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Waiting for the 17th plan
Why the French Way is a Dead End

Jacob Arfwedson
October 8, 2004

Dear Senator Kerry,

I'd like to give you an update on France for your campaign since you regularly refer to it as an example.

As you are well aware, wine consumption in France is financed by government and every citizen is subject to a payroll tax which finances the central wine fund. There are also private wine funds but these are regulated and basically depend on subsidies from the government wine officials.

Bottles of wine may be picked up for a symbolic charge by each citizen paying contributions; particularly needy or extremely thirsty users pay nothing. There may be waiting times of course, and users may not always pick their favorite Burgundy (no foreign wines, unless you go abroad and get them at your own expense). People are also advised to stick to the local merchant and not skip around town looking for better deals, although this is tolerated; the possibility of shopping at special stores for exclusive brands is considered one of the system's great virtues.

The system is managed by the wine funds, their representatives are appointed by the unions and politicians. The problem is that wine consumption is constantly increasing as citizens pay nothing or very low refill fees. Administrators try to cap consumption by raising the taxes on corkscrews and wine coolers; recently the government recommended that thirst be quenched with less expensive products, such as grape juice or mineral water, although the effects are not the same. Costs are exploding, but people are still thirsty; wealthy consumers go on drinking binges abroad, the less well-off are still lining up in front of their local provider. The Minister of Essential Beverages recently announced the 17th plan to reform financing in close cooperation with vineyards and wine merchants.

Sorry, did I say "wine"? I meant of course health care; apart from that, the principles outlined above are the same; this is how the brunt of the French health care system is managed.

The deficit of the compulsory health insurance is currently increasing by € 21,000 per minute. In January the deficit was estimated at € 11 billion for 2004, equivalent to one month of consumption; this figure was recently revised upwards to € 11.9 billion. The Health Minister Douste-Blazy declared that "the health insurance is bankrupt". In fact, nobody knows exactly how much the system costs, which doesn't make for wise policy decisions.

Over the past 40 years, health care spending has increased on average by 2 points above annual GDP growth, going from 3.5% of GDP in 1960 to 8.9% in 2002. Assuming a continued expenditure growth of 1.5 percentage points above GDP growth, the annual deficit (in constant euros 2002) would reach € 29 billion in 2010 and € 66 billion in 2020 (excluding debt service).

The system offers clear advantages: patients may choose their physician and consult specialists freely; contributions are visible on payslips for employees; there is (modest) co-payment at the point of use; and almost half of the population benefit from additional insurances.

The Stockholm Network recently published a poll on attitudes to health care in eight EU countries. France got the highest mark (6.9 out of 10). The French thus overall seem pleased with their system. Still, a majority believe that health care will deteriorate over the next decade if no action is taken. Almost two thirds think reform is urgent. And a majority also think that giving patients more control over spending would increase quality.

High hopes were placed in the High Council for the future of social insurance (a k a the Fragonard Commission), which presented its report in January 2004. The report summarized the dilemma of reform as follows:

  • current debt financing is unsustainable
  • increasing revenues is not an option (this would mean doubling contributions, from 5.25 to 10.75 points)
  • reimbursements must not be curtailed, since this would be contrary to the founding principles of solidarity
  • health care rationing is unacceptable

In other words, socialized financing means the next generation will have to foot the bill; our children will also have to pay for the generous retirement benefits which are not funded. Raising taxes is ruled out (although it will eventually prove the easiest way out politically) and the current principles of Soviet management are deemed sacrosanct. Today's "reforms" are essentially geared towards cost containment, for instance by favoring generic medicines to cap drug expenditure, without considering an opportunity cost analysis to establish whether for instance increased use of innovative drugs or ambulatory surgery may help reduce hospital stays.

We cannot do anything really, says the High Council, except keep trying what doesn't work. Curiously, the "we" somehow doesn't include those who would like to try something else, namely the patients. We, the patients, are trapped in a system where we may not decide freely on our health insurance, since there is no competition among insurers and only little among providers.

Although the High Council clearly senses the need for reform, its recommendations do no more than tinker at the edges of the system. There is constant talk of "efficiency", "quality reserves" and "wasteful practices" but the solutions offered are fundamentally those of perestroika: market mechanisms should be mimicked, without introducing a real market. Efficiency will somehow be administered from above by planners. Pricing of services is a matter of public policy. An article in the financial daily Les Echos even ventured that "the Sécurité sociale is a political success because it is an economic failure".

Yet the facts are painfully simple: French private health care costs on average 30% less than public provision, for any given pathology. France needs more competition, both for health care and insurance schemes in order to achieve patient empowerment and responsibility; we need market-based reform, not central planning.

Please remember the above when you use France as an example, Mr. Kerry.

Jacob Arfwedson is with Eurolibnetwork in Paris, France.

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