Europe’s Failing Health: Sweeping reforms are needed across the European Union if its member states are serious about providing sustainable health care to aging populations .

Commentary, Healthcare & Welfare, Frontier Centre

Traditional sources of funding health care in Europe have been branded obsolete and unaffordable. The need for innovation has never been stronger and while some countries, such as the Netherlands and Switzerland, are embracing change, others are resisting any significant overhaul. Indeed, the notion of free, state-backed health care is ingrained in the psyche of most Europeans.

Reformers want to reduce the state’s role in health-care delivery and introduce a competitive element. Those against change are adamant that a health-care system without state involvement is health care without a heart. Good for the rich, calamitous for the poor. It is an issue heavily clouded by emotion. But many feel that without innovation, crumbling state-backed systems will collapse as they struggle to cope with aging populations, soaring overheads and, more recently, mounting budget deficits.

The statistics paint a bleak picture. According to the Organization for Economic Cooperation and Development, the European Union will see an increase in health expenditure of 350% by 2050, whereas at the same time the economy is only set to expand by 180%.

Some work has already been done to estimate the real impact on future expenditures. Friedrich Breyer, a professor of economics at the University of Konstanz in Germany, calculates that in Germany alone between 2020 and 2030 there will be a huge spike in the number of elderly people alongside an enormous drop in young and working-age people. "This will mean a dramatic increase in individuals’ payroll tax contribution rates to health care to 20.7% in 2030 and over 23% in 2040," he says. This compares to just 11.4% in 1980.

So which countries offer the closest to a sustainable and effective health-care model and what can others, like the U.K., learn from them? Health-care specialists point to the Netherlands and Switzerland as models to follow in which funding comes from a mixed pool of sources and patients have more control over their health.

Unlike the U.K. health-care system, where the state manages and delivers the services, systems in the rest of Europe, particularly Switzerland, the Netherlands and to some extent Germany, rely more on a system of private insurance. Switzerland has been hailed as the least over-protective system. In that country health insurers are the ones who determine their fees and the services they provide—as long as they adhere to the basic services agreed in the country’s Health Insurance Law.

Also unlike the U.K., patients incur fees to cover some ambulance and boarding costs. However, the Swiss authorities also provide subsidies for poorer patients. The system is broken down into the country’s 26 cantons (or regions), which largely look after their own services, without relying on a centralized system. Individuals have the advantage of choosing which health service better fits their needs by opting for different competing insurers.

Despite the decentralized nature of health care, the Swiss government has created a system in which insurers must register to be able to sell their health-care packages. According to government figures, there are currently 87 registered insurance companies.

As a result of less government control, the Swiss health-care system has been able to reduce waiting time for treatment and pioneers new technology and pharmaceuticals, according to the Institute for the Study of Civil Society, a London think tank known as Civitas.

Elsewhere in Europe, the Netherlands favors a hybrid system. Although the Dutch authorities still administer health care and provide subsidies to the more vulnerable, they also promote a competitive insurers market similar to that in Switzerland.

However, it is in the U.K. that arguably the biggest changes need to be made. The government of Prime Minister David Cameron is determined to reform the 63-year-old National Health System. It is undergoing a massive overhaul in an effort to save £1.7 billion ($2.7 billion) a year. Under the proposed plans, general practitioners are set to take control of commissioning services for patients. The government is proposing to scrap strategic health authorities and primary care trusts, which currently commission services. The government argues it does not have a choice. The country’s budget deficit is soaring and the NHS is one of the biggest drains on its resources.

Britain is not the only European country having to make tough choices to tackle soaring deficits. Other countries in Europe, including France and Spain, are also dealing with huge deficits. "The share of health-care expenditure in Europe has been growing only because gross domestic product has been going down," explains Gaetan Lafortune, senior economist at the OECD Health Division in Paris. "The data collected so far is missing the impact of the crisis, but the growth rate on health spending is expected to decrease in Europe overall."

According to data collected by the OECD and the European Union statistical agency Eurostat, 74% of health spending in Europe, on average, is financed from public sources such as tax revenue and social-insurance contributions. The other 26% comes directly from private sources. This could be set to change as a result of the downturn. But how countries in Europe deal with their deficits and how this will affect health delivery in each will vary. "So far there is willingness to protect the health-care services in the U.K., while Iceland and Ireland have had to cut health-care spending across the board," Mr. Lafortune says.

So what lessons can be learned by the U.S.? Mr. Breyer believes the situation is no different to that of Europe. There are similar fears of a crisis when the baby boomers retire. He estimates that by 2030 there will be 36.8 people over the age of 65 per 100 people in the U.S. Furthermore, a much higher percentage of elderly people is expected in Italy, Spain and Greece by about the same period. On top of a changing demographic landscape, in which there will be fewer younger people and more elderly citizens, health-care systems are also under pressure to become more efficient as patients demand a much higher quality of service.

The idea of a docile and uninformed patient with little say on the quality and choice of care is changing, says Johan Hjertqvist, an independent Swedish health-care consultant based in Brussels. "For too long you expected the government to take care of you but now individuals want the system to be accountable to them and want to make informed choices," he says.

Soaring costs in health expenditure have made it necessary to explore other ways of financing health systems. No longer do governments plan to rely almost entirely on taxpayers’ money. Fredrik Erixon, director of the European Center for International Political Economy in Brussels, emphasizes the scale of the problem facing governments in Europe. "In 1995 the cost of a hip replacement was the equivalent of buying a flat-screen TV in Germany," he says. "In 2008 you could get 10 flat-screen TVs for the amount of money you paid for a hip replacement."

Not everyone, however, is an advocate of health-care reform. In the U.K., trade unions have been vociferous in their discontent over the proposed overhaul of the NHS.

"Changes are going to dramatically affect the workforce," says Kate Jennings, chair of the NHS staff council, which represents about one million health-care employees from nurses to managers. "There is absolutely no evidence that competition nurtures efficiency. That’s a myth that promotes marketization and in the end makes health care more expensive. Our health-care system was built on the founding principles that it should be free and equal and paid for by direct taxation. The big fear is that these reforms promote a system where you can top up. And this diminishes the quality of health and creates a two-tier system."

However, those closely watching reform in the U.K. believe change is inevitable. "I am not denying there are potential unsavory consequences to consider, but bringing the market into health care can serve everyone in terms of falling waiting times and improving the provision of health care," says James Gubb, director of the health unit at Civitas in London.

But why are we only now starting to see hints of change in health-care systems in Europe? "People are gradually realizing monopoly-style systems are becoming obsolete and unaffordable," Mr. Hjertqvist says. "Health care should be looked at as the largest industry in Europe but instead it has for too long been regarded as an administrative operation."