The Sustainability Challenge: France and Government Health Insurance
By Maria Garriga
France has achieved what public health insurance opponents in the United States have long dismissed as a myth: universal health care coverage in which everyone has complete provider choice and access to high quality health care.
This may seem a strong statement, but France itself publicly makes the claim: “For more than 96 percent of the population, medical care is either entirely free or is reimbursed 100 percent. The French also have the right to choose among health care providers, regardless of their income level.” The French government pays 80 percent of health care expenditures in France – private insurance companies pay the remainder.
The residents of France all have basic compulsory insurance from the government, l’Assurance Maladie, which offers a variety of plans for employees, farmers, self-employed professionals, the unemployed, etc. More than 80 percent of the French have voluntary supplementary insurance from private companies (often employer-provided), and all destitute persons have universal health care at no cost to them.
France has achieved near parity in health care access in a private health care system, but it has done so by making the government responsible for organizing a highly complex system in which it uses tax dollars to pay for the high quality care – and this requires a delicate balance between meeting the desires of health care providers for high compensation and the willingness of voters to accept high levels of tax. This is the sustainability challenge.
France, which has offered government-run health insurance for decades, achieved a universal health care insurance system by shifting from employment-based health insurance to residence-based health insurance in 2000. In 1999 France’s government health insurance plan had no deficit, and the National Assembly implemented a universal health care system that opened access to quality health care to all people regardless of their ability to pay or their citizenship.
The French government paid 79.9 % of all health care expenditures in 2005 according to the World Health Organization Statistical Information System,  health care expenditures comprised 16.6% of all government spending that year.
Instead of saving money by cutting services, the obvious way out, France chose a more interesting path – in addition to raising taxes on the wealthy, the legislature attempted to save money by directing health insurance funds to the most effective medical treatment.
This dual approach, optimizing medical spending and diversifying tax base, has enabled France to meet its sustainability burden. Affordability is the central dilemma of any system that purposes to provide all residents with equal access to high quality health care.
When governments attempt to lower the cost of providing health care, they run into the dilemma of reducing overall health care. France’s discomfort with simply increasing deductibles and reducing reimbursements relates directly to its desire to protect is high quality health care system.
When a government insurance fund delists certain items as benefits, as happened in Germany recently, it effectively ships the demand over to the private sector. Then, only patients with the means to pay for care in the private sector have the opportunity to receive delisted health care. Thus, private care is always rationed care. In America, the vernacular for this operative is ‘pay to play.’
France has rejected this formula for solving its affordability problems. Instead of reducing benefits, and thus moving those benefits to the private sector France sought means to pay for the benefits via higher taxes – but the tax increases were progressive in nature, those who have more pay more. To stabilize the revenue base, France expanded the source from contributions paid by employers and employees based on wages, to contributions based on all income earned regardless of origin (such as rent, dividends, or capital gains).
When universal health care went into effect in 2000, medical costs soared. The country’s health insurance administration agency, l’Assurance Maladie, amassed a considerable deficit. By the middle of the decade cost containment efforts had successfully pulled back at two problem areas: the AM’s deficit and slowed the growth of spending.
The deficit, which rose from €1.6 billion in 2001 to €11.6 billion in 2004, steadily dropped following the reforms enacted in 2005, falling to €4.4 billion in 2008 despite growth in medical expenditures. But in 2008, the global economy tanked and the deficit in the French health insurance fund roared into full throttle.
“Assurance Maladie has been in the red …. This year the annual shortfall is expected to reach €9.4 billion ($13.5 billion), and €15 billion in 2010, or roughly 10% of its budget,” wrote David Gauthier-Villars in the Wall Street Journal August 7, 2009. To halt deficit growth and unnecessary spending, the French National Assembly passed legislation in 2004 that expanded the tax base to pay down the country’s deficit, but also attempted to lower the cost of universal health insurance by providing better health care to consumers.
The desire for universal access to high quality health care provided by governments has always been hampered by fiscal realities. France has spent decades trying to hold down costs – to that end, it has periodically raised taxes on wage earners, employers, and pharmaceutical companies and other entities, and at the same time, enacted cost containment measures such as lowering the reimbursement rate to care providers.
French consumers vigorously oppose rationing, limits on choice, and price increases. Consequently, the government has enacted a system that protects choice, access, and strictly limits cost-sharing. This has forced the government to think creatively about curtailing rising costs and raising revenue for its insurance plan, which is supported by several taxes and social contribution. Much of the funding for government administered health insurance comes from social security taxes (12 percent for the employer and .75 percent for the employer), a CSG tax on the entire income of an insured person (not just a tax on salary).
While affordability is not a problem for the individual health consumer in France, health care is becoming unaffordable to the government’s insurance plan. France’s efforts have reversed the trend from that of a ballooning deficit to that of a rapidly increasing deficit.
The government’s reform strategies include:
1) Expanding revenue sources by diversifying the tax base
2) Eliminating waste through inefficient medical treatment, reducing overhead, and cracking down on fraud.
The French Health Care System
In France, health care insurance is universal and compulsory to all 61 million residents. The private sector offers complementary and supplementary plans, typically purchased by employers as part of an employee benefit package. The government insurance covers all regardless of employment, but the insured members sign up for different divisions of the plan that align with their personal characteristics: there are plans for employees, the unemployed, the military, the self-employed, farmers, artists, the elderly and the poor.
According to l’Assurance Maladie, the plan recorded 45 million visits to health care providers in 2008. 
While the government plan, l’Assurance Maladie, covers most health care, private insurance plans offer complementary insurance for items that may not be covered or are poorly covered – such as eyeglasses, hearing aids, prostheses, or wheelchairs. Private plans also offer supplementary insurance that offer richer benefits than the government plan – such as private hospitals or other amenities. Roughly 85 percent of the French enroll in private plans to supplement or complement government insurance.
In France, private providers, clinics, independent physicians, midwives, and physical therapists administer most health care. The government owns roughly two-thirds of the hospital beds within France, and many hospital doctors work for the government.
Who pays for health care?
The French health care system is private, but the government often assists patients with costly procedures, treatments or care. The more medical care costs, the less the patient pays out of his own pocket when in need. Health insurance funding comes from wage taxes (from both employee and employers) and income taxes on residents, and social security contributions on income received by the insured, as well as diverse other taxes such as on liquor and gambling. In 2008, the l’Assurance Maladie had €161.7 billion in income, of which it spent €166.1 billion, leaving the government health insurer with a negative balance of €4.4 billion.
Expenditures included €133 billion for patient care in 2008, €8.2 billion in expenditures for patient care delivered in 2007, and much of the rest going toward subsidies to other organizations. 
For most treatment and visits, the patient pays the provider directly, and the government then reimburses the patient for its share. The government issues the payment to an account set up for each person in France, but will also give cash if given proper documentation.
The French government caps reimbursements to providers who wish to accept any payment from the government insurance plan. The caps come from a jointly negotiated rate schedule. More than 90 percent of doctors accept the government insurance plan and agree to the rate schedule.
The final reimbursement rate to consumers from l’Assurance Maladie for health care expenditures ran from 34.9 % for dental care to 90.2 % for hospital care.  Consumers and private insurers paid the outstanding balance to the providers. This is the essence of cost-sharing. As the consumer’s share goes up, the amount of health care the consumer uses goes down. Past research suggests cost-sharing reduces health care consumption – which is not necessarily a positive end in that it may lead to worse health outcomes for the insured. If a person is ill, there is no benefit to having that person delay medical treatment in order to avoid cost-sharing. Moreover, private health care providers such as physician groups have adamantly opposed cost-controls such as cost-sharing out of concern that patients will be less inclined to seek treatment when they need it or that patients will be dissatisfied with having to bear the costs.
France’s solution: More Reform
France has traditionally raised taxes and occasionally required patients to chip in directly to pay medical bills. France has built a progressive tax scheme that relies more heavily on those with income-bearing assets such as land and investments, (rather than wages), by doing so, it also achieves a less volatile revenue stream than heavy dependence on wages.
The country has also experimented with different types of cost-containment, provided that the containments do not exact on opportunity cost. These cost-containment measures range from co-payments, higher co-insurance payments, contributions, deductibles, lower reimbursements rates for less treatments deemed to lack medical benefit, use of general practitioners as point of entry to the medical system (since they charge less than specialists).
Since 2004, France has embarked on a five-part set of reforms to reverse the burgeoning deficit:
· Renewed emphasis on preventative care
· Educating consumers about the complex health care system
· Limiting useless expenditures as described above (setting caps on payments to providers, limiting reimbursement to patients, etc., depending on the effectiveness of the treatment).
· Giving additional guidance to providers
· Steering the system as a whole.
For latter part of the decade, these reforms appear to have succeeded. The deficit fell through 2008. Then the international economy fell into global recession, and along with it, flattened France’s tax revenue. The government now projects massive deficit increase directly attributed to the decline of tax revenue.
“After a €4.4 billion ($6.31 billion) shortfall in the health budget in 2008, [Eric Woerth, Minister of Labor] said he expected the deficit to hit €10 billion this year and €15 billion next, with the economic downturn denting social security contributions.”
Reforms: New Taxes, More Taxes
To fully fund the plan’s current costs, the National Assembly revamped the social security tax. French citizens pay nearly 20 percent of their income for government health insurance. Employers contribute 12.8 percent of each employee’s paycheck, the employee chips in 0.75%. In addition, the government levies a 5.25% social contribution tax that dedicated to funding health.  The CSG, enacted in 1991, broadened the revenue base by including all income from all sources – whereas the social security tax on employees (the one split with employers) was solely based on wages paid by employers (called social contributions). The CSG applies income from all sources, such as rents, dividends, and capital gains.
The Social Security Financing Act of 2008 further expanded the revenue base by levying ‘contributions’ on companies that offer stock options to employees, and a 2.5 percent tax to employees who realize gain by exercising options (or selling restricted shares).
The new law also imposed a new income tax of 0.5 percent to be used solely for the purpose of paying down accumulated deficit in country’s health insurance plan.
Reforms: Achieving Efficiency in Medical Care
Fighting the deficit cannot be successful in a system permeated by waste: unnecessary tests, useless treatments, scientifically archaic procedures, and fraud -- all of these contribute to waste.
Evidence-based decision-making forms the backbone of France’s strategy on how to achieve greater efficiency in the delivery of both health care and health insurance.
In 2004, the National Assembly created a national authority responsible for guiding the government on optimizing medical care and eliminating waste, the Haute Autorité de Santé (HAS). The HAS was to be the government’s brain for health care decisions.  The agency set guidelines and recommendations for optimal medical treatment using best practices from science and using ethical, legal and economic considerations.
In 2008, the legislature expanded that mission to have HAS ‘conducting economic assessments.’ The Commonwealth Fund, an organization specifically devoted to enabling high performing health systems, devoted an entire issue brief to HAS in July 2009.
The authors are both part of HAS. Lise Rochaix, an economics professor at the University of Marseilles-Aix II, is a board member and chairs the technological appraisal committee in charge of economic and public health evaluation. Xerri is deputy director of the HAS health technology division.
They write that HAS now has a mandate for ‘conducting economic assessments’ including ‘cost-effectiveness comparisons of specific products as well as broader studies of the economic value of these products (such as drugs and medical devices) to interlocking medical protocols (i.e., such as treatments and diagnostics for broken bones, mental illness, cancer, diabetes, etc). The legislature also entrusted HAS with assessing the economic value of different health strategies and other medical treatment and prevention strategies.
Agencies, practitioners, the legislature, and the public could all turn to this independent science agency for its insight. It’s decisions were not binding, but decision-makers in the government and the health insurance funds typically defer to its expertise.
HAS recommendations and ratings will be key to reducing inefficient health care. The independent entity is funded by a tax on advertising for pharmaceutical drugs, and is headed by a board appointed by the government, but the board does not report to the government This outside funding enables HAS to employ 400 staff members, including 80 that focus on health technology assessments, and more than 3,000 outside consultants and practitioners. In 2007 HAS staff issued some 1,200 assessments, including 940 on drugs, 236 on devices and technologies, and 83 on surgical procedures.
By giving HAS a mandate to include economic considerations in its assessments, the government has empowered itself to employ evidence-based decision-making somewhat insulated from both the political and commercial fray. The HAS permits the government to impose a uniform standard of review using evidence-based decision-making. The standard is two-fold: any provider seeking compensation from the national health insurance funds must show that the treatment has either an intrinsic medical benefit or that it costs less than existing treatments. Providers offering any new types of treatments must also apply for an assessment by the HAS before seeking payment for providing it to patients.
Thus far HAS has recommended ending reimbursements for 370 drugs, of which 322 were officially delisted.
Reforms: The Carte Vital - Improved Efficiency through Technology
Health technology clearly extends to the administrative functions of record-keeping for medical history as well as billing and payments. Attempts to reduce waste must reach these systems as well.
Since 1998 l’Assurance Maladie has employed smart cards to increase efficiency and reduce waste by eliminating unnecessary paperwork, duplication and error. These smart cards contain chips that carry all a patient’s health and billing records. The cards have extensive security features, such as cryptographic capability as well as an expanded memory.
Records are kept electronically. Doctors write a treatment plan and update a patient’s medical records onto a computer. Card terminals transfer all that information to the card chips. The card’s chip contains all of those medical records, including information about allergies, ongoing medical treatment and prescription drug regimens. When a patient goes from his regular physician to a specialist, the card informs the specialist of the primary care physician’s concerns. There is no confusion that results from messy handwriting, there are no misplaced paper records, no need to wait for records from one office to be sent to another office.
The same applies to billing records. The physician enters his bill onto the card. By swiping the card, the physician triggers payment from the government insurance fund to a bank account (or postal account) the government has opened in the patient’s name.
The patient pays the physician directly. The card requires significant investment and infrastructure. More than 53 million insured carry the second generation SESAM Vital by Gemalto; the card system includes 200,000 card readers, 20,000 terminals for updating cards, 230 difference software applications, and 25 servers.
France has succeeded in providing high quality, universal health care that is affordable to patients but not to the government.
This has helped to government with meet the sustainability burden. Nonetheless, since tax revenues have collapsed the government must look into more aggressive means of balancing the health insurance budget. When a system is consistently running a deficit, it is not affordable. These solutions enacted by the French National Assembly in 2004 preserve the aspirations of the French health care system while making necessary adjustments to achieve affordability for the government. It remains to be seen what the French government will do next. As in the past, France may be scouring its revenue seeking ways to optimize cash flow and maximize the amount of care it can buy with each euro.
Given the potent alliance between patients and health care providers, it is unlikely France will balance its budget on the backs by reducing health care reimbursements or denying care. But the pace of the deficit is quickly undermining French health insurance.
The stage is set. The world is watching. What will France do next?
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