Chapter Seven. Financial Insecurity of Health Security

C HAP T E R S EVE N Financial Insecurity of Health Security COMPULSORY METHODS of providing medical care tend to unbalance the accounts of the sickness panels. People forced to join a cooperative or to pay contributions to a governmental scheme share no responsibility for, and take little or no interest in, its welfare. They exploit it accordingly. This is visible even in the Swiss scheme which, among all those under some sort of state control, is the most successful. It is burdened with the least amount of authoritarian rule and uses the smallest share of "other people's money."! FINANCIALTROUBLES In Switzerland, as has been menEVEN IN tioned, no medical compulsion is SWITZERLAND being exerted by the national ·govemment itself. It pays, however, moderate subsidies-an annual $0.75 to $1.00 per insured, with extras for maternity and tuberculosis cases-to "recog nized" and supervised panels which have to provide a defined minimum of services. Since 1918, the cantonsmay apply com pulsion either directly or through local authorities, keeping it within specific income limitations, and always under the spelled-out clause that employers cannot be forced to con tribute.

The result is that the map of Switzerland, shaded according to types of health insurance compulsion, or lack of it, looks like a checker-board. By and large, only industrial cantons or cities, and those up in the high· mountains, take advantage of the power vested in them. In some, industrial workers have to be 62 63 ] FINANCIAL INSEOURITY OF HEALTH SEOURITY insured; in others, only school children, or all children. Here, the entire canton is covered; there, only some of·the cities or counties. Where compulsion is applied, the canton and the municipalities contribute to the costsbut very moderately only. In spite of vast differences between individual units, and with an appreciable income from invested funds, the Swiss panelsrelyon aid from federaland localauthorities.Virtually every year, the system as a whole runs·an operating deficit of about 18%. It is being covered by subsidies amounting to roughly 20% of total expenditures. With all that, the battle against further· deficits is the prime worry of .all concerned.

In the middle 1930's the konkordat (re-insurance federation to.cover the special risk of tuberculosis cases) of the German Swiss panels sponsored a study of their rising costs. It revealed that annual per-member disbursementsof the largest "private" panel increased from 22.51 Swiss irs. ($5.25) in 1910 to 31..94 frs. ($7.50) in 1925. After a modest decline during the great depression it still stood at 27.21 frs. in 1934 and jumped to 30.92·frs. in·the following year. In a major·cantonal ("pub lic") panel the per capita cost rose from 15.88 frs. in 1910 to 28.18 in 1925 and to 35.19 in 1932, right in the midst of the depression. It reached 35.93 by 1935. In every instance, it has been rising under conditions of the wartime and post-war boom. If depression cannot stop the growth of expenditures, inflation certainly helps to bolster them. By 1947 the per member expenditure of the average Swiss p~nel climbed to almost 70 frs. ($16.40) per annum, nearly double the level of the late 1930's.

COST PARING BY By the late 1930's the Swiss panels MORBIDITY CONTROL insti!uted ag~eatmany reductio~jn medical servIce, thereby· checkmg the rise of costs and keepingit withinthe limitsof commodity price increases. Table I shows the very slow rise, or actual decline, over the last decade, of morbidity in those panels,;,this in spite of the steadily growing percentage of women in the total membership. Note that the Swiss statistics strictly dis tinguish between the operations of two kinds of insurance: for cash benefits and for medico-pharmaceutical services. (The latter do not include dental services,the amount of which varies COMPULSORY MEDICAL CARE AND THE WELFARE STATE [ 64 greatly from panel to panel.) Members may contract for one of the two kinds of insurance, or for both, as the majority does. TABLE I 1938 1943 1944 1947 A. Cash Benefit Insurance: Number of sickness (absentee) days per 100 insured Male ......•........... 860 840 800 870 Female ................ 1,000 890 840 930 Average length (days) of sickness Male .................. 29.5 29.1 23.1 24.6 Female ................ 35.3 28.6 24.7 28.4 B. Medical Service Insurance: Total medico-pharmaceutical costs in Swiss francs Per Male .............. 25.97 29.83 33.58 39.70 Per Female ............ 38.40 45.73 48.34 59.06 Number of hospitalization days Per 100 Male ........... 160.9 245.6 171.9 180.0 Per 100 Female ......... 158.4 234.0 251.4 260.0 Number of sick per 100 insured .................... 53.5 64.1 65.4 63.9 Number of sickness cases per 100 sick ................. 137.5 131.9 142.3 141.4 The trouble is that per-member outlays grow, and ever-fresh problems of financing arise. Premiums for cash benefits, levied in percentage of wages, have remained fairly constant. But the rates charged for medical and hospitalization insurance have more than doubled since 1911. However, each "upping"

creates resistance among the membership that carries the cost. As a rule, it prefers to get less rather than to pay more. There fore, since the middle 1930's, the Swiss panels have imposed on their members cost-paring rules, such as lengthening the waiting periods, reducing the scope of the services rendered and raising the "deductibles." This self-deflating propensity of the comparatively free panel -free from political interference-is one distinguishing fea ture. For another, administrative expenses are under control, too. They average about 8.5% of total costs, running as low 65] FINANCIAL .• INSECURITY OF HEALTH. SECURITY as 4% in small units and plant panels. But the growing con centration in large units with numerous branches brings with it a tendency toward unwieldy bureaucratism. Also, the un healthy practice of under-insuring for cash benefits has be come alniost generally accepted. And major panels are increasingly burdened by·involuntary members who are being "allocated" to them and who tend to exploit the respective organizations.

GERMAN FIGURES The .l~ng ?istory .of Ger~an compulsory TELL THE STORY medICIne.IS a mme of InformatIon. It started wIth a 47'2% payroll tax, two thirds of it charged to the workers. Presently, 7 to 7Y2% is the rate in most panels, and the socialist party fights for raising it as well as for shifting the entire burden on the entrepreneurs. The increase of per-member expenditures in the German panels was comparatively slow until about 1914. Even· so, outlay per insured trebled in the first 30 years. Then, an accel erated horizontal and vertical expansion set in with results shown in the following tabulation of average per member expenses (in gold marks) : TABLE II Doctors Dentists Phannacies Hospitals Cash Benefits 1885 2.15 1.69 1.01 5.37 1900 3.60 2.73 2.06 7.35 1913 6.92 4.45 4.34 11.91 1925 13.24 2.35 7.32 8.24 23.03 1930 19.32 4.15 10.14 13.78 25.04 Why this rapid and almost continuous increase in total per capita medical expenditures-from 10.22 marks ($2.50) 45 years ago to 27.62 marks ($6.60) in 1913, and 72.43 marks, almost $18.00, in 1930? The ,general price level alone could not be blamed:it rosein the wholeperioda bare 50%, mainly after 1913.2 By then, the panels already had expanded their services to 4 million dependents, which number grew to 15 millions in 1928. But that does not explain the per capita cost inflation. Dependents were not being cared for as liberally as were the insured. The latter themselves had been the chief factor, .as shown by the. column "cash benefits" in Table II.

COMPULSORY MEDICAL CARE AND THE WELFARE STATE [ 66 The panels had been extending more and more privileges to their members who in turn were taking more and more advantage of those privileges. During the 50 years under review, the rate of remuneration of German doctors working for the panels had risen very little. Evidently, if medical costs went up as they did, it was because the patients were patroniz-: ing the physicians with growing frequency. Most spectacular was the skyrocketing cost of hospitalization. Dentistry was a late comer on the schedule of German panels: small wonder that its cost rose 7-fold in the 1920's. It was the era of the welfarist Weimar Republic that was spending freely for municipal improvements and swimming pools as well as for medical benefits. "Corruption" in social insurance-in sickness care as well as in accident insurance-had become something of a national scandal which culminated in 1928 and helped to undermine the Weimar Republic's domestic prestige.

When the "borrowed prosperity" came tu~bling down, the sickness scheme had to undergo a thorough house-cleaning. The Nazis took over a deflated scheme in a deflated economy. The panels were at first in Hitler's "doghouse." But the re armament boom reconciled labor to the Third Reich. Full employment raised the membership by millions, and the verti cal expansion of the medical system was resumed, too, as indi cated (Table III) by a 22 per cent increase of per-member expenditures in five years' time. TABLE III 1933 Number of panels.......... 6,427 Number of insured (without dependents) . . . . . . . . . . . . . . 18,540,000 Revenues (in marks) . . . . . . .. 1,581,744,000 Total expenditures (in marks) 1,180,876,000 Administrative expenditures (in marks) . . • . . . . . . . . . . . . 127,860,000 Surplus of revenues over expenses (in marks) . . . . . . . .. 400,868,000 Total costs per insured· (in marks) . . . . . . . . . . ... . . . . . . 63.67 1938 4,524 23,222,000 1,802,617,000 1,781,485,000 160,805,000 21,132,000 76.71 67 ] FINANCIAL ·INSEOURITY OF HEALTH SECURITY This huge growth in the number of contributors boosted the revenues of the· panels accordingly. But since 1935 their costs were rising even faster, in spite of the control efforts of the Nazis. The sub~tantialsurplus of revenues in 1933, which re flected Bruning's incisive cuts in costs, was reduced in 1938 to a pegligible amount. In reality, the panel·system was operating at a loss, the deficit being covered by the liquidation of assets accumulated in better days. The finallcial deterioration became progressive again. By 1938, the Nazis solved the problemby stopping the publication of detailed figures on panel costs and finances.

MORBIDITY AND Let us turn back once more to the panel ABSENTEEISM costs in pre-Nazi Germany (Table II, p.65). "Cash benefits" is the most reveal ing single item. German wage rates in 1930 could have been scarcely more than double, if that, those of the late 19th"Cen tury level. The amount of per-insured cash benefits-60 per cent of wages, plus very minor family allowances-could .not have been appreciably affected by the number of.dependents. Yet per capita cash benefits have trebled. Obviously, the aver age German worker was acquiring the habit of taking sick leaves. The shortening of working hours since the 1918 revolu tion had the effect, if any, of strengthening that habit. About one-third of all insured were absentee-sick, for an average of eighteen days each, every year prior to World War I. Absenteeism reached its peak in 1928: every second insured taking leave for an average of twenty-four days each!

This long-run trend of growing morbidity was not due, as·one might surmise, to women entering the panels in increasing numbers. Their morbidity "coefficient" is slightly higher, but it did not rise appreciably faster than that of the male insured. Anyhow, Bruning's deflation reversed the "secular" trend of growing absenteeism-. for a while, as indicated by the data of Table IV.

COMPULSORY MEDICAL CARE AND THE WELFARE STATE TABLE IV Sickness Statistics of German Obligatory Panels. [ 68 Number of Number of paid sickness Sickness (absentee) Number of paid (absentee) days per sickness days cases per sickness case (with inability 100 with inability to work) per members to work 100 members 1885-1913 37.8 18.1 685.2 1913 42.1 20.6 867.6 1925 51.5 24.4 1,256.2 1928 55.4 24.0 1,329.8 * * * * * * 1933 36.1 25.6 924.9 1937 41.6 22.6 936.7 1938 45.7 21.7 991.7 In one respect, at least, the Nazi regime turned out to be a blessing in disguise. It stopped the scheme's rapid "lateral" expansion that had been going on for decades. Administrative expenses for personnel in the metropolitan kassen had risen 6-fold between 1890 and 1930. Under Hitler's feverish arma ment program German manhood found more glamorous occupations than the panel bureaucracies could offer with prac tically frozen salaries in exchange for much work and little prestige.

COST PROBLEMS OF Many of the smaller schemes suffer LITTLE COUNTRIES from the same type of financ~al pains as do the larger ones. In Belgzum, the sickness panels, numbering well over 1,000, were put, in 1945, into a compulsory system.3 They are subsidized by the State to the tune of 16% of contributions. But by 1948, an additional overall deficit-a "visible" one-of 1,000,000,000francs (about $20 million) had to be taken over by Parliament. It balks in 1949 at repeating the performance. An ordinance of January, 1949, compels the Belgian panels to cover their losses retro actively by raising the amount of contributions at the end of each year in which they run a deficit. Presently, Belgium struggles with the problem of reorganizing the whole scheme.

69] FINANCIAL INSltCURITY OF .HEALTH SEOURITY Take the curr~nt situation· ·of the Austrian scheme. The panels were in the . black and .even accumulated surpluses during the famine and inflation years immediately after the war, including 1947. But·they became .infected by the expan sion..urge and went a long way in constructing ambulatoriums andpolyclinical facilities. As soon as the monetary stabilization cut off ·the easy flow of .·funds·and brought in.a new flow of patients, the surpluses turned into a 15% deficit. The govern ment had to step in with subsidies. Numerous compulsory schemes operate without open defi cits. But most of them are subsidizedat the expense of national and local budgets in addition to employers' and employees' contributions. Also,every singlescheme draws hidden subsidies -from the doctors. Even so, not one of them can live within its own budgeted revenues unless by greatly restricting the services it is supposed to provide. Practically none of the gov ernmentalized Elans is any longer in the habit of accumulating financial reserves, as the German panels did ·in better days.

THE BURDEN OF Western Europe's ~conom~ is stymied by; SOCIAL SECURITY .over-expanded SOCIal securIty burdens on top of a record high level of general taxa,rion. The tree of the Welfare State is in full bloom. French social security taxes of all kinds paid by business,including the cost of paid vacations, are estimated officiallyto average 34.5%, of the payrolls, two-fifths of them lor the sicknessand mater nity scheme. But the metal industry of Paris carries a total of 44.7%, not counting the voluntary welfare expenditures of the firms, as against 15% in 1938. The social security cost of the government-owned railroads has climbed to well over 50% of their payrolls; one major nationalized insurance company claims to be loaded with 82%. The comparable payroll taxes charged to employers were in 1947: 18.2%in the Netherlands, 23.6% in Belgium, 20.5% in Luxemburg, and an estimated 18 to 20% for Trizonal Germany,.etc. In each case, the employees pay additionally (6% in France, 7.65% in Belgium) , often shifting these·taxes, too, on the employers. The load on pay rolls is growing. In Belgium, as an example, since the middle of 1948 it amounts to 29.53% to employers and 8% to em ployees. All this·is on top of over...inflated, ·budgeted taxes. Of COMPULSORY MEDICAL CARE AND THE WELFARE STATE [ 70 total budgetary revenues as much as 25% to 3570 also serve for "social" subsidies and similar expenditures.

Nor is this trend restricted to socialist-ruled countries. Gov ernments to the right, as in Italy, compete with the left in social spending. Peron's semi-fascist regime leads the world-wide race in generosity, with an average 60% of the wage bill loaded on Argentina's industry. The provision of health care is the most unruly-least con trollable-element in public spending for the "security" of the individual, leaving aside the fact that virtually every where the sickness schemes are bolstered by charity and vol untary, unpaid efforts. Significantly, and obviously,referring to the Bevan scheme, Sir Stafford Cripps found it necessary to warn his own Party in his last (1949) budget day message: "We have to face our economic and financial problems with realism, and must not allow ourselves to be carried away by the quite understandable desire to court electoral popularity. When I hear people speaking of reducing taxation and at the same time see the cost of Social Services rising rapidly, very often in response to the demands of the same people, I wonder whether they appreciate to the full the old adage-we cannot have our cake and eat it. We must recognize the unpleasant fact that these services must be paid for arid they must be paid for by taxation, direct or indirect ... There is not much fur ther immediate possibility of the redistribution of the national income by way of taxation in this country ... We must, there fore, moderate the speed of our advance in the extended appli cation of the existing Social Services to our progressive ability to pay for them by an increase in our national income. Other wise, we shall not be able to avoid encroaching, to an intoler able extent, upon the liberty of spending by the private indi vidual for his own purposes."

DEFLATION IS It i~ with this backgro~d of ove! POLITICAL SUICIDE st~alned Welfare ~r ServIce Stat;s In mmd-that comprIses also a multitude of social subsidies for food, housing, transport, and fuel, plus aid to farmers and veterans and for reconstruction and nation alization, etc.-that the problem of rising costs in the compul sory health schemes must be visualized. Commercial insur71 ] FINANCI~L INSECURITY OF HEALTH SECURITY ance can raise its premiwns and lower its services to maintain its balance .. Compulsory systems scarcely can go back on the services they.once have established. Some one would be risk ing .political suicide. Semi-dictatorial. regimes, caught in a depression, like Briining's in Germany (1930-31) and Schusch ~gg'sin Austria (1937) tried it. That helped to seal their fates. Only a military ruler like Pilsudski in Poland (193-3), and, of course, Stalin (1938) can afford such experimentation.

The abolishment altogether of a compulsory sicknessscheme, once established, even if bankrupt and unsatisfactory, is be yond imagination. It never has happened. The difficulty of raising additional contributions and subsidies puts the schemes in a tight spot, an ever-tightening one. It nece~itates econo mies, which in tum negate the very purpose of the schemes. Invariably, the doctors are the first victims in this conflict between political objectives and financial realities.