceutical drug costs: if the total is not used, it reverts to the pool for doctors’ fees; if this total is exceeded, doctors’ fees for writing prescriptions are degressed collectively or are reduced selectively for the oversubscribing doctors.

The political climate. During the late nineteenth and early twentieth centuries, trade unions and the political parties of the Left grew in Germany and in all other countries. Social protection of the working class was a principal aim. During the decades after the war, national health insurance in Germany and elsewhere expanded in coverage and in benefits, services improved, and funding was generous. The principal German political parties (SPD, CDU/CSU)—while competitors in national and provincial elections—supported the system, since it was popular with their voters and supported the hospital industry. The third political party representing the business class (FDP), complained about the tax burden on enterprises and preferred expansion of private health insurance, but it was never more than the junior partner in coalition governments. During the postwar “economic miracle”, West Germany seemed a model of how the world could combine prosperity and social protection.

In Germany and much of Europe, the economy stagnated during the 1970’s. Markets were lost to American and Japanese firms, with their lower prices and lower labor costs. Inflation and unemployment rose throughout Germany and Europe. The criticisms of businessmen and the conservative parties seemed more plausible: German labor costs were too high, due largely to high social security taxes, uncontrolled health care costs, and worker absenteeism. If social taxes on business could be reduced and public deficits controlled—in both the social funds and the general government—enterprises could sell more in world markets and unemployment could be reduced. Then followed decades of struggle to limit health insurance costs and reduce taxes, made difficult because of the negotiations and deadlocks described on previous pages.

During the 1990’s, the German political system—depending so much on consensus and stability—experienced an economic shock. Unemployment and export problems were still not diminishing. West Germany annexed East Germany and incurred large unexpected costs and a large budget deficit. Meanwhile, the unification of the European Union’s budgets and currencies was imposing the opposite imperatives. The Maastricht Treaty on European Union–inspired largely by conservative German economic strategists–required the rapid reduction of deficits by all member governments and counted social insurance (heretofore off-budget) as part of the public budgets. The German national government then uncharacteristically took the initiative and introduced the several structural and cost-control reforms described on previous pages.


Origins and evolution. As in Germany and the rest of Europe, craftsmen and workers had many mutual aid funds. They provided cash benefits during unemployment, illness, and retirement. Some maintained health centers and employed doctors, but most reimbursed subscribers after visits by independent physicians. During the political compromises permitting enactment of national health insurance (assurance maladie) in 1928, the mutual aid funds were retained as carriers.But they were too small and poorly managed to be efficient. A war aim of the Resistance was creation of expanded and efficient social security in all forms.

When statutory health insurance is designed and enacted in all countries, a common problem is the resistance of the medical profession. Doctors perceive themselves as autonomous professionals and scientific specialists; they protest at any hint that they might be subject to scrutiny and control by lay bureaucrats and politicians in government.In particular, the doctors of France have been individualist and secretive. A struggle between the health insurance system and the medical profession has been constant throughout the history of French national health insurance.

Coverage. Since the comprehensive legislation of the postwar government in 1945, nearly the entire population has been covered, is obligated to join a sickness fund, and is obliged to pay percentage-of-earning payroll taxes. In Germany and Holland, the managers and self-employed have been able to remain outside in the private sector. But the French mood after the wartime trauma was social solidarity and universal participation. The compromise in France was creation of special regimes for the self-employed and farmers, with their own rules about taxes and benefits. The best-paid managers have always been covered, once paying taxes on only part of their salaries but now (to yield revenue) paying the standard rates on their total salaries.

The elderly, disabled, and unemployed remain with full coverage and normal benefits. Premiums are deducted from their checks.

Social insurance carriers. The postwar government planned a simple set of funds that would administer all benefits — pension, health, family allowances, accidents, and disability — for all occupations. But, while everyone acceded to the policy of universal social security, important groups feared losing benefits to the mass membership.For example, civil servants, miners, railwaymen, and some others had had pension and health care protection before the war and feared reductions in general pooling. The self-employed – in accordance with their philosophy of personal savings, personal decision-making, secrecy, and tax evasion—had many special funds and commercial insurance contracts and wished to preserve individual choice. The self-employed feared having to pay both the employer and employee rates of payroll taxes, and feared losing the money to support the working class. The advocates of generous family allowances – in place since the 1920’s – wished to protect their revenue and distribution.

The political compromises produced a governmentally enacted and administered arrangement with a complex structure. A general regime covers all employees, while separate regimes apply to the self-employed, farmers and farm workers, railroad managers and workers, miners, and several others. Pensions, health insurance, and family allowances are supported by different payroll tax rates and are administered separately.

The general regime includes hundreds of local offices (caisses d’assurance maladie) throughout the country. They enroll members, receive the money from the special social security tax machinery, pay the hospitals for members’ stays, reimburse the members who have paid doctors, monitor providers in the locality, and represent the members in case of disputes. These are public corporations governed by boards. Once the members of the boards were elected by the subscribers – as they were in the mutual aid funds in the past – but the Left political parties and the trade unions won most of the elections, to the displeasure of the employers who paid most of the revenue. During the general reforms by the conservative governments of the 1960’s, direct appointment of representatives of the trade unions and employers replaced the elections, and the boards lost power to the fund managers. (Recent Socialist governments have restored limited elections).

The reforms added a headquarters for the general regime (CNAMTS) and regional offices that oversee the local caisses. CNAMTS must follow laws of Parliament and regulations by the Ministry of Social Affairs, but the governing board and managers of CNAMTS have considerable discretion in implementation and in recommending reforms. Because of their large budget and nationwide reach, the managers of CNAMTS have much influence in French social affairs.

The other regimes are dominated by their particular interest groups. If they had their own mutual aid funds before the full governmentalization of health insurance during the 1940’s, these funds become their own official carriers.

Many concessions were made to the defiant self-employed. They have their own sickness funds.Their percentage-of-income taxes have a rate structure stratefied by income levels, stopping at a maximum, and based on their own income declarations. Their benefit structure includes significant cost-sharing, so their rates can remain low. Surpluses in their accounts cannot be transferred to help the other regimes.

Despite the structural differences, all the regimes belong to a single social security system supported by taxes. Funds with surpluses transfer money to funds with lower-income subscribers, sicker subscribers, and deficits. In particular, money has long been taken from the family allowance funds.The separate pension funds make special payments to CNAMTS to cover certain long-term care programs for the elderly.

Private insurance: the mutuelles.  The mutual aid funds that were official carriers before World War II have survived by filling new niches.  About 3000 exist today, enlisting about four-fifths of the French population.Any group of workers in a workplace can create its own mutuelle or join a large established one.  In return for a small premium, the member obtains:

  • Payment of all patient cost-sharing. France has more cost-sharing than any other national health insurance system. The sickness funds reimburse the ambulatory patient less than the doctor’s charges. Hospitalization requires a charge.
  • Administration of bills. The patient sends his doctor’s bill to the mutuelle who pays the doctor— if the latter has not required immediate cash from the patient, The mutuelle sends the bill to the member’s sickness fund, collecting the official reimbursement; if the patient has already paid the doctor, the mutuelle passes the full amount of the bill to the patient, thereby absorbing the cost-sharing.
  • Services for subscribers. Many mutuelles maintain pharmacies and dental clinics for their members. Some maintain health centers, hospitals, and psychiatric programs with salaried physicians—the last European vestige of the closed panels that disappeared under national health insurance but have survived across the Atlantic in the American HMO.
  • Long-term care in the community.
  • Ideological inspiration. Some remain rallying centers for the Socialist Party.

Private insurance companies. France has a very large private insurance industry. One hundred companies specialize in life insurance and also offer coverage in work accidents, auto accidents, and short-term disability.  Many are affiliated with insurers of property damage.

The life insurance companies offer health insurance; full coverage as the carriers for the self-employed and farm proprietors under national health insurance; supplementary coverage for other employees belonging to CNAMTS and other sickness funds.

Unlike the mutuelle’s coverage of exact statutory cost sharing in their supplementary market, the private companies’ supplementary policies provide cash upon hospitalization or upon physicians’ visits – the amount of cash depends on the premiums of the policy bought.Such sliding scales are common in all private insurance markets. The French patient may use the money to cover the official cost sharing, buy extra amenities and private rooms during hospitalization, or cover the extra-billing allowed for some doctors.

The insurance carriers are diverse: six are nationalized companies legally owned by the French national government; fifty-eight are for-profit stock companies; and sixteen are mutual insurance companies.  The nationalized companies are very large and sell half of the country’s life insurance.  Two-thirds of the insurance companies’ life and related business is sold under group contracts between employers and carriers.  Instead of organizing a special mutuelle to administer supplementary health insurance separately, the employer and employees are content to let their life insurance carrier cover the supplementary health benefits as well.While a mutuelle usually offers full benefits at standard premiums, the private insurance companies offer policies with various combinations of coverage and premiums.  Employers with healthy young white-collar workers and managers increasingly have contracts with the insurance companies, since the employees can opt for limited benefits and lower premiums.

Public hospitals. As in most of Europe, French hospitals were long owned and managed by the Catholic Church and staffed by nuns. The French Revolution secularized the Church’s property, and its hospitals are now owned and managed by municipalities.  France has the most highly organized and planned hospital system of any country, simplified by the fact that (unlike Germany) it has a unitary and not a federal government. In much of the country, hospitals are organized into triads – one for acute care, one for long-term care, and often an old-age home – and the elected mayor of the municipality and his colleagues constitute the governing board.The public hospitals must operate in financial and clinical affairs pursuant to the laws of Parliament and the regulations of the national Ministry of Health. The Ministry has representatives in the 22 regions and 96 departments of the country, and these representatives monitor the hospitals as well as all other health and social services. Many acute-care hospitals are affiliated with medical schools and are technically advanced.

France, like other European countries, has a closed-staff medical structure in the public hospitals.  Doctors train as specialists and compete for staff appointments, often moving up in the hierarchy and around the country. Once hospital doctors served part-time at low pay, earning their living from private office practice in town, but the trend has been toward full-time well-paid salaried appointments, particularly in communities with enough office doctors.  The nurses now are secular, with normal working hours and pay. Hospital administration is a respected career, and the managers and finance officers are educated in elite schools managed by the Ministry of Health.

For many years, the public hospitals had low operating costs covered by the municipalities, the underfinanced mutual aid funds, and patient out-of-pockets. The hospitals in France – as in other countries—welcomed the modernization of national health insurance after World War II, in order to cover their costs. Now the entire operating costs are covered by national health insurance, without profits or losses. For many years, the sickness founds paid per diem rates for their subscribers in hospital.  But the national government had long suspected that the per diem induced hospitals to keep patients too long; a professional perverse incentive also existed, because of the specialists’ reluctance to discharge the patient back to the primary care office doctor. During the 1980’s, France enacted “global budgeting” for all public hospitals and for a few nonprofit charitable organizations that were “assimilated into the public service”.

In Germany, the hospital and the local sickness funds once negotiated the rates with no governmental role, but this is very unusual. French government regulation is more typical. Each year, the hospital fills out a line-item report describing its past and current services and costs, and it requests a total budget for next year. The local representative of the Ministry of Health screens the prospective budget in the light of the hospitals’ service mix; the regulator can inspect the hospitals’ books and inspect the establishment. The sickness funds receive a copy of the cost report and prospective budget, they can send advice to the regulator, but they do not participate overtly in the decisions.  The regulator once divided the approve prospective budget by the expected number of patients-days, yielding a per diem paid by every local sickness fund for every inpatient, regardless of diagnosis and severity. But now the regulator simply grants a “global budget” for the next year. Every hospital has its own unique budget. The local sickness funds simply send lump sums to the hospitals every month, proportional to their shares of the patient numbers that they cover.

The regulators screen the prospective budgets carefully, since they assume that all hospitals exaggerate their needs and clinical plans and overstaff wastefully. National and regional data show the regulators the finances and staffing of each type of hospital.  Increasingly the Ministries in Paris send strict expenditure targets, so national health insurance can operate within the yield of the payroll taxes, and so that the national government’s budget will not run excessive deficits.

The replacements of the per diem by global budgeting was intended to discourage long stays and discourage the avoidance of expensive admissions, and the new method seems to have succeeded.  Long-term patients are no longer kept in the acute beds but are transferred to the associated long-term care hospitals or are treated in home care.

Private hospitals.  France has 1032 hospitals owned by the government, 912 private nonprofit establishments, and 1227 private for-profit.  Most of the private nonprofit establishments are owned and managed by religious associations.  In finance, they resemble the public hospitals: they submit the standard forms to the local regulator, are assigned a global budget, and bill patients’ local sickness funds for monthly installments.  The for-profit establishments (“private clinics”) are owned by doctors. While they are numerous, the private hospitals are small; two-thirds of all beds are in the public hospitals.

Because of the private clinics, France has a dual system of hospital finance. Patients are free to go to either the public hospitals or to private clinics; the social security laws have always guaranteed patients free choice of doctors and of hospital. They opt for the private clinics because they have sought care from the doctors who own these establishments, which seem more advanced technically than the offices of typical community office doctors.  The self-employed and privately-insured like the environments of private clinics.  The private clinics are regulated for safety but have much discretion in running their affairs.  Their pay rates are itemized: per diems for basic housing, nursing, and administration; itemized charges for tests, materials, and treatments.They do not submit cost reports and prospective budgets to government regulators but negotiate their rates with the regional offices of CNAMTS. Although the laws about private enterprise guarantee the private clinics against nationalization and against forced bankruptcy, they are not insulated from the viewpoint of the government-of-the-day: the pro-business Right sympathizes with the clinics’ owners and clienteles; the Left opposes the participation of for-profit business in social security; the technocratic Center fears deficits and financial disorder.

Before the annual rate negotiations between the regional offices of the sickness funds and the private clinics, the civil servants in the national Ministries of Finance, Social Affairs, and Health write guidelines concerning allowable costs and the annual increases in rates. The private clinics submit general reports about their recent work and their case for rate increases. They are not obligated to report their full financial and clinical operations or their complete internal accounts. After years of confrontations, the regional offices of the sickness funds have screened out clinic operating costs which the doctors have been covering from their fees.  (The sickness funds do not want to pay the same operating costs twice). The annual rate awards depend on the fiscal capacity of the social security system and the attitude of the government-of-the-day.The sickness funds are not obligated to ensure that the private clinics break even.

For each hospitalization, the private clinic must send out several bills: to the patient’s sickness fund for his/her inpatient hospital costs and physician fees;  to the patient’s mutuelle or private insurer for the cost-sharing on hospitalization and doctors’ fees.

The private hospitals have declined in number and in size because of fewer referrals.  Once the specialists who were part-time in public hospitals were also part-time in office practice and referred patients to their private clinics, where they could continue to treat and bill for inpatient care.  Now the public hospitals have been modernized, many specialists are full-time there, many are allowed to have private offices and private practices on site, and they hospitalize their patients in the public hospitals.

Doctors have been individualistic and secretive in France for centuries.They have consistently resisted any invasion by government and even by their own profession into the sacred doctor-patient relationship. Medical associations – even for professional and clinical affairs – have been few in number and low in membership.

When national health insurance was proposed in France during the 1920’s, French doctors pointed at the turmoil between the panel doctors and the sickness funds in Germany.  But the population needed coverage of its physician bills and the doctors needed revenue. After several years of controversy, a cash benefits system was enacted, the only one in any country with national health insurance. The patient pays the doctor after care, once at whatever price the doctor charged. The doctor gives the patient an invoice reporting the payment, so the patient can be reimbursed by his/her sickness fund, but the document does not tell the precise treatment, thereby preserving from laymen’s gaze the secret clinical transaction between doctor and patient.  The patient then sends the invoice to his/her caisse and mutuelle for reimbursement.

Controversy and deadlocks have constantly surrounded the payment of doctors in France. For several years after World War II, the patients complained that they were not getting adequate return for their payroll taxes: doctors’ fees were rising faster than the sickness funds’ reimbursement.The DeGaulle government in 1958 was determined to impose stability and cost containment on physicians’ services. Its reforms had to be enacted by decree over the protests and a general strike by the office doctors. The system has been tightened occasionally since, accompanied always by noisy protests and occasionally by administrative strikes by the doctors.

Relations between the national health insurance system and the doctors are negotiated and are not dictated unilaterally by the national government, as they are for public hospital affairs and pharmaceutical drugs. In order to monitor and influence the government and the sickness funds, the office doctors organized a special set of syndicates focussing on financial, occupational, and legislative matters (the Confédération des Syndicats Médicaux Français).  In theory, the Confédération negotiates not with the national government but with the sickness funds which are autonomous public corporations (i.e., CNAMTS et al). But the Ministries of Social Affairs and Finance are éminences grises, instructing the sickness funds about the financial limits that social security can afford. While the payer side is unified because of the dominating size of CNAMTS and the government’s guidelines, the physician side – unified in other countries—is split.  The Confédération is beset by two breakaway federations, one opposed to accommodations with the social security, the other more willing to make agreements in the public interest.  At times, the payers have divided and conquered.

The payers and the three (or sometimes fewer) medical syndicates negotiate contracts running for several years, which specify the relations among the sickness funds, patients, and doctors.  The negotiations yield a schedule of relative values (Nomenclature) that runs for many years and is updated by the medical syndicates. (Similar committees update such fee schedules for other community practitioners paid fees by the sickness funds, such as dentists and midwives).Legally the fee schedule still does not specify direct payment of doctors by the sickness funds, as it would in all other countries, but it governs the carriers’ reimbursement of the patients.  Every year, France witnesses a noisy struggle between the sickness funds and the medical syndicates over the financial values (the “conversion factor”) of the Nomenclature.

In order to protect the subscriber from overcharging, recent government regulations have required doctors to exceed the fee schedule by only limited amounts, a form of price control that the medical profession had always feared.Since French national health insurance has been universal – including the rich – special exceptions have been added for the types of doctors who can practice and bill privately in countries with large private insurance sectors, such as Germany and Holland.  The most eminent and expensive specialists are screened and added to a special list that can extra-bill patients; another group of doctors on a special list may extra-bill if their patients truly agree; a few doctors can refuse to participate in the system at all, but their patients are discouraged from visiting by lower reimbursement of the invoices.When first announced and implemented against the bulk of the medical profession, the price-control reform touched off noisier-than-normal protests by the doctors.  However, they were eventually consoled by discovering that their incomes rose anyway: France’s aging population visits doctors more often then ever before, utilization has never been controlled, and technological progress enables doctors to bill for more remunerative procedures.

A lesson from the French experience is the need to take a long view.At first, doctors protest against national health insurance—in France more vocally than elsewhere.  Reforms are gradually added, each touching off new complaints.The politicians compromise, often making an initially simple system far more complicated.  Eventually a new generation of doctors earns its living under the reformed system, and they take it for granted.  They can perform their clinical work freely to everyone’s acclaim.They remain among the best-paid occupations in the country. If anyone looks back, one realizes that the profession and the population were worse off then.

Pharmaceutical drugs.  The French government controlled prices on many products after World War II and gradually freed them. It has retained price control over drugs, to protect the population from profiteering, since the French have always had one of the highest rates of such consumption.  The Ministry of Health maintains a formulary of drugs that may be sold and a shorter list of those that may be prescribed by doctors and reimbursed by the sickness funds. The Ministry consults the manufacturers before adding new drugs to the formulary and before recommending prices.  The pharmaceutical companies have operated within this arrangement for half a century and have never had the political influence to sell more freely, as they have had in Germany and the United States.  The government believes the drug industry profits enough because of high utilization within France and because of sales in less regulated countries.

The office doctor prescribes the drug – often several upon each visit – the patient takes the papers to a pharmacy, he/she pays the pharmacy, and he/she is reimbursed by the sickness fund less considerable cost-sharing.  The patients can save money by filling the prescriptions at the pharmacies operated by their mutuelles.

The political climate.  In France, as in other countries, national health insurance and the rest of social security were originally pushed by the political parties of the Left and by the trade unions.  They were opposed by the political parties of the Right and by the middle and upper classes. Since World War II, France has been inspired by an ideology of patriotism, social solidarity, and social order. The nationalists and technocrats who briefly governed postwar France improved the organization and financing of national health insurance. The deterioration and controversies of health insurance during the subsequent Fourth Republic discredited the traditional parties and politicians who had come back, and the nationalists and technocrats regained office under Charles DeGaulle after 1958. Organization and financing were improved by decree; obstructionists (particularly the medical profession) were overruled and forced to compromise.

Ever since, national health insurance has satisfied the population and has been supported by all political parties.  Privatization or cutbacks have been pushed by some political parties and groups in other countries, but never in France.  Nuances are introduced by French governments-of-the-day to please their constituencies: more generous benefits and limits upon doctors and private hospitals by Socialist Cabinets; concessions to doctors, private hospitals, and the insurance regimes for the self-employed and farmers when the Conservatives hold office.But the system remains sacrosanct.

Cost containment is a recurring theme.  Once a year, official reports touch off a national frenzy about the excessive spending for national health insurance.  Controls may be tightened and patient cost-sharing may be increased, but benefits are never cut back.  The entire social security system must operate within the budgetary limits of the Maastricht Treaty of the European Union.


Origins and evolution. As in the rest of Europe, English industrial and urban workers had mutual aid funds (“friendly societies”) during the nineteenth century. Some hospitals had prepaid “contributory schemes”, whose subscribers were guaranteed beds when needed. England has always differed from Europe (“the continent”), and these schemes were very modest. The workers had very low incomes, could afford only low premiums, and health providers could earn little. The trade unions and Labour Party provided only limited encouragement, and employers provided none, except for paying for contributory schemes for their household servants. Utilization was low and the population had poor health. Doctors and hospitals clustered in London, Liverpool, and Oxford, the sites of private patients.

At the turn of the century, Germany’s social security system attracted reformers throughout Europe, and a few countries (such as Belgium) enacted copies. The poor health of the English population needed improvement and the Liberal government in 1911 enacted a very limited program of National Health Insurance. It was merely the pre-existing private system with a few official improvements. Every manual worker was expected to join a friendly society. A premium was deducted from his/her wages, and the employer paid a premium too. The worker’s family was not required to join and received no benefits, unless they joined voluntarily and paid premiums. The benefits were primary ambulatory care, pharmaceutical drugs, cash benefits during sickness and disability, and maternity benefits. Specialty services and hospitalization were not covered. The weaknesses were pointed out and reformers recommended improvements, but little was done because of the severe Depression and the apathy of the ruling classes, who bought their care privately.

One of the national coalition government’s aims during World War II—to reward the working class that had saved the country—was improvement of health care and social protection generally. Major improvements were pledged in plans of the coalition government (the “Beveridge Report” and the White Paper “A National Health Service”) but the precise structure was not described. The White Paper merely implied that National Health Insurance would be improved.

If the Conservatives had won the election of 1945, England would have emulated the rest of Europe by retaining its private hospitals and private doctors, and by paying for them by an expanded and better financed National Health Insurance. But the Labour Party won office by a very large margin and argued that it had a mandate to transform the country. If National Health Insurance had survived, large parts of the country—where Labour’s constituency lived— would still have had only a few backward hospitals and few specialists. General practitioners would have continued to work in primitive offices, with inadequate capacity to diagnose and treat patients. Much of the population—particularly the prosperous classes that had voted against Labour—would have stayed out and contributed no payroll taxes. Hospitals would have continued to be a mixture: many owned by local governments, many by nonprofit associations, some owned by doctors. The hospital sector would have been financed by a mixture of government grants, cash payments by patients, and contributory schemes. The system would have remained underfunded and unplanned.

Therefore, the Labour Government nationalized health care along with several other enfeebled sectors in the economy. The entire population was covered by the new NHS. Hospitals became the property of the State. Institutional and physician services were to be financed from the general budget of the national government. Some health care remained private, such as long-term care of the elderly.

The National Health Service (NHS) has gone through several stages:

  • During the first years, services were spread throughout the country. Gradual increases in funding improved the hospitals and their technology. General practitioners, specialists, and dentists got more work than ever before. Centuries of neglect were now corrected: the many persons suffering from respiratory illnesses, ruptures, bad dentistry, and weak vision were treated.
  • The Service remained in place with remarkably little change for the next forty years. Labour and the pragmatic wing of the Conservative Party rotated in office and were responsible for administering and improving the NHS. To the population, the NHS was a great success, and politicians vied in protecting it. But there was constant grumbling that care was not improving beyond basic levels, that doctors and hospitals were not efficient and productive enough, that the interests of patients were subordinated to the dawdling of professionals and employees. Successive governments-of-the-day introduced frequent administrative changes and hoped for greater vitality.
  • Great Britain developed a generation of health policy scholars who questioned the clinical effectiveness of treatments and drugs, who doubted the quality and cost-effectiveness of many services, who discovered persisting social class differentials in utilization, and who searched for better ways to organize and motivate providers. They created a professional consensus against the status quo.
  • During the 1980’s and 1990’s, the British economy and psyche were revolutionized by a counter-revolution led by the libertarian wing of the Conservative Party. The Conservatives and health policy analysts searched for a new system of organization, incentives, and clinical performance in the NHS. The task has been to improve, not diminish the system.

Coverage and access. The entire population is entitled to services. They all contribute taxes in some fashion. Once all foreign residents and visitors were eligible too, but charges were enacted during the 1980’s in order to contain their costs and in order to discourage visitors with no motive other than free care.  All persons have the same benefits and rules. The method differs from national health insurance, where members of different regimes vary in payroll tax rates and benefits, and where some classes may remain completely uncovered.

Entry into the system follows standard procedures. Every person registers with a general practitioner. The GP gives primary care and writes prescriptions. If he thinks the patient needs technical diagnoses or advanced treatment, the general practitioner refers the patient to a specialist-consultant. The consultant controls a set of beds in the local hospital; if he wants to treat the patient more invasively, he places the patient in one of his beds. Under NHS coverage and financing, the patient cannot go directly to a consultant but can do so only in private practice.  After diagnostic tests or inpatient treatment, the consultant sends the patient back to the general practitioner.

The structure. Parliament passes laws originating and amending the NHS. It levies taxes for all operations of the national government and approves the expenditure budgets for all Ministries and programs, including the Ministry of Health. The Ministry of Health has several programs, of which the NHS is one. The Minister of Health and his Parliamentary Secretary report to the Parliament about the performance of the NHS and investigate complaints from the members of Parliament and their constituents.

Disciplined vertical bureaucracy has never been practiced by the British in the structures and operations of government and private business. The NHS throughout its early history was loosely associated with the Ministry of Health but not tightly controlled. It consisted of a number of activities delivering health services to the population, following guidelines from London via coordinating bodies, called at various times “Regional Health Authorities”, “District Health Authorities”, “Family Practice Committees”, etc. For a while, it was hoped that the NHS could operate on all levels through “management by consensus” by means of committees representing doctors, nurses, lay employees, and the public. There was continual controversy over efficiency, responsiveness to local communities, and the adequacy of services to the public. The ramshackle structure was repeatedly evaluated by national commissions, administrative innovations were introduced and superseded, greater centralization alternated with decentralization and local autonomy. The Thatcher Government of the 1980’s tried to transform NHS structure and management completely, including the creation of a centralized “NHS Management Executive” at the top, which would evaluate performance throughout, commission providers, reward efficiency, redirect resources, and so on.

Uniformity in the operations of the structure and in the delivery of services throughout the country has always been sought through the framework laws of Parliament, the regulations from the Ministry, the monitoring of the providers’ reports about their expenditures and performance, and the nationwide contracts between the Ministry of Health and its NHS executives on the one hand and the labor unions and professional associations representing providers and employees.

Planning of services to satisfy the population’s needs has been done by the Ministry and the Regional Health Authorities. Because the Parliament and the Ministry represent the entire nation, they have extended new facilities and personnel into regions that were seriously underserved under the earlier NHI and private system.

Just after World War II, Great Britain was an economic ruin—as it had been earlier. The Labour Government remedied several sectors of the economy by nationalizing their industries; only then could the sectors be better organized, better financed, and expanded. Health was only one of these newly nationalized sectors. In addition, the national government financed, built, and managed new housing throughout the country. Government controlled a larger share of the economy in Great Britain than in any other developed country. But this economy stagnated at times during the 1960’s and 1970’s, several industries could not survive against foreign competition and closed, the government paid the deficits of many nationalized firms, labor costs were rigid, and inflation was high.

The libertarian wing of the Conservative Party won office in 1979, determined to make Britain a more typical and more enterprising country, capable of holding its own in the European Union. Above all, it wanted to weaken the powerful trade unions who obstructed cost containment and better management in the nationalized industries, including the NHS. During the 1980’s, the new regime transformed Great Britain; several industries were privatized and became stockholder-owned corporations; tenants of public housing bought their homes; enraged labor unions struck and were defeated; local governments lost several of their functions (such as administration of the schools) and lost their power.

Prime Minister Margaret Thatcher and her strategic planners (particularly Keith Joseph) would have preferred to privatize the NHS. Even before gaining office, they searched for ways to turn the clock back to 1945 and create a typical well-financed national health insurance system. As in 1911-1913, their civil servants were dispatched to study European health care financing and management. But privatizing the NHS was not possible: no-one wanted to buy the NHS hospitals; health insurance carriers and the apparatus of payroll taxes could not be created quickly; in the short run, access might be reduced and costs increased; the Labour Opposition would gain a powerful political weapon, viz., the electorate’s fear that its successful and beloved health system was being destroyed. So, the Conservatives set forth on a decade-long search to introduce entrepreneurship into a governmental structure and into public finance.

Private health care. The creation of a universal, taxpayer-paid-in-full NHS seemed at first to doom private medicine. There was no patient cost-sharing that could have become a niche for supplementary insurance, as in France. Why would anyone buy private care when they could get care for free?

At first, nearly all the public and voluntary hospitals were taken over by the NHS, the small private clinics owned by general practitioners disappeared, and only a handful of hospitals remained private, chiefly in London. Their clienteles were the London staffs of private international (primarily American) companies, the staffs of foreign embassies in London, and the elites of the Middle East and Asia. The patients and their employers paid cash. Gradually, a few small private hospitals were created in English cities, often by specialists who were only part-time in the NHS. They offered a traditional ambiance for English citizens, with matrons and unhurried nurses, with private rooms for those who disliked the large multi-bedded wards of NHS hospitals, with quick admissions instead of waiting lists.

Private health insurance companies (”provident associations”) arose, offering policies to cover the care of specialists and inpatient admissions to the private hospitals. Many are group contracts with employers, who thereby provide a fringe benefit to their managers and employees. But the premiums have to be low, since the public gets the same coverage and treatment from the NHS without charge. Unable to privatize the NHS, the Thatcher Government during the 1980’s next tried to encourage private specialty care and private hospitalization, covered by private health insurance. If the NHS could not be abolished, it could be reduced. In response, several private insurance companies offered policies with more expensive benefits, usually performed only in NHS hospitals. But the private hospitals—heretofore equipped and staffed for simple surgery and obstetrics—could not raise the private capital to rival the NHS hospitals. The private insurance companies could not risk raising their premiums high enough to cover their expensive benefits and experienced serious deficits. So, the venture to create a large private market quickly ended.

However, the small private market survives as before. If one seeks a comfortable small hospital for simple surgery, they exist in several cities, and private insurance pays for most—not all—costs. If one wants early care instead of joining very long waiting lists for certain conditions—such as hip replacements—one can go to the private hospitals maintained by the NHS consultants in these specialties. The private market is limited to specialty care and does not exist for primary care and for general practitioners’ services. While most dentistry is covered by the NHS, many persons in London go to dentists privately, if they want early appointments and better-quality materials.

Besides the private hospitals—which might be too far from patients’ homes—a small private sector exists within the NHS establishments. In the original bargaining to persuade the once independent specialists to join the NHS on full-time or part-time salaries, they were guaranteed the right of part-time private practice on the premises of NHS hospitals. Within each service, the consultant may use a few “pay beds” for his private patients. Either out-of-pocket or with insurance, the patient pays fees to the hospital and to the consultant. The pay beds have been denounced as violations of the principles of a public service and as loopholes by which the consultants recruit profitable private patients instead of working harder and reducing their waiting lists. Labour governments have cut the numbers of pay beds but they survive, guaranteed by the original contracts with the consultants.

The contributory schemes survive in a new form. Individuals join and pay small premiums. If hospitalized, they receive cash and can use it to compensate for loss of earnings, for home helps after discharge, or for any other expenses.

Hospitals. All the municipal and voluntary hospitals were nationalized under the NHS, including the historic teaching hospitals. Their management has changed from time to time. During the 1970’s and early 1980’s, they were managed and financed by District Health Authorities (DHA’s) who received guidelines and money from the Regional Health Authorities and ultimately from the Ministry of Health and Parliament. The communities vary in clinical needs, wealth, political ideology, and attitudes toward London and the government-of-the-day, and consequently DHA’s varied in their conformity to higher-ups or co-optation to the interests of their communities and medical staffs. London periodically introduced new management methods to improve communication, efficiency, and accountability.

The Thatcher Government’s early years included battles against trade unions interested in protecting their members’ pay and jobs against suspect politicians and managers. Also, the Thatcher Government tried to privatize as much as possible. During its early years, it turned over unionized NHS catering, cleaning, and ambulances to private firms.

During the late 1980’s, the Thatcher Government discovered methods whereby public organizations would behave entrepreneurially, no longer preoccupied with pleasing local politicians and higher bureaucrats, but attracting the sovereign consumer. In the Education Reform Act of 1988, schools were no longer controlled and paid en bloc directly by local governments, but each school could attract parents and children from anywhere, parental choices would be made after shopping for the best school with space, and the local government would provide the tuition. Schools would compete to develop the programs and images to attract the best students and fill their seats.

The National Health Service and Community Care Act of 1990 applied the same method to hospitals. A hospital would no longer be an integral division of a DHA, with a global budget coming exclusively out of the DHA’s larger budget, offering the services dictated by the plans of the DHA and RHA, and receiving its patients exclusively from that district. Rather, a hospital becomes an autonomous “trust”, develops its own services and image, sets its own employment rules, and attracts referrals from anywhere.  The DHA pays the trust for the patients coming from its district, even if the hospital were located elsewhere, pursuant to financial and clinical agreements among DHA’s and hospitals. A hospital trust’s budget to cover its operating costs comes from patient revenue provided by several DHA’s and from groups of doctors with purchasing funds, as well as some infrastructure support from its own DHA; it can even develop its services by raising capital privately, in addition to government grants. When the hospital-trust methodology was first introduced, its designers and enthusiasts foresaw a very adventurous and innovative market. But the government cannot risk large cost overruns or bankruptcies, since public money and patients’ needs are involved. So, the regional and district tiers of the NHS monitor and regulate the trusts’ economic operations. If the older teaching and other hospitals in Central London seem overbedded and inefficiently used, the Ministry does not wait until the market reduces their revenue but intervenes the old-fashioned way—by executive orders to reduce the facilities and even to close some down.

Britain’s health care has always been inexpensive, but the low levels before the NHS were achieved by low utilization, underservicing in much of the country, threadbare facilities, and low payment of providers. The NHS has still maintained the lowest expenditures of any developed country, now combined with modern facilities and adequate clinical care throughout the country. British hospitals have always had shorter stays than the European hospitals paid by per diems, and they have remained short. The innovations in hospital behavior and finance have not caused a cost explosion; as they might have in other systems. The DHA’s collectively cannot pay out more than Parliament’s annual appropriations.

Every hospital is a loose coalition of specialties, with one or more specialist-consultants in each field. NHS hospitals have closed staffs; general practitioners can only refer patients to the appropriate consultant but cannot order hospitalization or treat inpatients. Each consultant is assigned a set of beds and has exclusive power to admit patients. In practice, urgent cases are hospitalized quickly, less-urgent are admitted if beds are free, and other less-urgent are placed on a waiting list until the consultant chooses to hospitalize them. The hospital does not have a single collective waiting list but each consultant or group of consultants has its own. As a result, each hospital has several waiting lists of varying length. Consultants differ in the length of their waiting lists, depending on the urgency of their case mixes and their own productivity. Waiting lists existed before the NHS but were shorter and less publicized; more people went through life with chronic conditions. Since everyone now expects good care without financial barriers under the NHS, the existence of waiting and the prevalence of untreated disabilities have been the principal complaint about the funding and performance of the NHS. The subject has been constantly raised in the media and in questions in the House of Commons and has been a favorite weapon by the Opposition (whether Labour or Conservative or Social Democrat) against whoever is the government-of-the-day. The subject has been repeatedly investigated, to establish the true number of persons who have not been treated. (Many names on lists are phantoms, resulting from vague referrals from GP’s. Many have been treated elsewhere, have improved spontaneously, have moved away, or have died). Several remedies have been adopted, such as transferring patients to hospitals in other DHA’s, paying for care in private hospitals, or—a proposal in 2001—sending some to Europe. (The latter plan would be the first integration of health services in the European Union).

Doctors long practiced privately or under National Health Insurance. The creation of the National Health Service aroused all the profession’s fears of control by government, particularly by left-wing local authorities. The NHS could not operate without the cooperation of the medical profession, so its principal designer (Aneurin Bevan) devoted much effort and ingenuity in negotiating a solution. The general practitioners were particularly hostile—as they usually are in other countries—so Bevan first crafted a special deal with the consultants. The specialists would not be employees of their hospital or of governments but would have contracts with regional agencies of the NHS. They would have salaries for full-time appointments, with supplements for better work. They need not give up private practice completely and were given a few “pay beds” among their NHS beds in the hospital. A medical staff committee would share in the leadership of each hospital, along with the lay secretary and the matron. (Matrons previously dominated the voluntary hospitals but declined in authority under the NHS).

General practitioners reluctantly joined the new NHS, since Bevan’s agreement with the consultants ensured that the system would begin. Concessions were made. The GP’s were not employees of government, and definitely not of the local authorities. They were private and self-employed contractors with local Family Practice Committees. They retained their previous forms of pay under National Health Insurance, viz., a capitation fee for each person inscribed as a regular patient on a list, regardless of amount of treatment. No-one reviewed their work.

A common puzzle in labor relations is how to organize negotiations between the sovereign government and its employees. Can any contract bind the government? In case of a deadlock, who has the final word? Can any arbitrator who is a citizen of that government issue a decision that binds the government? If the government has the right to reject or alter an award made by its representatives or by an arbitrator, will it then take advantage of its employees? Under national health insurance in most countries, the doctors negotiate with the official sickness funds, with government acting as final arbitrator only under exceptional circumstances.

Creation of the NHS soon revealed these dilemmas on the greatest scale: the doctors were the most elite and most autonomous of all professions; unlike civil servants and the military, they joined public service reluctantly; they provided services for what they alone defined as the public’s “needs” and believed that Parliament and the taxpayer were obligated to provide the resources they required. Throughout the history of the NHS, the government has struggled with both general practitioners and specialists over money and the conditions of practice, and several devices and guidelines have been adopted successively.

Created after the first decades of dispute, the Review Body on Doctors’ and Dentists’ Remuneration is an independent expert and elite commission that provides advice that the Prime Minister is expected to accept. It is more than an instrument of the government-of-the-day but is not quite a binding arbitrator. It hears the British Medical Association’s case on behalf of the senior hospital doctors, junior hospital doctors, GP’s, and dentists for higher pay and for the provision of money to improve practice. The Review Body’s terms of reference refer to the need to ensure adequate recruitment into medicine, discourage emigration, attract practitioners into underdoctored districts, encourage better quality, and keep doctors’ incomes in line with inflation and with the incomes of comparable occupations. The Ministry of Health (backed up by the Exchequer) produces papers and testimony concerning expected trends in the costs of health care, the fiscal capacity of the economy, inflation, trends in recruitment, etc. The Review Body has its own research staff to investigate and produce a substantial report explaining its recommendations. (The Review Body does not accept certain criteria recommended by the British Medical Association, such as enabling British doctors to catch up with the higher incomes of the European doctors who prosper under national health insurance). The Prime Minister usually accepts the recommendations and announces them in the House of Commons, but the Prime Minister can accept them only in part or as a gradual phase-in, on the grounds the government’s budget cannot afford the full awards or even because the Review Body was unnecessarily generous. On the rare occasions when the Prime Minister fails to accept the Review Body’s full recommendations, the doctors and the Opposition protest strongly and (at times) the Review Body resigns.

The initial concessions to the doctors had drawbacks. Unlike reimbursement in other countries, the specialists and GP’s were not paid fee-for-service, did not generate itemized bills that recorded their work, and could underperform. It was suspected that the salaried senior hospital doctors gave priority to their private patients in the pay beds, assigned much of their NHS inpatient work to their junior subordinates, and were in no hurry to clear their waiting lists. Parliament and the Review Body added lifetime “Distinction Awards” for the ablest and hardest-working specialists, but for a long time these seemed to be given indiscriminately to the academicians and to the longest-serving doctors. Eventually the criteria for this extra pay were expanded, so that more were rewarded for service in the remote and less desirable parts of the country.

The capitation fees constituting the GP’s entire income seemed an incentive for underwork. GP’s were thought to resist adding elderly and unhealthy patients to their lists. Instead of investigating patients thoroughly and performing laboratory tests, many GP’s referred them to the outpatient departments of hospitals. During inpatient hospitalization, they did not visit their patients or confer with the specialists. GP’s preferred to practice in cities instead of in the rural areas with fewer patients and time-consuming travel. Eventually Parliament and the Review Body added “practice allowances” enabling GP’s to improve their facilities, higher capitation fees for elderly patients, fees for desirable preventive treatments, and extra payments for location in underdoctored areas.

The Thatcher Government sought to improve general practice in both quality and efficiency by several techniques. One imposed closer management over the once completely autonomous GP’s: Family Health Service Authorities awarded the doctors grants for special clinics, chronic care services, and preventive programs; extra fees rewarded office-based surgery and child health screening; extra payments were provided for attendance in continuing professional education.

Another innovation sought to make the GP’s—like the hospitals—more entrepreneurial, more motivated to seek and please patients. GP’s were encouraged to join in groups with extra payments for facilities, rent, and employees. These large practices could become “fund holders”, with fixed sums of money enabling them to pay for hospital and laboratory services for their patients. The GP’s could shop for the most efficient and best quality services. Another special fund for prescription drugs gives the fund-holding GP an incentive to prescribe only necessary and cost-effective drugs (such as generics) at the pharmacies quoting the most favorable prices. If the GP satisfies patients’ needs without using up his entire pharmaceutical account, he can use the savings to improve his practice.

Pleased by gaining more autonomy and market power, hospital managers and GP’s now discover a drawback of competitive markets, viz., more paperwork than ever before. Reports for the first time inform higher-ups in the NHS about the performance of the providers and managers at the grass roots.

The new hospital trusts give the hospital managers greater influence over the clinical work that heretofore was a mysterious monopoly of the specialists. In order to attract cost-effective referrals, the managers must be able to please patients and the referring GP’s by delivering good care. The specialists and nurses must help. NHS hospitals with notorious waiting lists lose business.

Pharmaceutical drugs. Like other countries, Great Britain has long had machinery to evaluate the safety and efficacy of drugs. Only licensed drugs may be prescribed by general practitioners and dispensed by licensed pharmacies. Drugs were a benefit under National Health Insurance and continue with similar arrangements under the NHS. The GP can prescribe what he thinks best, and the pharmacist must fill the prescription. The English patient and his GP have long been cautious about surgical and pharmaceutical interventions; utilization and costs have been lower than in other countries.

The NHS’s goal is to cover the pharmacists’ charges for the drugs plus a dispensing fee. The NHS is a monopoly buyer and could dictate prices, but British government avoids peacetime price controls over such powerful and important industries. So, the NHS and the drug companies negotiate wholesale prices for individual drugs, sufficient to cover the companies’ costs and profits. The NHS staff is perpetually swamped by the growing numbers of new drugs and the complex costing of the many companies. Many investigations, negotiating forums, and guidelines have been deployed over the years. In the future, the European Union may adopt a single market whose approvals, prices, and sales would include Britain, since pharmaceuticals are the type of industry appropriate for the EU’s jurisdiction.

The technical progress and glowing advertisements of the drug companies have led to higher utilization and higher costs. The government has not imposed a fixed annual budget on drug spending and has had to search for methods of containing costs. The aforementioned price negotiations are one technique. Another is restraint upon excessive prescribing by general practitioners, but such direct controls over the prickly GP’s are difficult and may be inconsistent with their NHS contracts. Prescriptions are one of the few reports about the clinical work of GP’s that can be reviewed for utilization—in contrast to the copious data generated by fee-for-service reimbursement in other countries. When the Family Practice Committees began to aggregate the prescriptions and compare doctors, they discovered that some prescribed far more than others, and therefore cost the NHS far more than their peers did. A motive for creating the aforementioned special pharmaceutical accounts for fund-holding GP’s was to give the overprescribing GP’s a voluntary incentive to limit the number of prescriptions and to prefer cheaper generics.

National Health Insurance covered drugs prescribed by GP’s without patient copayments at the pharmacy, and the NHS continued this policy during its first years. But costs were too high, excessive prescribing by many GP’s was suspected (as it had been under NHI), and waste by patients was common. So, copayments were introduced in 1951 and have become substantial by now. Copayments are ineffective in discouraging overutilization. The highest consumers—the elderly and very sick—are exempt. The poor below an income threshold are exempt, but who is willing to certify the income of the patient? Inland Revenue’s files are confidential; the GP’s and pharmacists refuse to ask their patients’ incomes. So, patients self-certify: if one doesn’t want to pay, he/she declares himself/herself poor at the pharmacist’s counter, and only a minority pays anything.

The political climate. Every health financing system arouses political controversy, none more than a service organized and financed by the government itself. The entire population is involved, the service takes the largest share of the government’s budget, political parties compete over who can please the electorate more, and parties compete quietly over who can appease the providers more. Historic decisions depend on the elections. Whether Britain retained and improved the familiar National Health Insurance or invented a new National Health Service depended on the election of 1945. A sweeping social revolution resulted, involving health and the rest of a once hidebound society.

The NHS was such a successful contrast to its preceding patchwork that it enjoyed unique bipartisan support for the next forty years. Not until the 1980’s was the NHS re-examined and altered in its fundamentals. A long period of cultural exhaustion, economic stagnation, and class conflict led to the capture of the Conservative Party by libertarians and their election victory of 1979. They benefited from a counter-revolution in ideology in many countries, disillusionment with government spending and regulation, the rise of Big Business, and ideologies promoting personal financial gain and competition. The Thatcher regime privatized many sectors of government and the economy, unleashing a wave of entrepreneurial energy that the British had once possessed but had forgotten. While Margaret Thatcher boldly fought unions, bureaucrats, local governments, and Labour politicians, she was a very insightful and cautious politician herself as well as a warrior. She realized that a mistake in reforming the NHS would go farther than the clamor from the Opposition benches and might fuel an electoral comeback by Labour. She was reminded of the danger when her cost control over the hospital sector led to a strike by the country’s beloved nurses and her only near-defeat in a motion of no-confidence in the House of Commons.

The reforms of the NHS during the 1990’s were devised to reverse the stagnant habits of providers and managers. The professionals and managers now had to consult and please patients, search for the best sites and services, compete for the best opportunities, and risk differential pay according to their success. The extensive clinical and behavioral research was institutionalized within the NHS Management Executive, so that the work of clinicians and managers could be under constant review for quality and effectiveness.

The counter-revolution and restructuring were so convincing that they became the new political benchmark. When the Labour Party (“New Labour”) recovered office during the late 1990’s, it did not resurrect the system it had once proudly created but accepted the new status quo. Attention turned to a perennial issue: would the NHS in any form be more successful if Parliament appropriated more money, could a now prosperous Britain finally afford it?


Origins and evolution. Canada has always been a unique country, and so is its health care financing system. It is the product of many separate foreign influences, and so is its government and medical care. Its small population spread in stages across a huge area, local authorities were created in each area at each step, and its governmental system (including the management and financing of health care) has been decentralized. Its economy has depended on its natural resources and farms, it has a much smaller industrial base than other developed countries, and it has lacked the wealth for generous and entrepreneurial health services.

The original colonizing power, France, permanently influenced the society and health services of certain regions, viz., Quebec and New Brunswick. The next colonizer, England, permanently influenced the society, government, and health services of other regions, viz., Nova Scotia, Ontario, and British Columbia. The United States nearly annexed Canada politically during the eighteenth and nineteenth centuries and was blocked by British defense forces; but it has annexed Canada in culture, economics, and clinical care since World War II.

Canada has had to invent its own method of financing its disparate health care services. It has never had the industrial base to organize and finance widespread employment-group private insurance, as in the United States, or to organize and finance widespread mutual aid societies among an industrial working class, as in Europe. Its private insurance companies have operated primarily within individual provinces and could not market extensive pools of individual health policies. Its population has been young and healthy, without the widespread poverty and pathology that inspired European governments (such as England) to create nation-wide government programs. The Canadian constitution created after partial independence from Great Britain during the nineteenth century was an unpromising base for any conventional health care financing system: the provincial governments had exclusive authority to maintain and regulate health services, but they had very little taxing power and therefore small budgets; the national government had extensive taxing power and budgetary resources, but it had no authority to maintain and regulate health services; Canada was a “confederation” and not a unitary or centralized federal system, and the national government could only persuade, not dictate to, the provincial governments.

The “Canadian Model” in health care finance developed accidentally and was never planned. During the twentieth century, the leaders of the national and provincial govern­ments met occasionally and communicated often. To help some or all the provinces to develop public facilities (such as highways), the national Parliament appropriated a few conditional and unconditional grants. A few provincial governments with sufficient cash created social welfare programs from their budgets, such as old-age pensions for the poor. After World War II, Canada-—like all other countries—pledged to create new social services for its population. The miscellaneous and underfunded provincial programs for the poor were only a beginning. The national government (led by Prime Minister William Lyon Mackenzie King, a lifelong advocate of universal statutory health insurance) in 1945 proposed a new system of government and financing for Canada: the national and provincial governments would collaborate closely and constantly over finance and programs; the taxing powers of the national government would greatly increase; the provinces would create and manage many programs in economic development, housing, social welfare, and health care, financed by national grants and by some provincial taxation. A conference of national and provincial leaders (the Dominion-Provincial Conference on Post-War Reconstruction) considered this scenario and refused to approve it. Another method had to be found for health care financing.

The kernel of the current “Canadian Model” was planted in an unexpected place, the low-income rural province of Saskatchewan. Earlier during the twentieth century, it had created modest municipal hospitals, supported by municipal government management and funding, provincial grants, and patient fees. Other Prairie provinces had similar hospitals. After the failure of the comprehensive program of the federal-provincial conference, the provincial government of Saskatchewan organized its own provincial scheme to develop more hospitals and pay their operating costs from its own special taxes. (They were called “premiums” for universal hospital “insurance”, but they were really government taxes).

Other Western provinces created similar schemes. But their resources were inadequate for highly developed inpatient care throughout their far-flung provinces. They found allies in eastern provinces (particularly Ontario) whose modern hospitals outstripped the fiscal capacity of provincial grants and private insurance. Their members of the national Parliament pressed for national grants, and such help was enacted after extensive federal-provincial negotiations, viz., the Hospital Insurance and Diagnostic Services Act (HIDS) of 1957. Hospitals everywhere welcomed the money. Provincial governments cooperated in enactment, although they bargained over the statutory conditions and over the financial formulae. The more affluent provinces that would have to contribute most of the money into the national government’s pool were less enthusiastic.

Besides the municipal hospitals, Saskatchewan and other Western provinces retained physicians to deliver ambulatory and inpatient care. The doctors were not affected by the public financing of the hospitals under HIDS. The same Saskatchewan leadership that had developed the provincial and then the federal-provincial hospital scheme turned to physicians’ care. They proposed a taxpayer-financed province-wide plan that would cover all citizens. They naively expected the doctors—like the hospitals—to welcome the great increase in their patient loads and revenue. But the Saskatchewan doctors—like all doctors—feared the intrusion of government and pointed to the contemporaneous disputes between the British general practitioners and the National Health Service. The Saskatchewan government enacted a program, the province’s doctors refused to cooperate, an arbitrator had to be called in from abroad, and the schemes was redesigned to combine payment by the province and professional freedom for the doctors.

Next, the Saskatchewan and other Western governments asked the national Parliament to contribute grants to their medical plans, like the now established method for hospitals. The identical arrangement could not be enacted: the medical profession (particularly in the eastern and richer provinces) wanted to preserve their autonomy and the private doctor-patient relationship; a new generation of national politicians was less euphoric about social policies than their predecessors; hospitalization had proved more expensive than expected, and paying doctors seemed less controllable; the country’s economy no longer boomed, new national budget costs and taxes would be burdensome; a new private health insurance had started and wanted a niche; Quebec had become separatist and wanted to run its own programs. Finally, the National Medicare Care Insurance Act (“Medicare”) was crafted and enacted by the national Parliament in 1966.

During their first years, both the hospital and physician programs were “shared cost”. The hospitals and doctors did their work, the provincial Ministries or special provincial agencies paid their bills, and the national government paid at least half of each province’s costs (more than half to the less prosperous provinces). The federal payments were “conditional”: the province had to operate according to principles laid down by law or by federal-provincial agreements. The results were energetic work by hospitals and doctors, generous payments by the provincial governments, high uncontrollable deficits in the national budget, and inflation. During the 1970’s, after arguments in the national Parliament and in federal-provincial meetings, the shared-cost system was replaced by block grants (calculated by formulae but limited) and transfers of some taxing powers from the national to provincial governments.

The system survives today, but the block grants from Ottawa have steadily diminished, the discretion by provincial governments has steadily increased, and the appropriateness of traditional health services has increasingly been questioned. During the 1990’s, many provinces used their authority over health services and their greater financial resources to introduce new forms of public administration and service delivery. The financing system during the 1960’s and 1970’s standardized health services and financing across Canada, but now the trends are experimentation and diversity.

Coverage and access. All inhabitants are covered, and their care is paid for by the provinces. One registers with a provincial government. If one gets care in another province, the costs are reimbursed by the home province. Eligibility is not interrupted by changes of dwelling or jobs, unless one moves permanently to another province; then one registers there. No financial charges deter access to the services of hospitals and doctors.

Foreigners are not covered but must pay privately.

The patient may go to any doctor, whether a general practitioner or specialist, as in the United States. One is not confined to the list of a general practitioner and can see a specialist only on referral, as in Great Britain and Germany. The specialist and the patient decide on the hospital, usually the one where the specialist has admitting privileges.

The structure. The national government and all the provinces are parliamentary democracies of the British type. Political parties campaign in elections, the party with the largest number of seats creates the Cabinet headed by a “Prime Minister” (of Canada) or by a “Premier” (of each province). (The ceremonial Chief of State is the Queen of Canada—as well as of the United Kingdom—and not a President. In Ottawa, she is represented by a Governor General, in each province by a Lieutenant Governor. As in London, the Prime Minister/Premier keeps the Chief of State’s representative informed). The legislatures establish the Ministries, enact laws concerning hospital and physician services, levy taxes, and enact the annual budgets for all public services. Usually one party wins a majority and governs alone, but coalitions are sometimes necessary. The government-of-the-day faces the Opposition in chambers and in highly adversarial political styles inspired by the British House of Commons—even in francophone Quebec.

While all provinces have comparable clinical services—i.e., hospital care, physician care, public health, preventive services, etc.—they vary in administrative details. All have Ministries of Health that oversee the hospitals and all have Ministries of Finance that receive the money from Ottawa. But the provinces have always differed in the machinery for reviewing the financial needs of hospitals and doctors, for distributing the money. Several provinces have changed their agencies for the payment of doctors from time to time. The national Parliament has enacted certain conditions for provincial programs that qualify them for reimbursement by Ottawa—minimum clinical services, free and universal coverage of the population, portability if the person moves—but Ottawa does not prescribe the province’s administrative organization. The provinces must report to Ottawa how they spent the money from the federal grants, but Ottawa’s leverage has steadily declined, as its block grants become smaller proportions of the provinces’ budgets.

After World War II, the national and provincial govern­ments created many joint programs. A considerable machinery of federal-provincial consultation developed: large issues and major new programs are discussed and even negotiated in First Ministers meetings, involving the Prime Minister and all the ten Premiers, accompanied by their staffs; the work in particular fields (such as health) is discussed in comparable meetings of the federal and provincial Ministers in those fields, backed up by their civil servants. Legis­lation is created in such meetings, programs are examined and amended; changes must be enacted by new legislation or by executive order. The staffs of the Prime Minister and of all the federal Ministers include officials who constantly communicate with the provinces. They have counterparts in all the provincial governments, for communication with Ottawa. The system of federal grants to the provinces for hospital and physician care is usually handled by the federal and provincial Ministries of Finance, in the conferences of such Ministers and in the day-to-day communications between their civil servants in Ottawa and in the provincial Ministries of Finance.

The provincial Premiers and Ministries also confer in their own interprovincial conferences concerning health care finances and other services.

An important structural fact is proximity to the United States, with the world’s most technically advanced and most expensive health care system. Canada now suffers from decisions about universal and high-quality coverage taken during a short period (during the 1950’s and 1960’s) when its economy boomed. To the south, the United States greatly improved its care at rising costs that Canada could not match from its limited resources. Canada could not practice the principal American method of cost containment, viz., dropping many people from coverage. Canada’s hospitals and doctors wanted the same facilities and incomes as their American counterparts. Despite its effort to contain costs and despite the youth and good health of its population, the pressure to keep pace with the United States has left Canada with one of the world’s most expensive health care systems.

Private health care. All hospitals have been private non-profit or municipal organizations and remain so. All physicians, dentists, and pharmacists have been private self- employed and remain so. It is the financing alone that has been governmentalized.

Until HIDS in 1957, financing of care was identical with that of the United States and was private. The National Health Insurance enacted in Great Britain in 1911 never applied to Canada, could not fit the economic structure of Canada, and Canadian doctors opposed it. Here and there across Canada, workers in extractive industries subscribed to small funds that retained doctors and contracted with hospitals. In the west, small municipal hospitals sold prepayment contracts. Some commercial insurance companies sold indemnity contracts, in addition to their other lines. A national debate ensued about legislation to encourage the expansion and adequate financing of health insurance in various private or public forms. Legislation was seriously considered in British Columbia during the 1930’s but was blocked by the opposition of the medical profession and anxiety over the severely depressed economy.

Beginning in the 1930’s, American state hospital associations created Blue Cross Plans enabling subscribers to insure for inpatient hospitalization, and so did provincial hospital associations in several Canadian provinces. The subscribers in Canada were individuals and employed groups, sometimes helped by employers as a fringe benefit of employment. Benefits were inpatient services, not reimbursed cash. The Blue Cross Plans covered only fractions of hospitals’ operating costs. They continued after World War II.

American medical associations created Blue Shield Plans after World War II as indemnity insurance, helping patients to pay for specialists. Creating their own private schemes seemed more urgent to Canadian provincial medical associations, because of the spectre of Britain’s National Health Service and because of the spread of hospitalization insurance with the encouragement of provincial governments. Many medical plans were created; they offered service benefits and covered general practice as well as specialists’ services, going farther than American Blue Shield. A few Blue Cross Plans expanded to include physicians’ services. To ensure portability across provincial boundaries, several joined in the nationwide association Trans-Canada Medical Plans. These private arrangements continued to pay physicians for a decade after HIDS had governmentalized hospital finance and made Blue Cross obsolete. They grew in membership and joined with the national and provincial medical associations in opposing the governmentalization of physicians’ payment. But the fact that the physician plans could not become universal, the success of HIDS, a report by a respected Royal Commission, the conciliatory attitude of the Canadian Medical Association, and the determination of political parties in Ottawa, Saskatchewan, and British Columbia tipped the balance in favor of Medicare.

In several provinces, Blue Cross and the physician plans were appeased by making them fiscal intermediaries, obtaining money from the provincial Treasuries and paying providers. Eventually they were superseded: in most provinces, the Ministries of Health or Finance examined the hospitals’ prospective budgets and paid them; in most provinces, public corporations or administrative agencies replaced the private carriers in paying doctors. Private insurance companies survive today only by covering benefits not offered by the public plans, viz., dentistry, pharmaceutical drugs, auto accidents, care while travelling abroad, and supplements in the hospital (such as private room charges). The laws regulating insurance in half the provinces forbid the companies from selling policies for mainstream hospital and physicians’ care. The motive is consumer protection: the citizen should not pay premiums when the province (and not the companies) will provide the benefits in full.

Hospitals were first created under the French government of Canada and—like pre-Revolutionary France—were governed and staffed by the Catholic Church. Nearly all of Quebec’s hospitals are descended from those beginnings and are now owned and governed by nonprofit religious associations. The teaching hospitals of Quebec are also of this type and are affiliated with university medical schools, many of which were founded by Catholics or Protestants long ago.

Ontario and the other anglophone provinces also have nonprofit hospitals, often originated by the Catholic Church, Protestant religious associations, and Jewish religious associations. In distant towns, these provincial governments helped the municipalities create small secular governmentally owned and managed establishments.

Canada has depended on the national and provincial governments to develop its frontier areas. Many hospitals in the Prairie provinces are owned by single municipalities or by groups of them. The national government created hospitals for Eskimoes, Indians, and other special groups in the older provinces, and it created most of the hospitals for everyone in the northern territories.

Several dozen proprietary hospitals exist, but not for the acute care financed by HIDS (now called “Medicare”). Their niches are rehabilitation, extended care, convalescence, chronic conditions, and psychiatry. Patients pay for them personally, often with money they get from provincial disability and welfare programs. Some financing of long-term care is provided by provincial governments with the help of grants from the national government, but—unlike the methods of hospital and physicians coverage—the practices vary among provinces.

In their organization, equipment, staffing, and clinical practice, Canadian hospitals have been substantially identical with those in the United States. Starting in the late nineteenth century, small networks of leaders in surgery and hospital management spread ideas about organization and management across both countries, as if the boundary did not exist. The American College of Hospital Administrators was created under the leading authority on hospital management (Malcolm T. MacEachern of Vancouver), its members came from both countries, its headquarters moved to Chicago, MacEachern moved with it, and he wrote the first treatise on hospital management.

Like American hospitals but unlike the Europeans, the Canadian hospitals have “open-staff” systems. A patient sees the doctor in the latter’s office or in the hospital’s outpatient department, the doctor hospitalizes the patient where he has admitting privileges, he treats the patient in the hospital, he is rarely salaried, he bills the province’s payment agency for his fees. What is very different from the United States and much of Europe is the method of hospital finance.

The traditional goal has been to provide every hospital with complete operating costs to cover its needs.

Every hospital in the province fills out forms every year:

  • One line-item set of accounts. Costs last year. Costs this year. Budget requested for next year. Every hospital has a unique budget.
  • Statistics on utilization of its services last year.

The reimbursement system has evolved:

  • At first, the civil servants in the provincial Ministry discussed the prospective budget with the hospital managers and approved it with minimum fuss. The Ministry then paid the “global budget” total in installments. The Ministry also agreed to cover cost over-runs. Half or more of the total provincial costs were reimbursed by the national government under HIDS.
  • The civil servants were then pressed by the provincial government, which in turn was being pressed by the national government—to be stricter. The civil servants then argued with the hospital managers, reduced some lines in the prospective budget, and rejected some requests for end-of-the-year supplements. Hospitals were expected to operate within their global budgets.
  • Economic austerity during the 1970’s—-and the new federal-provincial Fiscal Arrangements—-required the provincial Ministry of Health to operate all its programs within a fixed budget. The Ministry allocated a certain total to all hospitals, and each hospital was given a globe by the civil servants. Top-down replaced bottoms-up budgeting. The hospital today is still expected to submit expenditure and utilization reports. The methodology for calculating the annual increases in the global budget varies among provinces. All provinces are now strict, some more than others.

Canada during the 1980’s needed not merely to slow the annual increases in public budgets and in health care costs, but to reverse them. Ottawa’s cutbacks in block grants in effect invited the provinces to intervene more energetically in the hospital sector, where the provincial governments had total authority. The policy community and provincial officials questioned whether much high-tech hospital care was clinically appropriate as well as cost-effective, whether money was being wasted, whether better care could be given in community settings heretofore neglected by the financing system. The provinces acted in diverse ways. Instead of every provincial Ministry of Health confronting all its hospitals and doctors, many decentralized: regional authorities investigated hospital budgets and management more closely; in the Prairies, regional boards took over the hospital managements from the municipalities. Many beds were closed. Many provinces financed community services for ambulatory care and for prevention, managed by the regional authorities. Forced to work with fewer beds, smaller budgets, and smaller staffs, some hospitals developed waiting lists for the first time. During the 1990’s, Canada from one year to the next occasionally reduced the percentage of Gross Domestic Product going into health, one of the few times a developed country has ever done this. But the system’s essentials survived, and the population was still served.

Capital grants still come from provincial governments. Important teaching hospitals in big cities raise additional money for their special programs from donors, foundations, equipment companies, and foreign patients but their plans are now screened more closely by the provincial Ministries.

Only foreigners—not covered by the provincial health plans—are billed per diems or charges.

Doctors. The medical profession in the United States and Canada operated as one for most of the twentieth century. The early investigations of the quality of medical education and of medical practice, resulting in the Flexner Reports, were conducted in both countries, as if the political boundary did not exist. Reforms were recommended and implemented in medical schools across both countries. Medical education in Canada therefore differs from that of Great Britain and Europe. At first, the American Association of Medical Colleges had members in both countries. Licensure requirements by American states and Canadian provinces are virtually identical. The first associations of specialists—such as the American College of Surgeons, with its immense influence on graduate medical education and hospital management—had members in both countries. But, since 1966, the American and Canadian professions live in very different economic and political spheres.

Physicians’ reimbursement is negotiated in every country, including Canada. The only exception is the United States. In countries with statutory health insurance, the medical association negotiates with a joint bargaining committee of the sickness funds.

In Canada, physicians’ reimbursement is decided and administered separately within each province. All use fee-for- service, and all use fee schedules. Many emulate the fee schedule developed by the Ontario Medical Association before Medicare.

The provincial medical association negotiates with the Ministry civil servants in a few provinces, but not in most. Countries with public financing find administrative substitutes for direct confrontation with doctors. In most Canadian provinces, a special public corporation administers the payment of doctors and negotiates with the medical association.

Two items are negotiated:

  • Fee schedules with relative values among procedures. Committees within the medical profession do much of this work, but the Ministry and/or the public corporation must agree.
  • Annual conversion factor, converting the relative values into prices paid during the next year. Determined by the budget allocated by the provincial government to the Ministry of Health. The Ministry has limited discretion in increasing it, particularly if utilization has been growing.

In case of deadlocks in the negotiations, most provinces during the 1980’s adopted arbitration machinery in order to settle. The result was unique: sovereign governments treated the medical profession as a sovereign equal, and they were bound by the decisions of neutral arbiters. But eventually most provincial governments went beyond these conciliatory stop-gaps and demonstrated that they indeed had the final word, in order to impose more effective limits on costs.

It had long been believed that strict annual expenditure caps could be imposed on hospitals but not on doctors. Physician services were said to be “demand driven”: patients were free to visit doctors without limit, doctors were free to order more numerous tests and more complex and expensive treatments within their professional judgment. Every province wanted to impose global budgets on the medical profession, but only Quebec had been able to do so, and there only on general practitioners. But, during the 1990’s, versions of expenditure targets were devised in several provinces, compromises during the bickering between provincial negotiators and medical associations. In some provinces, payment of fees is degressed later in the year if the year’s expenditure targets are exceeded (“clawbacks”); in others, the current contract’s cost over-runs are recaptured by subtraction from the projected expenditures intended for physicians during the next contract.

Some of the aforementioned provincial reforms of health delivery limit the annual growth of spending on physician services. The closing of hospital beds and the restraint on the installation of technology reduce the amount of expensive intramural work by specialists. Much care is transferred from the expensive hospitals to community health programs, where doctors’ fees are lower. Some medical schools reduced the size of entering classes. Some provinces encourage doctors to work on full-time or part-time salaries in community health centers, following the precedent of Quebec, which has had centers for some time. A few provinces have dropped expensive and less essential treatments from coverage under Medicare, transferring their costs from the public budget to the out-of-pocket private sector.

While earning less than American doctors, Canadians are at the top of the Canadian income scale, exceeded only by the new breed of business titans. When deadlocked in their negotiations with provincial governments, doctors once threatened to emigrate en masse to the United States. Some did but reported back that American society is less pleasant than Canadian, American managed care is enervating and time-consuming, Canadian psychic income offsets American monetary income.

Patients do not share costs of physician visits or of hospital stays. Once doctors could extra-bill patients, but the trend has been toward voluntary acceptance of payment-in-full according to each provincial fee schedule. All provinces now ban extra-billing, in order not to lose part of their block grants, a sanction imposed by the Canada Health Act of 1984.

Doctors earn private fees only from foreigners. A few have a full-time private practices but only by opting out of the provincial plan in full.

Pharmaceutical drugs. The national government’s few functions in health include protection of the public, so it regulates the drug industry for safety and efficacy. Its licensing agency can profit from the expertise and efforts of the Food and Drug Administration in Washington. When approved, a drug can be prescribed by any doctor and sold by any pharmacist throughout Canada.

When HIDS and Medicare were enacted during the 1950’s and 1960’s, ambulatory pharmaceutical drug coverage was not included. It has never been added. Then the market was completely private: patients received prescriptions from their doctors, went to the pharmacies, and paid the charges in cash in full. Rather than add a federal-provincial, publicly financed “pharmacare”, the national government in 1969 decided instead to protect the pocketbooks of its citizens by legislation unique among countries: every drug company with a patent must license that product to another company producing a generic equivalent; from its sales, the generic company had to pay royalties to the original patent-holding company until the patent expired. The provincial governments, who have authority over health markets, passed laws authorizing the pharmacists to substitute generic for branded drugs, even when the doctors’ prescriptions specified the brand names. Patients therefore saved money and generic companies prospered. (The 1969 law was repealed in 1993, a period of the conservative counter-revolution that preached for free markets and against government regulation, particularly by distant Ottawa. But by then the branded companies had come to restrain their prices, doctors and pharmacies had come to prescribe and sell generics, and provincial governments had replaced Ottawa in local markets).

Provincial governments have developed many programs that help particular groups to pay for their prescriptions. The programs vary among provinces. Nearly all are parts of publicly funded social welfare efforts; none of the costs are shared by Ottawa. All provinces help the elderly, the disabled, and the very poor receiving welfare benefits. Some help other low-income persons. Two provinces (Saskatchewan and Manitoba) are universal for all citizens without means tests. The universal programs have patient cost-sharing.

The political climate. During the first decades of the twentieth century, Canada and the United States had similar social reform movements. Study groups and progressive politicians examined the European adoption of social security and national health insurance and recommended the same things. The first important supporter of national health insurance for Canada—the future Prime Minister William Lyon Mackenzie King—worked for several years in New York and Chicago and produced such plans for both countries. Both countries enacted schemes during the social emergencies of the Great Depression; both governments had to face objections from right-wing business interests and strict-constructionist judges. Their courses diverged when the Supreme Court of the United States accepted its social security laws while the higher appellate courts of Canada refused. Whether the Canadian national government could enact an old-age pension law was being contested long after that issue was settled in the United States. Because of the judiciary’s interpretation of the Canadian confederal system and because of resistance by the provincial governments, Canada’s political process yielded a national-provincial pension system instead of the centralized national version enacted by the United States and by every other country (whether unitary or federal).

As in the United States during its period of limited national government, Canada awaited a demonstration project by a province. American social security and statutory health insurance had begun in Wisconsin, whose designers and Germanic population were conversant with the European precedents, during a brief period of Progressive and Democratic governments-of-the-day. The Canadian system began thirty-five years later in Saskatchewan, during an exceptional time when a Socialist party (now called the New Democratic Party) ruled the province and a political virtuoso (Tommy Douglas) led as premier. But Saskatchewan lacked the many insurance carriers and industrial employers needed for a statutory health insurance system, Socialists prefer a governmental rather than a semi-private insurance method, and Saskatchewan had the precedent of provincial government grants to municipal hospitals. So, a public grant system was adopted, other provinces were doing the same thing, and they turned to Ottawa for the shared public finance method of HIDS. Physician financing was covered the same way, after the initial step in Saskatchewan.

The United States was the leader for a long time, but soon the shoe was on the other foot. After social security was enacted, the Americans opted for a predominantly private and voluntary solution to national health insurance. They enacted a special insurance-like program for the retired (the American “Medicare”) and assumed that everyone else would be covered by employer-based group coverage. This utopia gradually deteriorated. It was Canada that had universal and administratively simple coverage, and its economy was prospering. Then began several decades of idealization of Canada by American reformers, proposals that the United States should adopt “the Canadian Model”.

If Canada had been a wealthy industrial country, health care finance might have settled down. But it was not. Costs of health care and of other social programs were high, taxes were high, and the national budgets ran deficits. Ever since, there have been political disputes over the need to control costs and the preservation of services: among the political parties in the national and in all the provincial governments; between the national government and the provinces in federal-provincial meetings dealing with shared-cost machinery and block grants; between Ottawa and the provinces on one side and Quebec on the other.

The landscape of political parties has been very volatile in Canada. The Progressive Conservatives were in power in Ottawa when HIDS was enacted; the Liberals the following decade passed Medicare for physicians’ financing. The Liberals were still in power in Ottawa during the introduction of stricter cost containment and the new Fiscal Arrangements substituting block grants for shared costs. The Progressive Conservatives returned during the counter-revolution of lower taxes, deregulation, and free trade of the 1980’s and early 1990’s, and they tightened cost control. Beset by separatism in Quebec, separatism in the Prairies, and a stagnant economy, the once mighty Progressive Conservative Party effectively disappeared during the 1990’s, and the Liberals returned to power. The New Democratic Party, the initiator of Canada’s welfare state and its erstwhile defender declined in numbers and influence. Now no-one could escape the need for Canada to operate all programs—even an expensive and popular one like health—within the country’s means. A consensus about cost containment now replaced the previous consensus about social protection, without dismantling or privatizing the institutions and financing. Canada’s national and provincial governments have had to cut back other once generous programs—education, national defense, international technical assistance, etc.—and health care has survived surprisingly well.



Estimated total population in 1996

Germany 81,922,000
France 58,333,000
Canada 29,680,000


Life expectancy

Atbirth At
age 60
Men Women Men Women Year
of data
Germany 74.5 80.5 19.0 23.3 1998
France 74.6 82.2 20.0 25.2 1997
Canada 75.8 81.4 20.0 24.2 1997
74.6 79.7 18.8 22.6 1997
73.9 79.4 19.6 23.1 1998



% of  population age15 older and smoking daily   Annual
per capita alcohol consumption in liters, age 15 and older
Men Women Year Total Year
Germany 36 22 1995 10.9 1996
France 38 30 1992 15.6 1996
Canada 25 22 1998 7.2 1996
28 26 1998 9.6 1996
23 18 1997 8.5 1996


Spending on health

capita in US$, 1998
GDP, 1998
annual growth,
Germany 2424 10.6 4.3
France 2077 9.6 4.5
Canada 2312 9.5 3.6
1461 6.7 3.4
4178 13.6 4.4


care beds per 1000 population
care days per
Germany 7.0 2.1 1998
France 4.3 1.2 1998
Canada 4.7 1.9 1997/1996
2.4 1.0 1998
3.1 0.7 1998



of practicing physicians per 1000 population,
visits per
Average visits per physician, 1998, annual
Total Year
Germany 3.5 6.5 1996 1857
France 3.0 6.5 1996 2167
Canada 2.1 6.6 1995 3143
1.7 5.4 1998 3176
2.7 6.0 1996 2222



undergoing dialysis per 100,000 population
bypass operations per 100,000
Total Year Total Year
Germany 53 1996 38 1991
France 37 1994 35 1993
Canada 40 1997 62 1997
27 1999 41 1996
74 1995 223 1996

Source: Health Data 2000 (Paris: Organisation for Economic Cooperation and Development, 2000).