The Longer-Term Reform Agenda
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There is a case, then, for gradually reducing the reliance on payrollbased contributions in health insurance. A recent book by World Bank staff (Baeza and Packard 2006) urged Latin American countries to do just this. In Western Europe, the trend has been to reduce the reliance on payroll taxes in financing health care. In the 1970s and 1980s, several countries abandoned a contribution-based social health insurance system in favor of a universal tax-financed system: Denmark (1973), Iceland (1972),88 Italy (1978),89 Portugal (1979), Greece (1983), and Spain (1986). Some of the Western European countries that stuck with a social insurance system have reduced their reliance on contributions during the 1990s. In the Netherlands, social health insurance contributions as a share of total health spending fell from a high of 69 percent in 1993 to 58 percent in 2003 (the most recent year for which data are available), while Austria reduced its share from a high of 47 percent in 1995 to 41 percent in 2003.90 In France, where 75 percent of health spending is financed by social health insurance, a 1998 reform all but eliminated the employee payroll contribution. It was replaced by a “general social contribution” based on total income and payable by everyone, not just wage earners. This now accounts for 35 percent of the revenues of the country’s social health insurance agency.91 There are plans in France to reform the employer contribution as well. In Germany, the negative effect of social health insurance contributions on employment is recognized widely by all political parties; and in 2006 the German health minister described the exclusive linking of health finance to earnings, rather than to income more generally, as the Achilles’ heel of the country’s social insurance system (Schmidt 2006). The Social Democrats favor households’ paying contributions linked to income from all sources, and the Christian Democrats favor a flat-rate contribution with subsidies for low-income households (Schmidt 2006). One area of the world where social health insurance has advanced in recent years is central and eastern Europe and the former Soviet Union. Of the 28 countries that are part of the World Bank’s Europe and Central Asia region, 18 abandoned tax finance and adopted social health insurance at some stage between 1990 and 2004. Early adopters (in 1990–92) included Bosnia and Herzegovina, Estonia, Hungary, Lithuania, Macedonia, and Slovenia. Some countries did so years later—for example, Bulgaria in 1999. The experience to date has been mixed. In several countries, the move to social health insurance paved the way for provider payment and broader purchasing reforms that might not have happened otherwise; however, gaps in coverage, negative labor market consequences, and revenue shortfalls have been common throughout the region (Langenbrunner, Sheiman, and