A Welfare State in Crisis is a Myth - Term Paper Example

 A Welfare State in Crisis is a Myth INTRODUCTION In essence, a welfare state preoccupies with the development of policies and governance structures that protects and promotes the social well-being of citizens (Pierson, 1996). The healthcare system thus represents one of the strongest pillars that support a welfare state. This assertion is based on the realization that the economic development of any state is directly linked to the health and well-being of its citizens. Furthermore, the healthcare system fundamentally influences the lives of all citizens regardless of their socio-economic standing in society (Bloom & Canning, 2008). Against such a backdrop, this paper will discuss whether a welfare state in crisis is a myth or not by analysing the healthcare systems of Germany and the UK. The choice of Germany and the United Kingdom (England) in this paper is based on two reasons. First, the United Kingdom and German have the oldest welfare systems in the world and as such, these countries have experienced various transformations in policies on welfare over the years. At the core of such transformations are policies that have been aimed at reforming the healthcare systems in both countries. Secondly, Germany and the United Kingdom have adopted distinct forms of welfare state. While Germany is a conservative welfare state, the United Kingdom is a liberal welfare state. Therefore, the distinctions between the two countries present a platform on which robust comparisons will be made with regards to healthcare systems and policies (Daly & Lewis, 2000). The ripple effects of the 2008 global financial crisis and the Eurozone crisis are still being felt in the healthcare systems of European countries. Recent research findings indicate that countries in the Eurozone are increasingly cutting back on healthcare expenditure. The United Kingdom and Germany began reducing their annual allocations to public healthcare in 2011. Reduced healthcare spending has limited the access to quality healthcare services in both countries. Nevertheless, the unprecedented growth of ageing populations, increasing prevalence of chronic diseases and emerge of sophisticated medical technologies have led to the rise in healthcare costs. Unless both countries formulate mitigating policies, these challenges will greatly impose detrimental effects on their individual healthcare systems (Bermeo & Pontusson, 2012). THEORETICAL BACKGROUND The healthcare system in a welfare state plays the primary role of meeting health and health care needs of the populous. The greatest challenges faced by healthcare systems are to identify real healthcare needs, promote demand and satisfy justified demands. Meeting these challenges ensures that demand is effectively balanced with utilisation (Smith, Edgar & Groom, 2008). Healthcare systems in Germany and England have undergone massive transformations over the years. To a larger extent, these transformations have been necessitated by similar factors. This section will discuss key factors that have influenced recent healthcare policies in Germany and the United Kingdom. 1. Changing Demographics Healthcare demands are basically determined by the sex structure, age and proportion of the served population (Mann, 2008). Countries across the European Union are increasingly experiencing unprecedented changes in their national demographics due to enhanced longevity. The national demographics in these countries are characterised bysignificant decline in birth rates, dramatic increases in life expectancy and growing older population. The aforementioned characteristics have been largely brought about by substantial improvements in the quality of healthcare and nutrition status (Bloom & Canning, 2008). Source: OECD (2010b) The graph above indicates how life expectancy has been rising in Germany and the United Kingdom over the years. For instance, life expectancy stood at 69.1 years (Germany) and 70.8 years (United Kingdom) in 1960. By 2007, the life expectancy in Germany was 80 years while that in the United Kingdom stood at 79.7 years. Both countries have relatively higher life expectancies compare to the United States which stood at 77.9 years in 2007. Overall, countries across the European Union have witnessed rapid growth in the number of populations aged 65 years and above in the last five decades (OECD, 2010a). Growing ageing population has thus become a crucial determinant for healthcare demands and utilisation. Changing demographics in Germany and the United Kingdom have been one of the major motivators for health reforms given that government funding could no longer match healthcare spending. Rapid growth in elderly population over the years has exerted immense pressure on publicly funded healthcare services. Healthcare systems in Germany and the UK were initially structured on the principle of path dependency without anticipating such demographic shifts; thus calling for an appropriate policy response from both countries (Rajoy, 2008). Healthcare demands shifts with increasing age on the basis that elderly populations require more specialised care given their increased susceptibility to chronic diseases and associated comorbidities. 2. Increasing Prevalence of Chronic Diseases At the heart of growing ageing population is the increasing prevalence of chronic diseases and associated comorbidities. An epidemiological transition was experienced in the 20th century the prevalence of a wide range of infectious diseases counterbalanced with that of non-communicable diseases arising from unhealthy lifestyles. Modern medicine has been able to control chronic illnesses but cannot ultimately cure them. The elderly populations have disproportionately been affected by these chronic illnesses (Kaare et al., 2009). In 2006, it was reported that 75% of populations in the EU region who had reached pensionable age had at least two chronic conditions (Konstanze & Wolfang, 2007). Basically, the existence of multiple chronic conditions has posed the greatest challenge to healthcare systems across the region. The healthcare systems of Germany and the UK have traditionally been developed around acute and epidemic care model. The major challenge for policy makers has been how to realign such a healthcare model to incorporate the needs of populations with multiple chronic diseases (Mann, 2008). Since the healthcare model adopted by Germany differs from that in the UK, each country has had to develop its own policies to address chronic conditions. Marked differences in healthcare policies between the two countries have been noted care settings, mechanisms of care coordination and professional roles. Nonetheless, both countries have based their policy decisions from effective healthcare models in other countries in the region and beyond (Rajoy, 2008). 3. Financial Crisis Countries within the European Union have developed individual funding mechanisms for their healthcare systems. However, healthcare systems within these countries share much in common because of common historical developments and similar healthcare goals. While all healthcare systems rely on funding from multiple sources, a large proportion of healthcare funding directly or indirectly controlled by the state. The remaining proportion of funding is sourced from direct fee-for-services. In the United Kingdom, government regulation has made provision for service coverage/universal health insurance. On the other hand, Germany has made provisions for a nearly universal healthcare coverage through compulsory health schemes; where 92.2% of the population is covered (Bermeo & Pontusson, 2012). The 2008 global financial crisis have greatly impacted on healthcare systems of both countries. The financial crisis has negatively affected healthcare funding with regards to diminishing financial resources. Furthermore, financial shocks on the healthcare system present a myriad of challenges to policy makers. To begin with, healthcare systems depend on predictable allocation of financial resources in order to make definite investment plans, procurement of medical supplies and determine budgetary allocations. Therefore, sudden disruptions in funding streams make it difficult for healthcare systems to provide optimal care (Bloom & Canning, 2008). Second, financial shock has forced Germany and the United Kingdom to implement cuts to public spending on healthcare. However, funding cuts have often come at a time when healthcare systems actually require more resource allocations than cuts. For instance, widespreadunemployment implies that healthcare systems require more funding to accommodate unemployed populations. Thirdly, arbitrary cuts to vital health services may further cause destabilization in the healthcare systems. Cuts in healthcare funding have come at a time when both are grappling with high healthcare funding to deal with ageing populations and chronic conditions (Bermeo & Pontsson, 2012). CASE COMPARISON The preceding section has discussed three major factors that have influenced healthcare reforms in Germany and the United Kingdom. This section will subsequently discuss the health policies that have been adopted by both countries in response to the three factors. Both countries have different healthcare systems and therefore health policies adopted in both countries differ in the extent of their comprehensiveness. Nevertheless, adopted policies mirror the features inherent of healthcare systems in both countries. Major differences between the healthcare systems are seen in governance mechanisms, delivery of healthcare services, regulating bodies and delivery of healthcare services. 1. Response to Ageing populations and Chronic Diseases In response to long-term (chronic) conditions, the UK government launched a customised NHS Health and Social Care Model in January 2005. The focal area of this model was to identify populations with long-term conditions in order to provide optimised health care. The three facets of this model were: first, the model created an “Expert Patients Programme” that would be expanded with the aim of promoting peer-led education on self-management. Second, the model contained specialist nurses (commonly referred to as “community matrons”) to support persons with complex, long-term conditions. Third, the model provided a framework for encouraging teams of healthcare staff to work in collaboration with persons with long-term conditions together with their respective families (Department of Health, 2005). Germany has responded to chronic diseases through the formulation of a legal framework for structured Disease Management Programmes (DMPs). The DMPs have been informed by the Social Code Book V (SGB V); which has identified key areas of responsibility. Accordingly, the SGB V has mandated the Federal Joint Committee-Germany (GBA) to identify chronic conditions appropriate for DMPs, as well as to regularly design and update the content of DMPs (Rajoy, 2008). Criteria to be followed in the development of DMPs encompass: potential for quality improvement; requirement for intersectoral approach to treatment; availability of evidence-based guidelines; high healthcare costs associated with the condition(s); high number of insured persons with a specified chronic condition(s); and the course of the condition(s) influenced by self-management (Busse & Riesberg, 2004). Moreover, both the UK and Germany have responded to ageing population in different ways. The UK government policy on ageing population encourages community-based care in place of hospitalised care. The aim of this policy is to reduce hospital stays, readmissions and placement in nursing homes. The UK government has thus developed highly specialist geriatric teams dedicated to ageing populations; in addition to home-based care and follow-ups after discharge. Nevertheless, the UK government has developed preventive services to avert emergency admissions. Such services include: nutrition support, promotion of hygiene through health education programmes, regular medical checks, supply of required medication and reduction of environmental hazards (Department of Health, 2004). In Germany, on the other hand, the government has focused more on self-management and technological advances to address the challenge posed by ageing populations. The German government believes that health literacy, coupled with increased access to technology, will enhance self-management and subsequently reduce hospital admission. Germany has thus developed programmes that facilitate understanding and management of specific conditions among the ageing populations. The delivery of these programmes has been enhanced through the use of computers and the internet. Furthermore, the German government has deployed the use of assistive technology to ease mobility hence reduce incidences of physical disability (Rajoy, 2008). 2. Response to Financial Crisis Both Germany and the United Kingdom have been witnessing rising healthcare expenditure over the years. Healthcare expenditures in both countries have been attributed, in part, to growing ageing populations and increasing prevalence of chronic diseases. The two challenges have been further exacerbated by the financial crisis that has necessitated cuts in healthcare budgets. However, both countries have responded differently to increasing healthcare spending. Healthcare costs in Germany and the UK have been rising in tandem with overall economic growth and thus disputing as a myth the often quoted “cost explosion” in healthcare. However, the greatest challenge lies in the overall reduction in total gross wages (Bermeo & Pontusson, 2012). Healthcare systems in Germany and UK draw a large percentage of contributions from payroll tax meaning that a reduction in gross wages directly affects contributions. Cost-containment and equitable access to medication have been major concerns for both the UK and Germany; even before the recession (Hay & Winncott, 2012). Germany has not formulated major reforms in the wake of the financial crisis since its health system was not largely affected compared to the situation in the UK. This is because Germany had accumulated massive financial reserves to handle such economic uncertainties. However, current focus in Germany has been directed towards pharmaceutical policies and health care contributions (Lungen & Irvine, 2003). Prior to the 2011 reforms, healthcare contributions in Germany were almost split equally between employees and employers (Lungen & Irvine, 2003). The 2011 reforms froze employer’s share thereby requiring employees to remit 8.2% while employers remit 7.3% of pre-tax income to SHI. In addition to these measures, the German government has embarked on enhancing competition between private and statutory health insurance to improve efficiency. The measures employed in Germany have been necessitated by public sector spending limits; which have called for a balance between equitable access to medication and cost-containment of government spending on pharmaceuticals (Bermeo & Pontusson, 2012). Germany is frequently using price reductions of medications as the most prominent measure for cost-containment on pharmaceutical spending. Accordingly, the German government has frozen the prices of reimbursable medicine based on value assessments. Furthermore, the German government has also increased (from 6% to 16%) the mandatory manufacturer’s rebate to social health insurance. From 2012, the German government began implementation of external price referencing procedures which include change in the structure of wholesale margin in pharmaceutical purchases (Bermeo & Pontusson, 2012). While other countries in the EU have increased VAT on medicines, the German government has not adopted this measure. The UK has increased VAT on medicines from 17.5% to 20% in 2011 (Hay & Winncott, 2012). On the other hand, the UK has implemented a raft of measures in response to rising expenditure and economic crisis. The UK has reorganised the National Health Service (NHS) to enhance efficiency, a process that began in 2006. The NHS has been reorganised under the auspices of the Health and Social Care Act that became operational in 2012. One prominent feature of this Act has been the abolishment of Strategic Health Authorities and NHS Trusts; effectively transferring funds to other services (Doetter & Gotze, 2011). The policy has also made provisions to privatise healthcare services with the aim of shielding healthcare costs incurred by the UK government (Department of Health, 2005). The Health and Social Care Bill of 2012 brought to the end the National Health Service (NHS) in April 2013. The termination of NHS in the UK has paved way for a corporate driven healthcare and a mixed funding system. The UK government has made far reaching and incremental legal provisions for allowing private corporations to enter its healthcare system. These changes have been necessitated by austerity and cuts in healthcare expenditure, as well as the need to allow entry of private capital in healthcare funding. In effect, introduction of these changes has allowed the creation of corporate hospital trusts that now have the powers to charge healthcare costs; deregulate staff and terms and conditions of service; change mechanisms for diverting funds to the private sector; and privatization of staff and services (Bermeo & Pontusson, 2012). Privatization of NHS in the UK has attracted public outcry and retribution. The original NHS provided publicly funded healthcare services which were to all UK citizens at the point of need. However, the 2012 Health and Social Care Act has privatized and accelerated fragmentation of health care (Hay & Winncott, 2012). The UK government has ideally reorganized the NHS in a top-down fashion to increase the role of the private sector in the delivery of healthcare services. Health reforms in the UK have arisen from the government’s response to increasing healthcare expenditure and public debt. However, opponents of ongoing reforms argue that these reforms will limit accessibility to healthcare; majorly due to increased costs (Heise & Lierse, 2011). DISCUSSION Both Germany and the United Kingdom have adopted a healthcare system based on the solidarity approach. The solidarity approach in healthcare care mandates both governments to provide healthcare access to those who cannot afford it through income taxation. In practice, those who are better-off in society are required to shoulder those struggling. By adopting this approach, both governments intend to ensure that every citizen has access to healthcare services. Conversely, employees who earn above a specified income threshold and those who are self-employed are allowed to opt out of the statutory health insurance system in favour of private health insurance (Bloom & Canning, 2008). However, Germany and the UK have experienced rapid growth of public healthcare expenditure in the last five decades. Rapid expansion of healthcare expenditure has paralleled the general inclination of both countries to a welfare state. Unprecedented growth of ageing population in both countries has combined with high prevalence of chronic conditions to rapidly increase public healthcare expenditure (Stauner, 2008). Discussions around demographic change often centre around two opposing voices. On one hand, opponents view the ageing population as a burden for society. On the other hand, proponents acknowledge the challenges borne of ageing populations but focus more on the benefits of demographic change (Mann, 2008). Whichever position one may assume, it is clear that Germany and the UK (as welfare states) are currently at a crossroad. The growth of ageing populations means that both Germany and the United Kingdom must radically overhaul their health and social care system to effectively cater for the needs of these populations. Radical reforms within the healthcare systems may, to a greater extent, overhaul the entire healthcare systems adopted by Germany and the UK (Bloom & Canning, 2008). For instance, both governments will be forced to increase healthcare expenditure if they are to provide a universal healthcare for the ageing population. Healthcare expenditure will further skyrocket given the costs of treating multiple chronic conditions presented by an ageing population. In such a scenario, both governments will have meet healthcare costs by merely increasing contributions to publicly-funded healthcare insurance (Bermeo & Ponusson, 2012). High costs of healthcare associated with ageing populations may also result in the tendency to reduce publicly-funded healthcare services to a basic minimum. Welfare states may opt to choose such a strategy so as to create the means through which those who are better-off can opt for private healthcare insurance. Adopting such an approach will further undermine the publicly-funded healthcare system that relies on the solidarity principle (Smith, Edgar & Groom, 2008). As already stated Germany and the UK have adopted a solidarity approach in the provision of healthcare insurance for a majority of citizens. If those who are better-off are allowed to opt out of the publicly-funded healthcare insurance system, a shadow will be cast on the feasibility of the welfare model adopted by Germany and the UK (Stauner, 2008). If Germany and the UK decide to privatise healthcare services in order to cut the costs incurred through the publicly-funded healthcare system, the solidarity approach adopted by the two countries will become inconsequential. A threat to the solidarity approach subsequently portends a crisis to the welfare state. Furthermore, privatisation directly endangers the sustainability of pension schemes healthcare insurance since it will disproportionately affect individuals who cannot afford private schemes. Generally, work age populations are producers of societal goods and services that are largely consumed by the elderly populations. Within this context, young people will not willingly allow the government to tax them more in order to fund healthcare for the older generations (Bermeo & Pontusson, 2012). One approach that welfare states may adopt to meet pension and healthcare demands of ageing populations is to increase payroll taxes. Even with increased taxes, there is no assurance that both Germany and the UK will sufficiently meet the soaring costs of healthcare expenditure. The healthcare systems of Germany and the UK cannot be financed in the future. This assertion is based on the realization that countries in the EU will focus more on consolidating their debt levels and fiscal balances in the coming decade. Currently, countries in the EU are headed towards an alarming level of public debt. Therefore, the impact of public debt on GDP will pose depressing impacts on all forms of government expenditure (Kaare et al., 2009). In both Germany and the UK, healthcare expenditure respectively takes up 13% and 15% of the total government expenditure (Bermeo & Pontusson, 2012). Ageing populations will significantly push healthcare expenditure once they reach healthcare-dependent ages. Future projections points towards sober reading of healthcare expenditure due to the factors already mentioned. Consequently, Germany, the UK and other countries in the region will have to find urgent ways to use their resources in an efficient manner. Furthermore, these countries will have to seek alternative ways to financial increasing healthcare demands, as well as develop strategies to accommodate increasing demands for healthcare services (Stauner, 2008). In the midst of these challenges are the impacts of globalisation. Increased globalisation has been identified as a threat to healthcare systems. One of the prominent components of globalisation is the free flow of people from one geographic location to the next through advanced transport networks. Rapid movement of people also correlates with rapid spread of infectious diseases. Avian flu and SARS represents some of the infectious diseases that have been spread from endemic areas to other regions through air transport. Nevertheless, immigrants from low-income countries move to developed countries with medical complications that strains healthcare systems in host countries. Within this context, increased globalisation, particularly across countries in the EU, will probably impose healthcare burdens on individual member states (Busemeyer, 2009). CONCLUSION Healthcare represents one of the priority areas for any welfare state as has been exemplified in the case of Germany and the United Kingdom. Over the years, both countries have implemented reforms within their healthcare systems with the sole aim of ensuring universality of healthcare services. To that effect, governments in both countries carry the burden of funding healthcare services through taxation. Both countries have adopted a solidarity approach where high-income earners are taxed more to shield healthcare costs for the low-income earners. However, continuing growth of ageing populations; increasing prevalence of chronic diseases; and impacts of financial recessions and globalisation are presenting new challenges to healthcare systems. The aforementioned challenges have come at a time when both Germany and the UK have been grappling with increasinghealthcare expenditure. As such, it is not feasible for any country to indefinitely spend a large proportion of its expenditure on healthcare. Nevertheless, there should be a limit to the amount of money taxed from the young to accommodate the old. The welfare state may not be at a major crisis at the moment but a crisis is in the making unless urgent measures are put in place to ameliorate current challenges in the healthcare sector. Welfare states in developed countries are faced with two major challenges: increasing costs of healthcare and overreliance on taxation to fund healthcare services. Taxation alone will not be able to sustain healthcare systems in the future; welfare states must now consider other sources of funding to supplement tax money. Within this context, future reforms in healthcare systems will witness privatisation of healthcare services on a large scale. Private insurance arrangements and/or service fees will emerge as viable solutions to rising costs of healthcare services; especially those services delivered to ageing populations. Public-private partnerships in healthcare delivery will thus become the norm in welfare states of the future. Alternatively, welfare states should consider putting more emphasis on prevention programmes to curb the increasing prevalence of chronic diseases. It will be more feasible to address the risk factors for chronic diseases, especially among the younger generation, rather than addressing the challenge in old age. Reference List Bermeo, N. and Pontusson, J. (2012) Coping with crisis: government reactions to the Great recession. New York: Sage. Bloom, D.E. and Canning, D. 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