Political Accommodations in Multipayer Health Care Systems: Implications for the United States

Abstract

Current interest in a single-payer approach to universal health care coverage in the United States has also triggered interest in alternative multipayer approaches to the same goal.

An analysis of experiences in Germany, the Netherlands, Switzerland, and Israel shows how the founding of each system required a distinctive political settlement and how the subsequent timing, content, and course of the reforms were shaped by political circumstances and adjustments to the founding bargain in each nation.

Although none of these systems is directly transferable to the United States, certain parallels with the American context suggest that a multipayer approach might offer a model for universal coverage that is more politically feasible than a single-payer scheme but also that issues associated with risk selection and other potential inequities would remain.

Current interest in a single-payer approach to universal health care coverage in the United States has also triggered interest in alternative multipayer approaches to the same goal. Because most multipayer systems of universal coverage were initially established by incorporating rather than abolishing preexisting private entities, this model is argued to be more feasible in the current American multipayer context than is the vast institutional reform required by conversion to a single-payer system.¹ Here I consider the political dynamics of adopting and sustaining multipayer systems of universal coverage in several leading national exemplars to provide a context for this discussion in the United States.

First, some definitions are needed. A mix of insurers covering various types of health care services exists in all advanced nations, so all are “multipayer” in that sense. The key difference concerns the aegis of coverage of a mandatory, comprehensive range of health services. In “single-payer” systems, that comprehensive package is covered by one payer, an agency of the state, and is financed through taxes collected by the state, as general revenue or as funding earmarked for health care. (Note that the “comprehensiveness” of this coverage varies across nations, however. Notably, for example, Canada’s single-payer system does not extend to prescription drugs.) This does not imply that the state must own and operate the health system, but only that it is the single source of payment for services regardless of the ownership status of providers.

In multipayer systems, in contrast, the state mandates comprehensive coverage, which is then offered by multiple insurers within an overall framework of state regulation and subsidization. A key feature of most contemporary multipayer systems is that consumers can choose among alternative insurers, although that is a relatively new development; historically, insurers in multipayer systems of social insurance functioned as parallel quasi-monopolies serving different defined subsets of the population and offering marginally different coverage packages as negotiated with employers, workers, and providers.

Across advanced democracies, 6 nations—Austria, Belgium, Germany, Israel, the Netherlands, and Switzerland—have fully fledged multipayer systems as just defined. France is sometimes considered as having a multipayer system, but this system is best viewed as essentially a regionalized single-payer scheme covering 90% of the population, with some additional smaller schemes for particular population groups. Japan’s complex system defies classification: although formally comprising multiple insurers covering defined population subsets under 4 umbrella plans, its degree of centralization renders it akin to a single-payer plan with premiums that vary by population group. In all systems, whether single payer or multipayer, private insurers continue to offer coverage for a variety of expenses not covered by the compulsory plan.

Current systems of universal coverage through multiple payers came about through universalization of arrangements that had been developed over many decades. Historically, the process began by incorporating preexisting insurers of various types under the umbrella of state regulation requiring compulsory coverage for some population groups and gradually extending to more population groups and more types of insurers over time. Typically, these systems were initiated and maintained as broad political settlements, and the terms of those settlements varied across nations.

For reasons of space, I restrict myself here to a discussion of the German, Dutch, Israeli, and Swiss systems, which provide leading examples across this range of variation in terms of both the content of settlements and the historical timing of their establishment and evolution. By the latter decades of the 20th century, each of these systems had achieved near-universal coverage by various types of insurers. In the “millennial” era spanning the turn of the 21st century, these arrangements have been formally universalized by making coverage compulsory and consolidating insurers under a common framework.

Three key historical moments can be identified in the establishment and evolution of these systems: the foundation of the prototype for today’s systems of multipayer “social insurance” by German chancellor Otto von Bismarck in the late 19th century, the burst of policy development in the immediate aftermath of World War II, and the reformist millennial period.

THE BIRTH OF THE SOCIAL INSURANCE MODEL IN GERMANY

The progenitor of the social insurance model was established in Germany shortly after the founding of the nation as a federation of previously autonomous Germanic states. Bismarck, the first German chancellor, adopted a broad agenda of social policies as a response to worker unrest and the associated rise of trade unions and socialist parties in the middle of the 19th century. His first attempt at a national plan of health insurance, on a unitary centralized model, foundered as a result of opposition from the members of the bourgeoisie who already enjoyed coverage and health insurance funds that had already been established by employers, local authorities, and worker organizations.

Bismarck then developed the grand compromise that would become his eponymous legacy, sweeping existing health plans under a central regulatory umbrella. Coverage was made compulsory for a swathe of industrial workers and professionals, and the various insurance funds were to be managed by their contributors within a centrally regulated framework. This distinctive compromise between solidarity and self-management was uniquely suited to the politics of the time and was acceptable to liberals, religious parties, and socialists.² Over the following decades, the compulsory scheme of social insurance would be rolled out to progressively more sectors of the population. Throughout, however, those at the upper end of the income distribution remained exempt from the mandate to have coverage with a social insurer and free to insure themselves privately.

Meanwhile, in other European countries such as the Netherlands and Switzerland, coverage through a miscellaneous mix of funds operated by employers, worker associations, local authorities, physician groups, and commercial insurers continued to evolve over the course of the late 19th and early 20th centuries. In each country, however, characteristics of the political system militated against comprehensive state action on the German model.

In the Netherlands, party fragmentation and the stronger role of the medical profession kept change within incremental bounds. In Switzerland, the coalition structure of the federal government, the power of the local governments (cantons), and a tradition of putting votes on key policy issues to referenda established a course of veto points that any potential reform had to run.^3,4 Over almost the full course of the 20th century, the Swiss health insurance system evolved as a collection of insurers largely catering to certain occupational or religious groups or localities, lightly regulated by cantonal and federal authorities.^5(p22) In 1912, national legislation approved by referendum established per capita subsidies for health insurers that complied with federal requirements, including a defined package of benefits and limitations on premium differentials, but left considerable scope for variation. Whether coverage was compulsory was left to the cantons, about half of which adopted such requirements for at least some of their population over time.^5(p22)

THE CONSOLIDATION OF SOCIAL INSURANCE

The period of World War II marked a turning point in Germany and the Netherlands, as the shock and aftermath of war led to actions that would shape their multipayer systems for the next 4 decades. The Dutch social insurance system initially took shape as the product of the wartime German occupying government, which made coverage through occupation-based sickness funds compulsory for workers below a government-determined income threshold, essentially importing the original German model (rather ironically given that the government of the Third Reich had adopted a more centralized model for Germany itself). At war’s end, the desire to replace the health care decree of the occupation government with purely Dutch legislation was frustrated for a time by lack of domestic consensus on what the new system should be. In the 1960s, however, a cross-party compromise was struck to essentially “naturalize” the sickness-fund model and complement it with universal, tax-financed coverage for long-term care.^2(p251)

As for Germany itself, in the context of postwar reconstruction in the newly constituted Federal Republic of Germany, socialists seized the opportunity of a new start after the Nazi regime in an attempt to promote a universal scheme while the Christian Democrats successfully portrayed the rebuilding of the social insurance funds as an essential piece of the postwar reconstruction that would eradicate any traces of the Third Reich and reconstitute the German “social state.”^2(p198),6 The postwar reforms resurrected the quasi-independent status of the sickness funds, extending their scope and revising their governance to include both workers and employers.

On balance, then, the postwar settlement yielded enduring corporatist accommodations in the German and Dutch systems of social insurance. Although retaining distinctive features in each nation, this “Bismarckian model” was defined by the following:

• •Multiple funds providing coverage for particular occupational groups or local areas
• •Tight restrictions on competition, as insurers were limited to occupational and local bases
• •Income-scaled, contribution-based financing mechanisms, typically shared between employers and employees through payroll taxes collected and distributed by the state
• •An overarching regulatory framework providing state oversight of (1) self-management by representatives of contributors at both fund and central levels and (2) negotiation among umbrella organizations of insurers and providers under the shadow of state authority
• •Incomplete population coverage with progressive extension to various population groups

The systems differed, however, in the role and relative size of the purely private sector. In the Netherlands, the income threshold above which individuals were ineligible for social insurance was designed to exclude about one third of the population, who then constituted the market for voluntary private insurance (this threshold was referred to as the “peace border” between the public and private sectors⁷). Self-regulation by private insurers nonetheless maintained a system of community rating and avoided the problems of risk selection that typically plague private insurance markets. In Germany, where private insurance was an optional alternative to social insurance for individuals above a given income level, the private share was considerably lower. Approximately a quarter of the population was eligible for the private option, but only about 10% exercised it.

There were no comparable contemporaneous developments in Switzerland and Israel. Switzerland, which had stayed neutral in the war, experienced less institutional shock than did Germany and the Netherlands, and although the health system expanded rapidly after the war there was no discontinuous change in financing arrangements, which continued to be based on voluntary coverage through multiple not-for-profit funds within a federal system that accorded much autonomy to cantonal governments. The postwar period also saw the establishment of the State of Israel. The nation-building agenda of the first prime minister, David Ben Gurion, included a desire to nationalize the health insurance system. That ambition was abandoned, however, in the face of resistance from the voluntary not-for-profit health plans—including the largest plan, operated by the labor movement affiliated with his own Labor Party—that existed before the founding of the state.⁸

UNIVERSALIZATION ON DIFFERENT MODELS

In the 1970s and 1980s, governments across advanced democratic nations found themselves fiscally squeezed, as the costs of social programs (especially health care) rose and tax revenues failed to keep pace (partly owing to economic contraction, partly to deliberate agendas of tax reduction). As various attempts at containing health care costs failed or proved successful only in the short term, pressures for reform grew in all systems. The problem manifested itself, however, in different ways. In multipayer systems virtually all insurers came under financial stress, and existing accommodations were incapable of providing solutions.

In Germany, success with cost-containment measures in the social insurance sector proved fleeting, placing increased pressure on the payroll base and exacerbating concerns about the international competitiveness of German industry.⁹ In the Netherlands, where government-imposed budget caps and copayments were successful in moderating the rate of cost increases in the social insurance sector, the principal issue was the erosion of solidarity as private insurers increasingly abandoned their self-regulatory commitment to community rating and began to risk rate premiums.^10(p208) In Switzerland and Israel, many private insurers threatened to become financially nonviable. A reform agenda began to build that contained the ingredients of a broad cross-party compromise: finding an approach to universal coverage that would allow consumer choice of insurers while both addressing financial viability issues and enhancing equity and solidarity.⁴ As policymakers embarked on reform of the system of financing health care, the timing, content, and course of the reforms were shaped by political circumstances in each nation.

The Netherlands and Germany

In both the Netherlands and Germany, the reforms were begun by coalition governments led by Christian Democratic parties in alliance with smaller liberal parties and further developed through negotiations with a social democratic party: in Germany, through negotiations between a center-right coalition government and the social democratic opposition, and, in the Netherlands, through the formation of a right-left coalition government shortly after the first wave of reform.^{9,11(pp565–571)}

In both countries, an “individual mandate” to have health insurance coverage was adopted, and restrictions on competition among social insurers were relaxed. The Dutch reform was the more sweeping, however: over the course of a 20-year period from 1986 to 2006, the bifurcated model of social versus private insurance was changed to one in which all insurers are formally private and are financed and regulated under a common umbrella. Insurance is financed through a combination of income-scaled contributions collected and distributed by the state and community-rated premiums charged by insurers. “Health allowances” are provided by the state on an income-scaled basis to cover such premiums.

In Germany, the distinction between social and private insurance was maintained through a series of incremental reforms focused primarily on social insurance. The reforms began in 1992 with a package adopted by the Christian Democratic government in negotiation with the Social Democratic opposition; the package allowed consumer choice of insurers within the social insurance market. The reform process was capped in 2007 with a package adopted by a “grand coalition” government of Christian Democrats and Social Democrats, making comprehensive coverage of hospital and medical services compulsory as of 2009.

Social insurance premiums (which had varied across insurers in the previous regime) were replaced with income-scaled contributions collected by the state and distributed to insurers on a risk-adjusted basis. Crucially, however, the opt out for upper-income individuals was preserved, and apart from a requirement to offer a basic standard package of benefits at community rates, private insurers were left lightly regulated and continued to risk rate premiums upon initial enrollment (although not upon renewals) and to offer a variety of plans with different marginal inclusions and exclusions and different levels of deductibles.

The integration of social and private insurance in the Netherlands meant that features of each sector were imported into the new universal model. For example, although all insurers had to offer the standard package (on the social insurance model), they had some discretion in setting premiums (on the private insurance model). Similarly, the payment of general practitioners was based on a combination of capitation (from social insurance) and fee for service (from private insurance). In Germany, in contrast, the continued separation of the 2 systems meant that only private insurers could differentiate premiums and that separate fee schedules continued to exist for payment of physicians under social and private insurance. The latter provision created financial incentives for physicians that led to preferential access for privately insured patients.^12(p269)

Switzerland and Israel

The millennial period also marked the universalization of multipayer systems in Switzerland and Israel, again bearing the marks of the political systems in which they are embedded. In Switzerland, successive attempts at reform failed to garner sufficient cross-party support to succeed at referenda in 1974 and 1987. Finally, in 1994, financial pressures on insurers had become sufficiently severe to forge cross-party agreement within the governing coalition on a consensus reform melding liberal and solidaristic values,⁴ subsequently approved by referendum, incorporating the existing not-for-profit funds into a system of compulsory coverage based on income-scaled contributions and establishing conditions of eligibility for federal subsidies.

Carriers of compulsory coverage are required to be nonprofit and federally registered and to provide a standard comprehensive package of benefits with open enrollment at community rates. (They may, however, differentiate plans and associated premiums according to levels of deductibles and restrictions on provider networks, much as occurs with the different plans offered in Affordable Care Act marketplaces in the United States.) In addition, as in Germany and the Netherlands, carriers of compulsory coverage may offer supplementary health insurance on a private basis for benefits not included in the compulsory package; however, the 2 types of policies must be kept legally separate. Some nonregistered insurers also offer supplementary coverage but have a small share of the market.^13(p46)

In Israel, 4 major voluntary plans dominated the market until the 1990s. As in Switzerland, however, growing costs fueled the pressure for reform. In particular, the financial peril of the largest health plan, owned by the labor federation, destabilized the tight nexus between the plan, the federation, and the Labor Party that had stymied reform for decades. A combination of interparty and intraparty competition opened the door to a reform compromise between the center-right Likud and Labor.¹⁴

A compulsory scheme of national health insurance, initially proposed under a Likud-led coalition government in 1992 and enacted in 1994 legislation under a Labor-led coalition, drew the 4 major health plans into a regime of compulsory coverage. The plans continued to function, and as before consumers could choose freely among them, but their premiums were replaced by per enrollee distributions from the state, financed by a combination of payroll and general taxation, and the benefit package was defined by the state. Again, the reforms preserved a significant role for private finance: the health plans could and did offer supplementary insurance on a privately paid basis, not only for services not included in the public plan but also to finance private provision of services already publicly insured, allowing for greater choice of provider and faster access, a provision that continues to generate controversy.⁸

ACCOMMODATIONS AND LESSONS FOR THE UNITED STATES

In this latest phase in the evolution of multipayer systems, the formalization of universal coverage and the opening up of choice across insurers on uniform terms and conditions have proved broadly acceptable to the public as well as to key interests in the health care arena. As a very rough measure of political acceptability, 2007 and 2016 surveys of 19 western European and Anglo-American countries with universal coverage showed public satisfaction with the availability of quality health care to be substantially higher on average in the 6 social insurance countries (with 86%–87% of respondents on average indicating satisfaction) than in the 13 countries with single-payer systems (75%–76%).¹⁵ For context, in 2016 spending on health as a percentage of gross domestic product was, on average, marginally higher in the social insurance countries (10.5%) than in the single-payer countries (9.8%).¹⁶

Each of these systems demonstrates that a variety of payers can be incorporated into an overall framework of universal coverage without abruptly disrupting arrangements to which health care consumers, providers, and insurers are accustomed. All of these systems, however, rest on fundamental accommodations among insurers, providers, and the state, with roots that stretch back decades. In the current version of this accommodation, consumers have guaranteed prepaid access to a comprehensive benefit package on the basis of income-scaled contributions while being able to choose among insurers that also offer supplementary coverage on a private basis. Insurers have access to a guaranteed market and are buffered against risk. Traditional collective structures for negotiations between insurers and providers have essentially been preserved, with limited space for individual contracting that could disrupt established practices and destabilize the overall accommodation.

But these stabilizing characteristics come with trade-offs. The linchpin of the accommodation with insurers in all multipayer systems is a risk adjustment formula that, with different degrees of sophistication in different nations, attempts to distribute revenues across insurers according to the risk profile of their enrolled populations. Such a mechanism is essential given the requirement that insurers must accept all comers at community rates. The sophistication of these formulas varies, however, and there is considerable evidence that risk selection by insurers continues to exist, to different degrees in different countries, especially given the ability of insurers to use supplementary insurance to craft packages that draw healthier clients.^17–19

Other issues arise at the boundary between public and private insurance. A particular problem exists in Germany, where upper-income individuals can opt out of social insurance in favor of private insurance. As a cautionary tale for advocates of a “public option” model in the United States, there is evidence that less healthy people are more likely to stay in the public pool than to opt for private insurance, thus undermining the principle of broad risk pooling that underlies public insurance.^20,21

What lessons can be drawn for the United States from this international experience? The first and foremost lesson is that each of these systems is based on a particular political settlement, so none is directly transferable to the American context. In each of the countries reviewed here, reforms were adopted by agreement within broad coalitions spanning the political spectrum. In each case the reforms were initially formulated by nonpartisan or multipartisan commissions, although space has not allowed discussion of that stage of the process here.

The breadth and perceived stability of the coalition of support for reform determine the limits of the possible, as a comparison of the Dutch and German experience can illustrate. The Dutch were able to transition from a bifurcated to a universal system over a 20-year period by building a broad-based coalition whose members could reasonably expect to continue to be able to oversee the transition. That established a “shadow of the future” under which all actors gradually adjusted their behavior in expectation of the endpoint. In Germany, by contrast, the 2 major partisan veto holders (the Christian Democrats and the Social Democrats) could each gamble that they would be in an improved position in the near future and thus could agree only to incremental reforms on which they could build in their respectively preferred directions.^{11(pp568–571)}

The United States is more similar to the German case in this regard, although the state of partisan polarization and gridlock on health care in the United States has no international parallel. Making for now the heroic assumption that gridlock could be overcome, a German-style model might be a politically palatable platform on which to build a centrist left–right coalition.

This model would draw employer-based, individual, and small-group plans under a universal framework, establishing a common comprehensive package of benefits and replacing private premiums, in all or part, with payroll taxation (shared by employers and employees) and individual contributions collected and distributed to insurers by the state. (The Dutch model nonetheless shows that premiums could be retained to some degree.) Some common mechanism of negotiating provider prices would also be required (possibly based on Medicare rates). But a full German-style model would also include the political safety valve of allowing upper-income individuals to opt out of the universal framework, still requiring them to have insurance but allowing them to purchase it privately.

Even if such a model (“Obamacare for all?”) could command a winning, and durable, coalition of support in the United States, significant problems would remain. The income threshold for opting out (as the “peace border” between the public and private sectors) could well continue to be politically contested. As in all systems of universal multipayer coverage, moreover, the viability of insurers would depend on the effectiveness of risk adjustment formulas for distribution of revenues. As noted earlier, even while mechanisms for risk adjustment across insurers were being significantly improved, problems of risk selection persisted not only in Germany but in each of the 4 nations discussed here. Moreover, where private insurance exists as an alternative to social insurance, as in Germany and Israel, issues of preferential access to care have arisen.

A single-payer system avoids such problems, as well as offering a less complex and administratively costly and arguably more equitable alternative route to universal coverage. However, if continuity with established arrangements continues to be politically determinative in the United States, a multipayer path to universal coverage may be more consistent with the art of the possible.