Public/private financing in the Greek health care system: implications for equity 1

Health Policy 43 (1998) 153 169 Public/private financing in the Greek health care system: implications for equity 1 Lycurgus Liaropoulos a, *, Ellie Tragakes b a Center for Health Care Management and E aluation, Department of Nursing, Uni ersity of Athens, 123 Papadiamantopoulou St., 11527 Athens, Greece b WHO Regional Office for Europe, Copenhagen, Denmark Received 22 May 1997; accepted 5 November 1997 Abstract The 1983 health reforms in Greece were indirectly aimed at increasing equity in financing through expansion of the role of the public sector and restriction of the private sector. However, the rigid application of certain measures, the failure to change health care financing mechanisms, as well as growing dissatisfaction with publicly provided services actually increased the private share of health care financing relative to that of the public share. The greatest portion of this increase involved out-of-pocket payments, which constitute the most regressive form of financing, and hence resulted in reduced equity. The growing share of private insurance financing, though as yet quite small, has also contributed to reducing equity. Within public funding, while a small shift has occurred in favor of tax financing, it is questionable whether this has contributed to increased equity in view of widespread tax evasion. On balance, it is most unlikely that the 1983 health care reforms have led to increased equity; it is rather more likely that the system in operation today is more inequitable from the point of view of financing than the highly inequitable system that was in place in the early 1980s. 1998 Elsevier Science Ireland Ltd. Keywords: Equity; Health financing; Greece; Health reform; Public/private health expenditure * Corresponding author. Tel.: +30 1 7795225; fax: +30 1 7770865; e-mail: lliaropo@atlas.uoa.gr 1 The views expressed here in no way commit WHO or its officers. 0168-8510/98/$19.00 1998 Elsevier Science Ireland Ltd. All rights reserved. PII S0168-8510(97)00093-6

154 L. Liaropoulos, E. Tragakes / Health Policy 43 (1998) 153 169 1. Introduction One of the key determinants of equity in a health care system is the mix of public and private financing. A number of health care reforms during the 1980s, especially in southern European countries, aimed to alter this mix in favor of an increased public share. However, health care reforms intending to strengthen the public sector have not always produced the expected results. In this paper we try to evaluate progress towards greater equity in the financing of health care in Greece during the 1980s and early 1990s, following reforms in 1983 which were intended to strengthen the role of the state in financing and delivery. The socialist party came to power in Greece in 1981 with health care reform high on its political agenda. Law 1397, which established the national health system (NHS), was voted in 1983 as a major reform in the area of health. It coincided with the establishment of national health systems in other Mediterranean countries and with health care reform in many European countries, the basic aims of which were a universal right to health services, a more just geographical distribution of resources, and effective cost containment [1]. While equity and efficiency were recognized as the two pillars of reform in health care in Europe, the 1983 health reforms in Greece were only bent on redressing issues of inequity in access and a deficit in health services provision. These basic goals were to be achieved through a drastic reduction in private sector involvement and the assumption of nearly full responsibility for delivery and financing by the public sector. The 1983 legislation did not make equity in financing an explicit objective. The focus, rather, was on the development of universal coverage and equity in access and provision of health services. Equity in access was to be achieved through increased access to publicly provided services (i.e. the tax-financed NHS). It was believed that a decrease in private financing of health care was an integral part of the effort to achieve equity in access. The government attempted to reduce not only the private but also the social insurance share of health care financing. Increased equity in financing was therefore implied in the provisions which were to make equity in access possible. This follows from the presumed progressivity of tax financing compared to social insurance and private financing which are more regressive. Examination of the period from 1981 to 1992, however, shows that private sector financing in Greece increased as a share of total funds allocated to health care. With private expenditure in 1992 standing at 3.6% of gross domestic product (GDP) out of a total of nearly 8.5% of GDP, equity in the financing of the health care system was reduced in the period under consideration. 2. Equity in the financing and delivery of health care In virtually every health care system, public (or state) involvement with health care is based upon at least some vaguely formulated notion of distributive justice. On a most general level, the concept of distributive justice is closely linked with the

L. Liaropoulos, E. Tragakes / Health Policy 43 (1998) 153 169 155 idea of fairness, and hence with the issue of fair distribution. In connection with health care, this means the fair distribution of costs and benefits associated with health care. There are several approaches to justice, of which the egalitarian (or equity) approach forms the basis of most European health care systems [2]. Equity as social justice derives from a set of principles describing what a person should have by right [3]. In the context of health care, the issue of equitable distribution of costs is interpreted to mean financing according to ability to pay, while the equitable distribution of benefits is interpreted to mean distribution of treatment according to need. The first of these is referred to as equity in the financing of health care, while the second is referred to as equity in the delivery of health care, both of which are to be contrasted with equity in health [4]. The egalitarian or equity approach to health care derives from Aristotle s view of justice, which can be briefly stated to mean the equal treatment of equals and the unequal treatment of unequals, but in proportion to their relative differences or inequalities. This view forms the basis of the distinction between horizontal equity, or the equal treatment of persons in equal need or equal ability to pay, and vertical equity, referring to the unequal treatment of persons with unequal needs or unequal abilities to pay, but in accordance with their relative inequalities. Equity in the financing of health care has received the most attention from the perspective of vertical equity. It is about who should pay and how much relative to the level of income, the basic idea being that persons with higher incomes should pay relatively more than persons with lower incomes but in accordance with their relative inequalities. By contrast, equity in the delivery of health care has received most attention from the point of view of horizontal equity [5]. The key issue here is whether persons of equal need receive equal treatment, irrespective of differences in ability to pay. The explicit aim of the 1983 reforms in Greece was to achieve an improvement in equity in delivery, and particularly in horizontal equity in delivery. The means by which the reforms were to do so, however, were in part to be based on an improvement of vertical equity in financing. Equity in delivery need not necessarily be related to equity in financing. In the particular case of Greece, however, it was believed that improved vertical equity in financing (though it was not expressed in these terms) was one important precondition, among others, for an improvement in equity in delivery. The following section will explain why this was so. The present study will be involved with the question of equity in financing and the changes which have occurred in the period from the early 1980s to the early 1990s. It will examine the question from the perspective of vertical equity. The aim here is not to examine the issue of equity in delivery, but rather to take as given the government s intention to improve equity in delivery, and investigate the implications with respect to equity in financing. While the concept of vertical equity in finance is clear, questions arise in connection with its operationalization. The methodological approach to be used in the present paper is based on a series of studies conducted in ten European countries [5], where the yardstick for vertical equity is the degree of progressivity in methods of financing. A method of financing is said to be progressive when, as

156 L. Liaropoulos, E. Tragakes / Health Policy 43 (1998) 153 169 income increases, a higher proportion of that income is used to finance health care. Data limitations in the case of Greece did not permit a quantitative analysis which would determine in precise terms the relative degree of progressivity of each particular method of financing and changes in these over time. The method of analysis of the present study is therefore based on the conclusions of the studies noted above with regard to the relative degrees of progressivity involved in different financing methods. Specifically, there are four main methods of financing in decreasing order of progressivity. These are taxation, social insurance, private insurance and out-of-pocket payments. Taxes are considered to be a more progressive source of financing, assuming direct taxation which is progressive, as taxation financing which is heavily based on indirect taxes can be regressive. Taxes are followed by social insurance, which tends to be regressive, and private insurance, which is even more regressive than social insurance. Out-of-pocket payments are the most regressive form of health care financing. The present study will therefore examine the various components of financing of health care, and will analyze how each of these has changed over time. Thus it will be possible to arrive at some general conclusions concerning changes in the degree of progressivity of financing over time, and hence concerning the degree of equity in finance. 3. The reforms of 1983: implications for equity in financing Under the Greek constitution, the government must ensure the provision of adequate and high quality services to the population. This has traditionally been interpreted to imply that the government, directly, or through its control over social insurance funds, is responsible not only for the financing but also for the delivery of care. Nonetheless, before 1980, health care delivery and financing were characterized by a high degree of participation of private sector providers on both the primary and secondary levels as well as high private payments, amounting to about 40% of total health care expenditure. During the first years of socialist party rule in the early 1980s, the political mood in Greece was firmly in favor of instituting strong state control and responsibility over the financing and provision of health services. This attitude reflected widespread public dissatisfaction with health services provision [6]. The main issues were equity, access, quality of services, and the financial burden to individuals resulting from the practice of under-the-table private payments. It was believed that an NHS-like health care system would redress all these problems, providing affordable quality services to all citizens in need. In 1983, Greece enacted major health care legislation intending to meet these goals. The reforms adopted the principles of universal coverage and equity in the distribution of services. The guiding moral principle was the de-commercialization of health. Cost containment and efficiency were not main concerns, because the major objective was the expansion of the health sector through an increase in public expenditure to 4.5 5% of GDP in order to progressively limit and replace private sector provision and private expenditure. Article 1 of Law 1397 stated the guiding principles and basic aims of the reforms:

L. Liaropoulos, E. Tragakes / Health Policy 43 (1998) 153 169 157 State responsibility for health services provision. Equitable distribution of health services and adequate coverage of all health care needs for all citizens, irrespective of age, sex, or ability to pay. 2 Decentralization of services and community participation in decision-making. Development of primary health care through a network of health centers and the institution of a family doctor system. Improvement in the quality of health services and better organization of delivery by the social insurance funds. It is apparent from the above that increased equity in financing was not an explicit objective of the 1983 reforms. The focus, rather, was on equity in access. However, the policy measures which were to make equity in access possible implied also improved equity in financing. To see why this is so, we must examine the financial underpinnings of the reform, and their relationship to equity in access. Equity in access, as we have seen, was to be achieved through increased public provision of care. This was to entail an expansion of publicly provided hospital services, as well as the establishment of a network of publicly financed urban and rural health centers. In addition, there was a freeze on the establishment and development of private hospitals, as well as a general prohibition on private practice by all doctors employed by the NHS: all NHS doctors were to be employed full-time and exclusively by the NHS, and there were to be substantial salary increases. Equity in access was therefore to be achieved through a major expansion of publicly provided services accompanied by a decrease in private provision. This shift was to be made possible through very significant increases in public expenditures on health. Financing of the new system, however, was one of the weak points in the 1983 reforms 3 as there were no explicit provisions determining the financial relationship between the tax-financed NHS and the social insurance funds. 4 Ultimately, financing of NHS services occurred through tax-financed increases in government subsidies for the NHS hospital sector, expansion of hospital services (involving the building of new hospitals), and establishment and operation of health centers for the rural population. Public financing of health care therefore expanded significantly following the 1983 reforms. The policy objective to reduce private sector provision was additionally supported by the practice of maintaining artificially low reimbursement rates paid by the insurance funds in the case of both hospitals and primary care providers. Reimbursement rates for insurance funds, which were 2 This point clearly addresses the objective of horizontal equity in delivery. 3 The reforms had many weaknesses in both the design and implementation phases. It is beyond the scope of the present paper to go into these in detail, but we may mention here some of the proposed changes which did not materialize as hoped: for example, decentralization, the family doctor system, construction of urban health centers, establishment of regional health councils, construction and upgrading of a large number of hospitals. 4 It was only stated in the legislation that the relationship between the NHS and social insurance funds would be considered at some time in the near future something which did not take place.

158 L. Liaropoulos, E. Tragakes / Health Policy 43 (1998) 153 169 determined by the Ministry of Health, had since the very early 1980s (even prior to the reforms) been kept below market prices for both doctors and public hospitals [7]. While public hospitals enjoyed the government subsidy which compensated them for costs not covered by the low social insurance reimbursement rates, private hospitals and clinics that were unable to cover their costs were forced to close down. As a result of all of the above, publicly provided services did expand significantly, and there was a diminution of privately provided services, particularly in the hospital sector. However, it will be noted that a decrease in private provision is not the same thing as a decrease in private financing. In many countries where there is a mix of public and private providers offering services within the statutory system 5, the latter are reimbursed through non-private sources (usually social insurance funds). This was the case in Greece as well, where insurance funds contracted both public and private providers to secure services for their members. In such situations, an increase in public provision with a corresponding decrease in private provision would not necessarily entail a decrease in private financing; rather, this could simply mean a shift of public or social insurance funds away from the (now fewer) private providers and toward the (now more) public providers, with no change at all in the share of private financing. This explains in part what happened in Greece in the case of private hospitals, as noted above. Social insurance funds that were previously paying for services provided to their members by private hospitals were after the 1983 reforms paying the public hospitals instead. However, the situation was more complex. The intention of the reforms was not simply to achieve such a shift, but, rather, to increase tax-financed expenditure in order to reduce private expenditure on health [7]. Another implicit objective was the partial replacement of social insurance expenditures through the imposition of below cost reimbursement rates, as explained above. This had been prompted by a demand on the part of industry and business at the time to reduce health care financing through payroll contributions. An understanding of the intention to replace private expenditures through increased public provision requires a brief examination of the private financing and delivery dimensions of the system prior to the reforms. Private health care expenditure in the early 1980s was very high, at about 40% of total in 1981 (see Section 4). The reasons behind this very high private share could be found in the deficit of health services, as well as the high levels of inefficiency and ineffectiveness of primary care and hospital services. As a result patients sought services in the private sector for which they paid out-of-pocket. The difficulties were compounded by the blurred lines between private and public provision, which doctors (many of whom practiced in both sectors) exploited to their own advantage 6, and by low salary levels which encouraged the practice of informal payments to doctors [7]. 5 For example, Belgium, France, Germany, The Netherlands, and others. 6 For example, this could involve giving priority to private practice, or refusing access to public services if they were not first consulted privately.

L. Liaropoulos, E. Tragakes / Health Policy 43 (1998) 153 169 159 It was therefore believed that increased or almost exclusive state responsibility for health care, combined with exclusive full-time doctor employment within the NHS and salary increases, would effectively address these problems, thereby leading to a decline in private expenditures. At the same time, it would achieve improved equity in access by redirecting patients from privately financed private provision toward the tax and social insurance financed NHS. This process would be complemented by improved geographical distribution of services, as well as increases in the basic package of benefits offered by the statutory system, both of which were seen to involve improved access and lower private expenditures. The intention to expand tax-financed services at the expense of social insurance financing and private financing therefore had major implications for equity in financing. This follows from the presumed progressivity of tax financing compared to social insurance and private financing which are more regressive. The remaining part of this paper will be concerned with the impact of the reforms on equity from the point of view of financing. 4. The impact of health care reforms on equity in financing As noted earlier, the sources of finance and their degree of progressivity determine equity in financing a health care system. By observing changes in the composition of financing sources over time during the period under consideration, we can arrive at some conclusions on the impact of health care reforms on the degree of equity in financing. 4.1. Financing sources of health care expenditure According to OECD data, public social protection expenditure in Greece rose significantly from 10.9% of GDP in 1980 to 17.3% in 1993 [8]. Public health care expenditure, however, contributed only one percentage point to this increase, the Table 1 Health care expenditure in Greece by source of finance (% GDP), 1981 1992 1981 1983 1985 1987 1989 1991 1992 Total 6.64 6.76 6.78 7.51 7.54 8.00 8.48 Public, of which: 3.96 4.36 4.45 4.48 4.74 4.81 4.87 Tax financed 2.05 2.52 2.43 2.56 2.72 2.78 2.81 Social insurance financed 1.91 1.84 2.02 1.93 2.02 2.03 2.06 Private, of which: 2.68 a 2.40 a 2.33 3.03 2.80 3.19 3.61 Out-of-pocket 2.68 2.40 2.29 2.98 2.73 3.06 3.43 Private insurance NA NA 0.04 0.05 0.07 0.13 0.18 a Includes only out-of-pocket payments. NA, not available. Sources: National Accounts of Greece; authors calculations.

160 L. Liaropoulos, E. Tragakes / Health Policy 43 (1998) 153 169 lion s share going to pensions expenditure. Table 1 shows the development of health care expenditure and its main sources of finance as a share of GDP over the period 1981 1992. The increase in total health care expenditure during the 1980s and early 1990s in Greece (from 6.6% to about 8.5% of GDP) was a move in the opposite direction compared to other EU countries [9] where cost-containment policies were put into effect [10]. This increase was in part due to efforts to establish a national health system and to compensate for under-financing by the public sector in previous decades. In addition, as Table 1 indicates, it was also a reflection of growth in private spending for health care. It can be seen that all the components of health care financing, both public and private, have shown an increase over the period under consideration. 4.2. The de elopment of public ersus pri ate financing sources and expenditure One of the key aims of the 1983 reform was to increase public budgetary spending (and provision) and therefore to shift the burden from high private spending prevailing in the beginning of the 1980s increasingly onto public sources. This reflected the government s ideological commitment to increase equity in what was by all accounts a highly inequitable system. However, Fig. 1 shows that this shift has hardly occurred. Indeed, the main sizable increase in the public share materialized in the period 1981 1985, prior to the beginning of implementation of the 1983 legislation. After 1985, the public share shows a clear downward trend, and by 1992 it had fallen to a level even lower than that of 1981. Thus, while public spending has increased substantially in absolute terms since the early 1980s, private spending has increased even more rapidly over the same period. The sections that follow will examine in greater detail the developments of each of the components within public and private financing. 4.3. The composition of public health care expenditure: efforts to shift from social insurance to tax financing The intention of the 1983 reforms to increase the tax-financed share of spending by replacing social insurance financing was only modestly satisfied. As the reforms failed to provide for any change in the existing health care financing mechanisms, the social insurance funds continued to operate as before. Tax-financed increases in spending for the most part took the form of government subsidies for public hospital care. In addition, the 1983 reforms provided for the establishment and operation of rural health centers which were also to be tax-financed. The development of the tax financed and insurance financed shares is shown in Fig. 2. Fig. 2 shows a large increase in the tax-financed share between 1981 and 1983, or the period prior to the reforms; this subsequently fell in 1984 and 1985, but following the implementation of the reforms rose again, peaking in 1986. In the period 1987 1992, the tax-financed share appears stable at around 58%. The net effect since 1985 has, therefore, been a mere increase of three percentage points in the

L. Liaropoulos, E. Tragakes / Health Policy 43 (1998) 153 169 161 Fig. 1. Public ( ) and private (- - -) health care expenditure as a share (%) of total health care expenditure, 1981 1992. share of tax financing, which hardly represents a major change in the distribution of the financing burden. The explanation for this is government failure to actually implement its reform program fully. Social insurance contributions in Greece are generally set as a fixed proportion of payroll income up to a ceiling (excluding OGA (The Farmers Insurance Organisation), covering the agricultural population, which is non-contributing). The imposition of a ceiling makes social insurance contributions regressive. An additional element of regressivity is the existence of different contribution rates for various professional groups, with the higher income groups facing lower effective contribution rates (and enjoying superior benefits packages) than lower income groups [11]. As we will show in the next section, tax financing in Greece is also regressive. A growing share of tax financing at the expense of social insurance, therefore, represents simply a move from one relatively regressive financing source to another. The key question is whether increased equity could arise from such a shift. 4.3.1. The role of the tax system Efforts to increase the tax-financed share in southern European country health

162 L. Liaropoulos, E. Tragakes / Health Policy 43 (1998) 153 169 Fig. 2. Tax-financed ( ) and insurance-financed (- - -) health care expenditure as a share (%) of total public expenditure, 1981 1992. care reforms have generally been based on the underlying belief that tax financing represents the most progressive method of financing, and hence would result in increased equity, assuming progressive direct taxation and conditions of standard incidence. The tax system in Greece, however, is regressive compared to other countries in the EU [12]. Although data on the incidence of taxation by income class in Greece do not exist, there is evidence in the literature that the personal income tax structure is regressive [13]. Factors accounting for the regressivity of the income tax structure are the widespread tax evasion and the tax exempt status of large segments of the population, such as the agricultural population. Another source of regressivity is the tax system s dependence to a large extent on indirect taxation. Tax evasion, estimated at 30% of GDP in the mid-1980s [14], constitutes one of the strongest arguments against increased equity through tax financing. While tax evasion in Greece involves all income groups, it results in far greater losses of revenues in the higher income groups, thus giving rise to a high degree of

L. Liaropoulos, E. Tragakes / Health Policy 43 (1998) 153 169 163 regressivity in the tax system. The tax exempt status of the bulk of the agricultural population is a second argument against a shift to taxation financing as a means to increased equity. This must be considered together with the fact that OGA is entirely tax financed. In effect, the urban population (including also low-income groups) has been paying proportionately more than the agricultural population (which includes also high income groups) for the latter s use of health care services (the agricultural population s contribution being confined mainly to indirect taxes). This represents a highly regressive element of the tax system. Moreover, if we consider that a portion of the increase in tax-financed expenditure following the 1983 reforms was allocated to the building and operation of rural health centers for the provision of primary care services to the agricultural population, it becomes clear that the reforms added a further element of inequity since the non-agricultural population has been paying proportionately more for new health care services intended for the exclusive use of the agricultural population. A third argument against increased equity due to the shift towards tax-based financing involves the very heavy dependence of the Greek taxation system on indirect taxes (approximately 70% of revenues) and the relatively high rates of taxation through value added tax (VAT) compared to other European countries [15]. Between 1981 and 1993, the already low percentage of direct taxes in total tax revenues declined from 31.8% to 29.8% [16]. While there are certain elements of progressivity in the indirect taxation system in that luxury goods are taxed at higher rates than necessities, the system remains highly regressive compared to direct taxation. Looking at the relationship between financing and service provision, we may say that while social insurance funding is itself regressive, it does offer the advantage of explicitly linking individual contributions to specific health care benefits. A shift to taxation funding loses this link, and, under conditions of widespread tax evasion, may give rise to increased inequity. This is especially so in the extreme but not insignificant case of wealthy individuals who are self-employed and uninsured by social insurance. Since 1983, when entitlement to hospital services was made on the basis of citizenship and not on the basis of insurance fund membership, non-contributing individuals became entitled to use the public hospital system at low subsidized charges, the rationale being that public hospitals were to be increasingly tax financed, thus justifying the use of hospital services by the entire population regardless of income or fund membership. However, as these uninsured and non-contributing individuals and their families are also among those who pay minimal or no direct taxes relative to their income, this phenomenon adds a strong element of inequity. A similar argument can also be made for the more general case of high income persons who are fund members but who evade taxes. In sum, we may say that the 1983 reforms resulted in a small financing shift towards tax financing replacing social insurance. In view of the regressive elements in both the taxation and social insurance components, it is not possible to say whether on balance a shift in favor of the former has resulted in greater equity in financing. Rather, it would appear that a genuine effort to increase equity would

164 L. Liaropoulos, E. Tragakes / Health Policy 43 (1998) 153 169 entail a reconsideration of major features of the rules governing both the social insurance and the taxation systems. 4.4. The composition of pri ate health care expenditure by source of finance Fig. 1 shows that, contrary to expectations, private health expenditure after 1985 actually increased, with growth rates higher than those of the public sector. Reaching over 42% of total health expenditure in 1992, private expenditure in Greece is extremely high compared to other European countries [17]. Private expenditure includes out-of-pocket payments and private health insurance. As Table 1 indicates, the overwhelming proportion of private health care expenditure consists of out-of-pocket payments, while private health insurance forms a small, though rapidly growing, part. An excellent summary of the major problems underlying the magnitude and observed increases in private expenditures on health care in recent years is in a report by foreign experts commissioned by the Greek government in 1994 [18]. The report identifies prevailing unethical medical practices and public dissatisfaction and distrust as the main reasons for the increase in private payments. 4.4.1. The role of out-of-pocket payments Out-of-pocket payments in Greece take the following forms: (1) Co-payments for health care services covered by the public system, as well as payments in full for services not covered by social insurance or the NHS. Greece is the only country in the EU where very few cost containment measures have been implemented in recent years. Most co-payments have been in place since 1962 (with the exception of new medical technologies services which have been added to the benefits packages). A 25% co-payment on drugs instituted in 1992 does not affect the increase in private expenditures in the period 1981 1991. In addition, it should be noted that, since the reform legislation of 1983, coverage of the population by the public system has increased, and the benefits packages of sickness funds have significantly expanded. There has therefore been little or no room for growth in out-of-pocket payments for services not covered by social insurance or the NHS. (2) Official private payments, including payments to private physicians, diagnostic centers and hospitals. Whereas most Greek citizens have coverage for health care services through social insurance or the NHS, there is a large private sector consisting of physicians in private practice, and private diagnostic centers and hospitals. Private sector provision (and corresponding financing through out-ofpocket payments) has in fact increased despite the expansion in public sector provision. This has also occurred because of a flaw in the financing mechanism after 1983, when, contrary to what happened in the financing of hospital care through social insurance, the government s attempt to keep physician charges low was not accompanied by state subsidies of physician fees as was the case with public hospital subsidies. This growth in private payments for physician services accounts for a portion of the observed increase in private expenditures.

L. Liaropoulos, E. Tragakes / Health Policy 43 (1998) 153 169 165 (3) Unofficial, or under-the-table payments. These are especially prominent in the case of inpatient care, and are made to doctors mainly in public, but also in private, hospitals. The rationale is to jump the queue or to secure better quality service and greater personal attention by the doctor. This significant hidden health economy is one of the most acute problems facing the Greek health care system [14]. Greek national accounts estimate the size of this market through an upward adjustment of official private health care expenditure which in 1991 amounted to about 1.5% of GDP (almost half of total private expenditure). However, it is widely believed that actual informal payments may be higher than this estimate suggests [18]. Another estimate puts it as high as 3% of GDP, or close to two-thirds of public expenditure on health [19]. The incidence of out-of-pocket expenditure by income class and the change over time can be drawn from the Family Budget Surveys conducted every 5 years. Table 2 and Fig. 3 show household health expenditure as a percentage of total household expenditure by expenditure class (used as a proxy for family income). If increased public financing were to have a positive effect on equity, we would expect this percentage to fall over time and to rise with expenditure class, as some health services may be considered luxury services. Instead, as Fig. 3 shows, the curve representing the 1981/1982 survey is below both curves representing the later surveys. The only exception is the percentages of income classes 1 and 2 in the 1987/1988 survey, representing improved equity compared to the 1981/1982 figures, which, however, deteriorated greatly in 1993/1994. Also, low-income families seem to devote a larger share of their total expenditure to health than do middle-to-high-income families. The conclusion is that private payments become an increasingly inequitable form of financing, hitting the low-income families especially hard in 1993/1994, probably because of the considerable burden of co-payments in pharmaceutical care. As mentioned earlier, a key objective of the reforms was to curb private expenditures, which constitute the most inequitable form of health care financing and an obstacle to the achievement of equity in the delivery of health care services. The persistent high and growing share of such payments reflects a failure of the reforms with respect to the goal of increased public provision of high quality services, thus inducing individuals to seek services offered by private providers, as well as a failure to curb underground payments. Table 2 Average monthly household health expenditures as a percentage of total household expenditure by expenditure class Survey All households 1 2 3 4 5 6 7 8 1981/1982 4.8 5.1 5.1 4.1 3.9 4.5 4.1 5.2 6.2 1987/1988 5.1 4.4 4.3 4.2 4.2 5.0 5.1 6.2 5.9 1993/1994 5.7 7.6 6.1 4.8 4.3 4.9 5.1 5.5 6.1 Source: National Statistical Service, Household Budget Surveys.

166 L. Liaropoulos, E. Tragakes / Health Policy 43 (1998) 153 169 Fig. 3. Average monthly household health expenditure as a percentage of total household expenditure., 1981/1982; - - -, 1987/1988;, 1993/1994). 4.4.2. The role of pri ate health insurance Private health insurance is considered to be a more regressive form of financing than social insurance, since private insurance premiums are not directly tied to earnings. Moreover, to the extent that private premiums are risk-adjusted, premiums may be negatively related to income as the poor also tend to be sicker. Private health insurance may be progressive only in the cases where it is used to purchase supplementary coverage, or when it is taken out only by the better-off who have limited public coverage [5]. 7 We must, therefore, examine the nature of private health insurance in order to determine whether any of these two situations applies in the case of Greece. Since the mid-1980s, there has been an upsurge in private life insurance in Greece [20]. Although disaggregated data on private health insurance do not exist, research indicates that the share of health premiums in total life insurance has increased from 10% in the mid-1980s to over 25% in 1993 [21], corresponding to average rates of growth of private health insurance premiums in real terms of over 30% per annum. High rates of growth in private health insurance have been observed in 7 However, even this is arguable. Widespread use of supplementary insurance can lead to the development of a two-tier system, particularly in situations of extensive rationing and restrictions in the basic basket of benefits, which undermines the concept of equity. In the case where private insurance is taken out by the better-off who also have limited public coverage (such as is the case in Germany and The Netherlands), the non-participation of these higher-income groups in the public system represents a withdrawal of funds which would otherwise add a progressive element to the financing of the health care system.

L. Liaropoulos, E. Tragakes / Health Policy 43 (1998) 153 169 167 other European countries in recent years [22]. They coincided with the initiation of cost containment policies such as increases in out-of-pocket payments (costsharing), long and growing queues, and rationing, leading to an increase in demand for private health insurance coverage. However, the underlying factors responsible for the growth in private health insurance are different in the case of Greece, where no cost containment measures were implemented. The growth of private health insurance should, rather, be seen in the context of health system performance, and mainly in relation to dissatisfaction with publicly provided health care services. In Greece the main role of private health insurance is to provide income transfers and cash payments after hospitalization or accident (about 42% of total claims), followed by outpatient services (about 30% of claims), and hospital services (26% of claims) [20]. In the case of all these services, private health insurance constitutes a regressive form of financing. Whereas cash transfers are not ordinarily counted as coverage for medical services, in Greece they must be included as such because to a large extent they cover underground payments for hospital or other services. Outpatient and hospital services covered by private insurance for the most part include services which are also covered by social insurance or the NHS, and hence do not constitute supplementary coverage. Finally, the fact that private health insurance is taken out by the better off, further contributes to inequity, since these individuals and their families have access to all NHS services. Therefore, the growth of private health insurance in Greece has reduced equity in the financing of the system, and its expected future growth, in the absence of requisite changes in the health care system, will in all likelihood continue to undermine equity. 5. Conclusions The 1983 health care reforms implicitly aimed at increasing equity in financing through the expansion of the role of the public sector and corresponding restriction of private sector provision, as well as through decreases in the relative shares of private and social insurance financing. However, the rigid application of certain measures, the failure to design and implement measures which directly sought to change health care financing mechanisms, as well as growing dissatisfaction with publicly provided services have all combined to increase the private share of health care financing. The greatest portion of this increase involved out-of-pocket payments, which constitute the most regressive form of financing, and hence resulted in reduced equity. The growing share of private insurance financing, though as yet quite small, has also contributed to reducing equity. Within public funding, while there has occurred a small shift in favor of tax financing, it is questionable whether this has contributed to increased equity in view of the regressivity of the Greek tax system. Therefore on balance, it is most unlikely that the 1983 health care reforms

168 L. Liaropoulos, E. Tragakes / Health Policy 43 (1998) 153 169 have led to increased equity; it is rather more likely that the system in operation today is more inequitable from the point of view of financing than the highly inequitable system which was in place in the early 1980s. In the last several years there has been a notable change in fiscal policy in Greece, prompted by the effort to cut the public deficit and meet the EU convergence requirements. This has involved efforts to curb tax evasion and reduce tax-financed subsidies of the social insurance funds. For example, in the early 1990s, hospital reimbursement rates were increased by 600%, leading to the creation of deficits in the funds. In addition, insurance in OGA is contributing as opposed to tax financed as of January 1998. It is difficult to predict what effects these measures will have on equity in financing health care. Reduction of tax evasion will clearly have a positive effect, however, shifting the financing burden from tax financed sources to social insurance may compromise some of the gains. References [1] Abel-Smith B. Cost Containment and New Priorities in Health Care. London: Avebury, 1992. [2] McLachlan G, Maynard A. The public/private mix in health care: the emerging lessons. In: McLachlan G, Maynard A, editors. The Public/private Mix in Health Care: The Relevance and Effects of Change. London: Nuffield Provincial Hospitals Trust, 1982. [3] Culyer AJ. The Economics of Social Policy. London: Martin Robertson, 1973. [4] Whitehead M. The Concepts and Principles of Equity and Health. Copenhagen: WHO, 1990:6. [5] Van Doorslaer E, Wagstaff A. Equity in the finance of health care: methods and findings. In: Van Doorslaer E, Wagstaff A, Rutten F, editors. Equity in the Finance and Delivery of Health Care: an International Perspective [CEC, HSR Research Series No. 8]. Oxford: Oxford Medical Publications, 1993. [6] Center for Planning and Economic Research. Five-year Plan for Social and Economic Development in Greece: Report on Health. Athens: KEPE, 1976. [7] OECD. The Reform of Health Care Systems: A Review of Seventeen OECD Countries [Health Policy Studies No. 5]. Paris: OECD, 1994. [8] Schieber GJ, Poullier JP, Greenwald LMUS. Health expenditure performance: an international comparison and data update. Health Care Financing Review 1992;13:1 88. [9] OECD. Health Care Systems in Transition: The Search for Efficiency. Paris: OECD, 1990. [10] Abel-Smith B, Mossialos E. Cost containment and health care reform: a study of the European Union. Health Policy 1994;28:89 132. [11] Ministry of Health and Social Welfare. A Study on Planning and Organization of the Greek Health Care System. Athens: Ministry of Health and Social Welfare, 1994. [12] OECD. The Personal Income Tax Base: A Comparative Survey [OECD Studies in Taxation]. Paris: OECD, 1990. [13] Balfoussias AT. Personal Income Taxation: Tax Responsiveness, Distributional and Incentive Effects. The Case of Greece. Athens: KEPE, 1990:97. [14] Pavlopoulos P. The Black Economy in Greece [Special Studies Series]. Athens: IOBE, 1987. [15] Oikonomou G. The Greek Economy in the Prospect of 1992. Athens: IOBE, 1992:119. [16] Greek National Accounts, 1980 1995; authors own calculations. [17] Kyriopoulos JE, Tsalikis G. Public and private imperatives of Greek health policies. Health Policy 1993;26:105 17.

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