Administrative costs in selected industrialized countries - Special Report

Health Care Financing Review, Summer, 1992 by Jean-Pierre Poullier

Data on administrative outlays are readily accessible for the total sum of social security programs. A proportional rule--allocating costs in proportion to each function--does not work because public pensions, family benefits, and other cash entitlement programs are cheaper to administer than casualty insurance and claims reimbursement. Data separating the administrative cost of each function are not readily accessible. Should any inferences be made from the aggregate administrative costs, they would show a more pronounced trend than that exhibited on the righthand side of Table 1; if bureaucratic productivity were equally shared among all functions, the downward trend would be confirmed. One example is provided by Belgium, where the largest social insurance carrier enacted an even more stringent productivity drive than that

in France. As a result of this drive, administrative costs in Belgium dropped sharply. France, as well as several countries for which estimates are not supplied on the lefthand side of Table 1, would at first glance appear to be countries with decreasing total administrative expenditures because social insurance programs overwhelmingly dominate the provision of insurance, and competition among private insurers appears to be minimal.

Policy implications

The restructuring of the basic administrative arrangement through which health services are delivered is high on the agendas of most European countries. Their health care objectives vary considerably, depending on cultural and other preferences. But with few exceptions, this restructuring is being planned without administrative efficiency being a specific goal.

Considered as a group, European health systems are evolving from variants of the command-and-control model (adopted in the post-world War II years for reasons of social effectiveness) toward more competitive structures. Stability, for many years, was the most sought-after quality: a stable knowledge base regarding the services to be provided, a stable organizational base of financing and delivery, and stable expectations from the patients. Equity considerations did prevail over efficiency, but it would be wrong to evaluate the European systems as having been harshly rationed.

This model of stability is breaking down in Europe, north and south. The delivery of health care has become more complex and thus requires more flexibility. Rigid structures are crumbling. Allocation of block grants to providers is yielding to the newly discovered principal of "money following the patient." To contain expenditure growth, market mechanisms are being reintroduced--not pure neoclassical competition, but contracts between providers and the financing agents. The precise forms differ in Belgium, the Netherlands, Sweden, and the United Kingdom, and these restructured systems are mostly too new to provide conclusive evidence of their efficiency. However, if recent German experience is any indication, a stable ratio of health expenditures to GDP can be maintained along with a high level of services, even with increasing administrative costs. (1) Productivity gains have been considerable, though largely unmeasured, in the provision of midical services. Because of a lack of outcome measures, much output is still valued by means of throughputs, or as the weighted sum of inputs. These methods unfortunately do not take into account changes in the production function, and often appear as increases in units of inputs for specific units of outputs. (2) Purchasing power parities are rates of currency conversion that eliminate differences in price levels between countries. This means that a given sum of money will buy the same basket of goods and services when converted into those currencies at the PPP rates. The measure by which the estimates in Table 2 are obtained is PPP rates for the entire product of nations. The PPP benchmark revisions used in Table 2, based on year 1990 and available since January 1992, have resulted in a new set of parities considerably different from those obtained by extrapolating the previously used 1985 benchmark base. (3) The Caisses Primaires d'Assurance Maladie in France presently employs some 80,000 staff, not counting personnel collecting contributions. Their salaries are not included in the national health accounts. In Depenses de Sante. Un Regard International, Yannick Moreau (to be published) quotes a figure of 4.5 percent as social security expenditures (medical branch); payments and reimbursements from this group cover roughly what constitutes personal health care expenditures in the United States (i.e., about 85 percent of measured health outlays using the OECD definition). That 4.5 percent, however, is not comprehensive, because it excludes contribution collection costs, a few other functions of the system, and other general government outlays listed in Table 1. A 10.8-percent estimate for total health expenditures for 1974 (supplied in Public Expenditure on Health [Organization for Economic Cooperation and Development, 1977]) is more than twice the level accounted for by combining the two sets of data and cannot be considered as plausible in the early 1990s. Productivity gains have been sharp in the administration of France's health programs. A conservative guess would be a ratio for total health administration figures in the 5-to-6-percentage-points range and a public health administration figure in the 6-to-7-percentage-points range, a sharp decrease from the levels of two decades ago.