Paying the Bills: Health Care Funding in Central and Eastern Europe
by Martin McKee

By the late 1960s the Soviet model of health care clearly could not maintain its initial successes. While health care advanced rapidly in the West, with new pharmaceuticals and surgical practices, the Soviet Union, and to a somewhat lesser extent its Central European satellites, suffered from the dual challenges of isolation from Western scientific developments and a reduction in funding for the so-called nonproductive sectors, including health care, largely because of the diversion of resources to military spending. The number of deaths that could be avoided by effective and timely medical care began to fall rapidly in Western countries, but remained high in the Soviet Union.

By the end of the 1980s, dissatisfaction with the Soviet model of health care was widespread. The gap with the West became ever more apparent, largely as a result of glasnost, which helped reveal that the system was much less equitable than official statements suggested. Those fortunate to work in politically privileged jobs or in successful enterprises that could cross-subsidize their facilities fared much better than those reliant on often very basic facilities. In many countries the use of connections or informal payments became widespread as a means of obtaining better quality treatment.

Consequently, when communism collapsed, changes in health care financing were inevitable and health policymakers turned to examples from Western countries. Several factors influenced their decisions. One was the priority placed on transparency. Decades of the government siphoning money from health care to transfer to sectors such as defense convinced them of the need for a transparent arrangement that would protect health care funds. Physicians, who were often politically influential, wanted a system that would reward them adequately for the work they did. However, the general public was interested in a system that maintained universal coverage and did not support the U.S. model, which left many poor people without care.

Inevitably, this steered many policymakers toward a model based loosely on the social insurance systems of Western Europe. In reality, these systems could not be replicated, because they had evolved in different ways in each of the Western European countries over a period of a century or more, neither could they be grafted onto existing institutional structures of employers’ associations and trade unions. Nevertheless, a variety of health insurance models did emerge. These varied considerably, with some countries, such as the Czech Republic, introducing multiple, competing funds, while others, such as Hungary and Romania, adopted a single fund. Similarly some countries have combined health and social insurance funds while others have separated them.

Even though aspirations to introduce health insurance have been almost universal, in reality perhaps the greatest diversity lies in the degree of success achieved.

In part this reflects countries’ varied success in building institutions and in achieving economic development. Those countries soon to join the EU have largely succeeded in developing workable systems, with sustainable revenue collection and increasingly sophisticated methods of purchasing health care. Others, such as Albania, Russia, and Ukraine, still depend heavily on budgetary support from central or local government revenues. Meanwhile some countries, most notably those in the Caucasus, which have not only suffered severe economic decline, but have also been beset by war, have experienced effective collapse of the previous system, and their citizens must make out-of-pocket payments for most health care.

We can learn several lessons from these varied experiences in relation to raising funds, pooling and allocating resources, and purchasing care as follows:

• A poor country will be unable to afford a system that is comparable to that in a wealthy one, no matter what system it uses to raise funds. Several countries in the region have suffered economic declines to such an extent that they are now among the world’s most destitute, the so-called Highly Indebted Poor Countries. In these countries, while not a substitute for eventual nationwide systems of social protection, they can achieve a good deal through small-scale community financing schemes that will at least avoid some of the risks of impoverishment in the event of illness.

• Health insurance based on payroll contributions is unlikely to succeed in countries that still have a large informal economy and high unemployment. Indeed, through their effect on labor costs high payroll contributions may actually be an incentive for informal employment. Governments have many ways of raising funds, not only from payroll contributions, but also from sales taxes, import tariffs, and so on. Health insurance systems face particular problems in assessing and obtaining contributions for those not working, especially because they are likely to be especially heavy users of services. Different countries have taken different approaches. For example, in Russia municipalities are responsible for these contributions, but transfers are often late and insufficient.

• Western European countries have all developed systems of collective funding based on solidarity. Those most in need of health care are often those least likely to be able to pay for it. Thus for most people or health care providers to promote a private financing system with no risk sharing makes no sense. Similarly, competition between insurance funds is rarely a good idea unless a country has a sophisticated system of regulation, the costs of which will almost inevitably outweigh any gains resulting from competition. Funds tend to find increasingly sophisticated ways to exclude those who are likely to cost them money.

• General taxation is the most equitable system, while health insurance tends to be more regressive. Out-of-pocket payments are the most inequitable, and systems in which they are widespread often create impoverishment among those who develop a serious disease.

• Health care funds are required not only for revenue, to keep the system going, but also for investment in people, facilities, and equipment. Often such investment falls to the bottom of the list of priorities, leading to a steady decline in the infrastructure needed to provide health care.

The author is a professor of European public health at the London School of Hygiene and Tropical Medicine and research director of the European Observatory on Health Care Systems, Copenhagen, Denmark. He can be reached at martin.mckee@lshtm.ac.uk.