POINT
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The Current Financing of Health Services in Greece

Formenting Collaboration Between the Public Sector and Private Health Insurance Industry

It is almost twenty years since the issue of health care reform caught the public eye in Greece and became a major political issue. As the pace of rapid economic growth, based on wanton deficit spending, slowed down after the fall of the dictatorial regime, the interest in matters of social policy, hitherto a poor relative to other sectors of the economy, became more pronounced. The pensions regime, traditionally a sacred cow in Greece, was relatively unaffected. As a result, it consumed the major part of the increase in public social expenditures which, according to the latest OECD data, rose by 73,4% between 1980 and 1993¹.

Table 1 shows quite clearly that the Health Sector enjoyed very little of the attention paid by the public sector to the satisfaction of the populations' social needs. In this very simple truth one must seek the explanation for the obvious dissatisfaction with the health care system and the rapid growth of the private sector, which despite a period of political blacklisting during the 80's, survived and thrived, largely fueled by a rapid growth in the private health insurance, and in the vacuum created by the government dogmatism and ineptitude.

The prospects for the future are for more of the same, if not for the same reasons. As we approach the next millennium, it is increasingly becoming obvious that the public sector is, and will remain, in the grip of a serious financial crunch. At the same time, the political impetus for the liberalization of all markets is already appearing in the health market as well. This will probably take the form of managed schemes with the private health insurance and delivery sectors playing the leading role.

The main point of this paper is that in certain health economies like the Greek one, characterised by shortages of resources, inadequate public administration, and problems associated with public financing, the role of the private sector can, and, indeed, should be much more important. When major investment is required in order to modernise the health system, one convenient source of funding should be found in collaboration with the private sector. Indeed, the only possibility for the private sector to play its constitutional role as a guarantor for the provision of adequate social services to the citizens is a significant increase in productivity and perceived quality of care. Whether this will come to pass is the "bet" of the next decade. We believe that the private sector, and especially the private health insurance industry, has a role to play in winning this bet.

The Greek health care system has always been a typical example of the Social Insurance (Bismarck) model. According to the generally accepted OECD typology, it is a mixture of the public contract model and the public integrated model². The introduction of the National Health System in 1983 was a move towards the establishment of a National Health Service, but this move was never completed.

One important feature of the Greek system is the existence of a strong sub-system, along the lines of the voluntary reimbursement model, and a significant "black" health economy, financed by the out-of-pocket private payments. The exact magnitude of this market is strictly a matter of conjecture, although some estimates put it as high as 3% of GDP. As we will show later, it is to this sector that private health insurance caters, as acting in a supplementary role to social security.

Total Heath Expenditures at the end of 1993 were estimated at around 8% of GDP, up from around 5% in the middle of the previous decade. The large increase in health expenditures during the late 80's moved in opposite directions than in other OECD countries. According to OECD data, the income elasticity of health expenditures was 2.5 in the period 1975-84, compared to an OECD average of 1.3, and rose to 3.4 in the period 1980-84 compared to 0.5 in the other OECD countries. This is an indication that, from the start of the previous decade, Greece entered a period of high spending for healthcare, mostly in the form of private expenditure, as a result of a serious under financing by the public sector.

Despite the considerable increase in health spending, health care in Greece suffers from the lack of credibility and low income satisfaction. The main problems are in outpatient care, where the lack of the institution of the general practitioner as a family doctor causes serious delivery, access and referral problems; the limited effectiveness of the emergency care services, the poor organization and low level of development of primary health care and the shortage and bad distribution of quality hospital beds, the majority of which are concentrated in the Athens and Thessalonica regions. Not surprisingly, these are all areas where the public administration and the perennial lack of a coherent health policy resulted in poor planning and the low quality of service provision.

During the decades of the 1970's and the early 1980's there was little public investment in hospital construction. Moreover, during the 1980's, there was a paucity of private investment, and a great number of closures of small private clinics, a result of government policy with the introduction of the National Health System, voted in 1983 and partly implemented since 1985. The prohibition of investment in new plant for the private hospital sector, coupled with administered low daily charges, resulted in a reduction of private beds by 49% between 1981 and 1991, not replaced by the meager 3.4 increase in public beds. As a result, Greece with 5.1 (acute and long-term) beds per 1000 members of the population, faces a serious shortage for quality beds with satisfactory accommodations, or other hotel services. This has led to queuing problems in certain large hospitals, under-the-table payments, and a shift towards a few large private hospitals offering better accommodations and charging considerably less than state hospitals.

The recent interest in private healthy insurance should be seen in this context, as a result of widespread dissatisfaction with the public health system and especially with the hospital sector. During the last decade, Greece has experienced a spectacular upsurge in private life insurance as supplementary coverage to Social Security protection, with annual rates of increases in premiums exceeding 40% and making Life insurance the most dynamic branch of private insurance (tables 2 and 3). An important factor in this development has been the increase in private health insurance, driven by a variety of new products centering around hospital coverage. Both life insurance and health insurance increased dramatically between the years 1985-94, with the pace slowing down after 1992. The increase in health insurance, however, has been much faster, and a quarter of the people insured already have full private insurance on top of their social security coverage. Although reliable data do not exist, we have estimated that 20% of the population already have some sort of life insurance coverage, and the total contributions already amount to almost 10% of total Social Security contributions (table 3)³.

It is interesting, that the upsurge in private health insurance after 1985 coincided with the legislation of the National Health System. This was certainly not the stated intent of the socialist governments' health reform of 1983, which sought to emphasize the public nature of health financing and delivery. Expressed political wills notwithstanding, however, the increase in private health insurance took place at a time when the public health expenditures as a percent of GDP remained virtually stable (table 1). It also occurred during the period in which public social protection expenditures nearly doubled, from 10.9% of GDP in 1980 to 17.3% in 1993. This is in accordance with findings in some European countries, where the private life insurance occasionally complements low public social expenditures, but it usually plays a more important role in countries with high GDP/capita and well developed publicly financed social protection systems⁴.

Although we have no European data on health insurance itself, there are indications that private life insurance plays an important role in countries with well developed publicly financed social protection and health care systems. The cases of the U.K and the Netherlands are, probably, the best examples. In fact, our own research has shown that private life expenditure is highly correlated with public expenditures on health (Liaropoulos, 1993). As we mentioned earlier, however, the interest in private insurance in Greece is mainly due to the under financing of the public health sector.

Although there is good reason to believe that high expenditures for private health insurance in Greece will continue, we have very little information on the magnitude, the scope, and the effectiveness of these expenditures. The domain of private health insurance theoretically can be defined as protection against two main risks:

� The risk of ill health and the health consequences of an accident

� The economic risk associated with illness, disease, and accidents.

Protection against the risk of ill health or accidents usually implies the direct provision of health services. European countries, however, do not depend on private health insurance carriers for health care management and delivery. More often, private carriers are delegated a secondary position on the basis of the ubiquitous arguments of moral hazard and adverse selection⁵. This aspect of private health insurance naturally limits it mainly to providing (supplementary) protection against the financial risks involved by financing the cost of curative services, and especially of hospital care, and it rarely enters into the areas of prevention, health promotion and rehabilitation (the HMO concept is not yet a European favorite). It is not unusual, however, for commercial health insurance schemes to include direct service provision, one notable case being BUPA in the U.K, which owns its own hospitals⁶.

Private Health Insurance in Greece is, so far, of the traditional indemnity type, with no interest in the direct provision of services. Organizations such as the HMO's or PPO's in the U.S, are hitherto unknown in Greece. Certain moves in the direction of managed care are beginning to appear, however, such as a recent effort by the Federation of Bank Employees and the Union of Greek Banks, aiming at the creation of a complete system of health services, and especially of hospital care. In fact, at a recent joint conference of visiting HMO executives from the U.S and top management from the Greek insurance companies showed, the prospect of private health insurance business in the delivery of care is very close⁷.

So far, insurance companies in Greece have been complacently living on the extraordinary annual rates of premium income growth, paying little or no attention to the actual pattern of health services consumption. This attitude of benign neglect may have been justified for a while. The only research effort which attempted to determine the exact extent of insurance for the period 1987-89 concluded that the main field of activity for private health insurance in Greece was supplementary or replacement reimbursement as a protection against the economic dangers accompanying ill health, in the form of partial income transfers and stipends following hospitalization or accident. Very important was also the reimbursement for the use of outpatient mainly diagnostic, and other specialized services, but hospital care was not, surprisingly, the main expense category⁸.

This situation changed very rapidly and in the typical fashion of a "bull" market. Life insurance companies entered into a period of cut-throat competition offering essentially the same product, usually through a "card" which promised unlimited coverage, immediate access, emergency care, elimination of bureaucracy, and, mainly, luxury treatment in private hospitals. Product differentiation was mainly sought through advertising, and the promise of certain amenities upon hospitalization. Very little attention or thought was paid to what might follow in terms of an explosion in utilization.

A serious problem already facing private health insureance in Greece is the lack of a reliable hospital reimbursement system based on the actual cost of hospital services. The progress in the construction and use of DGR's in Greece is not as rapid as in some other European countries.⁹ This has created a dangerous situation, where the insurance industry, unable to control the fees charged by private suppliers, as well as the volume of services, is only now beginning to consider ways of negotiated fees, or alternative insureance and delivery schemes.

These rather ominous developments are beginning to have profound effects on the Industry. The main characteristic of the private health insurance market in Greece is its oligopolistic structure, with the market leader dominating 30% of the market and the next four (out of a total of 15 companies) accounting for 45%. In the last few years, however, the pace of growth in new business has slowed markedly, while claims expenses are skyrocketing. This made the move towards greater market concentration more pronounced, and the companies doing exclusively Life insurance business have gone down from over 30 to around 15. In what follows we will attempt to show that the clouds gathering over the private health insurance industry may have a silver lining, if public and private sector cooperation is pursued.

The net effect of increased private health insurance activity is equivalent to an income effect which creates additional purchasing power and excess demand for health care in the form of already existing hospital beds and other health services. In the short term, and as the supply of health care services is inelastic, the only immediate effect is a price increase. This price increase is a strong incentive for further investment with an ultimate equilibrium at a point of increased supply. In other words, the medium term effect of the growth in private insurance is an increase in prices and output.

This is what has actually happened in Greece during the last few years. In the absence of an increased supply response on the part of the public sector, the excess demand has been translated into higher prices and substantial profits, but also investment opportunities for the private sector. These opportunities were significantly increased after 1989, when the conservative government begun to remove many of the constraints on the development of the private sector imposed by the socialist government during the 1981-89 period.¹⁰ The question, of course, is whether the resulting increase in output was economically efficient and what the consequences were for the equity of distribution of health services.

The increase in the quantity of services supplied can be seen in the rapid growth of the number of new private diagnostic centers, the spectacular rise in private hospital profits, and the great increase in private expenditures for capital equipment. Considering the fact that private services are not reimbursed by social security, what, in fact, happened is that private insurance supplied the purchasing power for a thriving private sector, much against the intent of the National Health System Law of 1983. On the other hand, it was precisely the result of government mismanagement, shortsighted planning, and its attempt to limit the role of the private sector. The end result was the introduction of gross inefficiencies and substantial degree of inequity in the health system.

It is obvious from Table 5 that the private sector was quick to capitalize on the serious financial problems and the perennial bureaucratic bottlenecks observed in the public sector, and proceeded with major investment in the health area. It is interesting to explore what were then the existing investment possibilities. Perhaps this will give us a hint as to another possible investment opportunity for private health insurance, namely that of investment in medical technology.

The ban on new private hospital construction in Greece after 1983 led the private health sector to the search for alternative investment opportunities, in the form of ambulatory, mainly diagnostic, facilities. During the six years, from 1986 to 1991 there were 159 new diagnostic centers, as opposed to only 21 in the previous six years 1980-1985. These centers were set up either as departments of already operating private hospitals, or as new businesses. The shift of outpatient diagnostic facilities was facilitated by the rapid growth of expensive medical technology, especially in the area of imaging, taking place internationally at the same time. The world market for medical equipment was, in fact, growing rapidly at the time, from $3.2 bil. in 1975 to $6.7 billion in 1980 and $9.7 billion in 1985.¹¹

It is to this market, as well as to private hospital care and hospital treatment abroad, that private health insurance caters covering the considerable out-of-pocket expense involved. Indeed, the situation in this respect seems to resemble developments in New Zealand, where, after fifty years of public health care, the private sector thrives alongside with a booming private health insurance industry.¹²

This shift of the private sector to the installation of sophisticated diagnostic equipment, which was financed to a large extent by the nascent private health insurance industry, has by no means increased microeconomic efficiency in the Greek health care system. According to this criterion, a mix of services should be chosen which maximizes a combination of health outcome and consumer satisfaction for the available share of GDP to health (allocative efficiency). In addition, costs should be minimized for the available GDP share (technical and cost efficiency). Finally, dynamic efficiency should be pursued. That is, there should be a search for technological and organizational advances which raise the productivity of given resources (OECD, 1992).

This criterion of microeconomic efficiency has certainly not been met by recent developments in the Greek health care sector. The use of advance "big-ticket" medical technology has proliferated well beyond the average for other (wealthier) E.U. countries, (Table 5) adding very little to the actual outcome in terms of health. On the contrary, other technologies, such as transplantation technology which could greatly improve the quality of care have lagged behind, because the complexity and cost of creating the required specialized medical facilities does not attract the private sector.

It is perhaps in this area of improving macroeconomic efficiency in the health care sector that we may find suitable grounds for the private-public cooperation that we will talk about in the next and last section of the paper.

The increasing cost of health care, usually attributed to greater life expectancy and the impact of medical technology, has caused a very active debate on the question of choices in health care, especially in countries like Holland with developed health economies.¹³ In these countries there are no major investment requirements, as the health sector infrastructure problems have already been solved, and the main problem is to control resource utilization. In such health economies, a significant role is reserved for private health insurance when the debate for a minimum basic care package is on, with private insurance active in providing not only supplementary coverage, but also increased quantity and quality care to those that can afford it.¹⁴

Preliminary results from current research by the Institute for Health Systems Management (IMSOY) on the issues mentioned above indicate that the impact of private health insurance on microeconomic efficiency in the health care system in Greece has, so far, been negative. It is important to stress, however, that this seems to be also associated with government restrictive policy towards the private sector. It is precisely in the direction of improvement in microeconomic efficiency that we believe that private health insurance should aim, in n health sector such as the Greek one. The expectations for the future are not encouraging as the mean age of the insured population and the need for actual services increases at time of fiscal crisis. Four basic facts, which hold true in every health system and point to the need for a shift in the focus of private health insurance activities, in cooperation with the public sector, should be taken into account:

� A health system which is largely publicly financed faces a serious shortage of investment and operational funds as the proportion of the aged in the population increases.

� As the public health system lowers the quantity (and the quality) of the services it offers, the private sector steps in, realizing greater profits, but also increasing the degree of inefficiency and inequity in the system.

� The private health insurance industry is obliged to invest as profitably as possible in order to face claims payments in the future. In 1991, private life insurance companies investments exceeded 1.0% of GDP, with a return of around 15%, just slightly over the inflation rate.

� The higher profit margins arising out of the added purchasing power created by private health insurance can stimulate new investment in the health industry either by the private medical sector, or by private health insurance itself.

It is these four facts that suggest a different and more meaningful, in terms of microeconomic efficiency, role for private health insurance in underdeveloped health economies, such as we have in Greece. There is good reason to believe that public health expenditures cannot and will not continue to increase. On the other hand, major hospital and other facilities construction is a money and time consuming process, which strains the resources of the public sector. Public infrastructure shortages and the resulting health care price increases, especially in the private sector, will continue to provide a rationale for certain segments of the population to seek private health insurance coverage.

These future developments, should cause government and the insurance industry to reconsider the role private health insurance could play in the health sector. Some sort of investment agreements between the public and the private sector could, obviously, benefit both. There is really no reason for private health insurance companies to seek investment opportunities in other sectors, with some degree of risk, when investment opportunities exist in a public escort, always "strapped for cash "and borrowing at high interest rates." In order, however, for these investments to increase the level of technical and allocative efficiency in the system, they should be undertaken under some sort of agreement or consultation with government, and in areas where serious deficiencies and resource constraints exist. This could entail a series of investment incentives, or other arrangements, which could ensure that private investment would improve the performance of the public health system.. The investigation of such suitable investment schemes ( eg. transplantation centers) is a considerably complex matter, which we certainly cannot exhaust in this paper. Our attempt here was to simple raise the issue and cause some debate which should also benefit our further research already under way.

In this paper we propose that a way of collaboration should be found between the public sector and private health insurance, which would improve public health services provision and overall technical, allocative and dynamic efficiency in the health system. It is obvious that such improvements in the public sector would also benefit the private health insurance industry, lowering claims costs, allowing for better health services utilization control, and actually increasing their market size, if they enter, even indirectly, into the provision of services. A final point is that such policies on the part of private insurance companies would also reduce their investment risks, and could significantly raise their rate of return on investment.

The main message from this paper is that health policy in health care systems faced with resource shortages, immediate investment and modernization requirements, and serious financing problems needs to be flexible and imaginative in order to take advantage of all investment possibilities. In such health economies, the emergence of a strong private health insurance sector can be a blessing or a curse, depending on health policy pursued by the public sector. If the supply of health care resources and services remains fixed, the additional purchasing power generated by private insurance will simply raise prices and exacerbate inequities in the system. If, on the other hand, a part of the large private insurance reserves are invested in the health sector, creating additional capacity, the increased supply of services could prove beneficial to the whole health care sector. It is clearly a positive-sum game for both players, but, most of all, for the Greek people.