Comparisons of Health Care Systems in the United States, Germany and Canada

Mat Soc Med. 2012 Jun; 24(2): 112-120

Received: 12 February 2012

Accepted: 15 April 2012

CONFLICT OF INTEREST: none declared.

© AVICENA 2012

doi: 10.5455/msm.2012.24.112-120.

Comparisons of Health Care Systems in the

United States, Germany and Canada
Goran Ridic1, Suzanne Gleason2, Ognjen Ridic3
Fall, Ilinois, USA1
ECON, Ilinois, USA2
Sarajevo International University, Sarajevo3

Corresponding author: Goran Ridic, PhD. Fall, Ilinois, USA. E-mail: [email protected]

Review
SUMMARY
The purpose of this research paper is to compare health care systems in three highly advanced industrialized countries: The United States of
America, Canada and Germany. The first part of the research paper will focus on the description of health care systems in the above-mentioned
countries while the second part will analyze, evaluate and compare the three systems regarding equity and efficiency. Finally, an overview of recent
changes and proposed future reforms in these countries will be provided as well. We start by providing a general description and comparison of
the structure of health care systems in Canada, Germany and the United States.
Key words: health care systems, Canada, Germany, USA.

1. Canada’s NHI – overview, The origins of the current Canadian health care system can
be traced back to the 1940’s when some provinces introduced
origins and history
compulsory health insurance. The Canadian health care sys-
Canada has a national health insurance program NHI tem began to take on its current form when the province of
(a government run health insurance system covering the en- Saskatchewan set up a hospitalization plan immediately after
tire population for a well defined medical benefits package). WWII. The rural, low–income province was plagued by short-
Health insurance coverage is universal. General taxes finance ages of both hospital beds and medical practitioners. The main
NHI through a single payer system (only one third-party payer feature of this plan was the creation of the regional system of
is responsible for paying health care providers for medical hospitals: local hospitals for primary care, district hospitals for
services). Consumer co-payments are negligible and physi- more complex cases, and base hospitals for the most difficult
cian choice is unlimited. Production of health care services cases. In 1956, the federal parliament enacted the Hospital and
is private; physicians receive payments on a negotiated fee for Diagnostic Services Act laying the groundwork for a nation-
service and hospitals receive global budget payments (Method wide system of hospital insurance. By 1961 all ten provinces
used by third party payers to control medical care costs by es- and the two territories had hospital insurance plans of their
tablishing total expenditure limits for medical services over a own with the federal government paying one half of the costs.
specified period of time). By 1971 Canada had a national health insurance plan, provid-
Canada’s health care system is known as Medicare (the ing coverage for both hospitalization and physician’ services.
term should not be confused with the Medicare program for As recently as 1971, both the United States and Canada spent
the elderly in the U.S.) Canada’s population is about 31 mil- approximately 7,5 % of their GDP’s on health care. Since 1971
lion people and the country is divided into 10 provinces and the health care system has moved in different directions. While
two territories. Most of the population lives within 100 miles Canada has had publicly funded national health insurance,
of the United States border. From the American point of view, the United States has relied largely on private financing and
Canada provides a good comparison and contrast in terms of delivery. During this period, spending in the United States
the structure of its health care systems. U.S. and Canada share has grown much more rapidly despite large groups that either
a similar heritage in terms of language and culture; the two uninsured or minimally insured.
countries also share a long border and have similar economic The provisions of the 1984 Canada Health Act define the
institutions (Folland et al 542). health care delivery system as it currently operates. Under the

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 Comparisons of Health Care Systems in the United States, Germany and Canada

Act, each provincial health plan is administered at the pro- of medical practitioners, location of recent medical graduates,
vincial level and provides comprehensive first dollar coverage and the diffusion of high tech diagnostic and surgical equip-
of all medically necessary services. With minor exceptions, ment. In 1997 Canada’s 53 MRIs meant one for every 572,000
health coverage is available to all residents with no out of citizens (contrast that figure to 2046 MRIs in the U.S., one for
pocket charges. Most physicians are paid on a fee for service every 130,800 Americans). Access to open heart surgery and
basis and enjoy a great deal of practice autonomy. Private health organ transplantation is also restricted.
insurance for covered services is illegal. Most Canadians have That same year the 245 CT scanners in Canada meant one
supplemental private insurance for uncovered services, such for every 123,500 citizens. The United States had 3667 CT
as prescription drugs and dental services. As a result, virtually scanners, one for every 73,000 Americans (Henderson 487).
all physicians are forced to participate and each health plan ef- Recent studies found Canadian deficits in several areas in-
fectively serves all residents in the province (Henderson 487). cluding angioplasty, cardiac catheterization and intensive care.
Patients do not participate in the reimbursement process, Waiting lists for certain surgical and diagnostic procedures are
and reimbursement exclusively takes place between the public common in Canada. Nationwide, the average wait for treatment
insurer (the government) and the health care provider. The is 13.3 weeks. The average waiting time in more than 80% of
monetary exchange is practically non-existent between pa- the procedures is one third longer than Canadian physicians
tient and health care provider. The ministry of health in each consider clinically reasonable. If care required diagnostic im-
province is responsible for controlling medical costs. Cost aging, waiting times are even longer. Canadians are sacrificing
control is attempted primarily through fixed global budgets access to modern medical technology for first dollar coverage
and predetermined fees for physicians. Specifically, the operat- for primary care. Treatment delays are causing problems for
ing budgets of hospitals are approved and funded entirely by certain vulnerable segments of the Canadian population, par-
the ministry in each province and an annual global budget is ticularly the elderly who cannot get reasonable access to the
negotiated between the ministry and each individual hospital. medical care they demand, including hip replacement, cataract
Capital expenditures must also be approved by the ministry, surgery and cardiovascular surgery.
which funds the bulk of the spending. Several lessons can be learned from the Canadian experi-
Physician fees are determined by periodic negotiations ence. When government provides a product “free” to con-
between the ministry and provincial medical associations sumers, inevitably demand escalates and spending increases.
(the Canadian version of the American Medical Association). Products provided at zero price are treated as if they have zero
With the passage of the Canada Health Act of 1984, the right resource cost. Resource allocation decisions become more inef-
to extra billing was removed in all provinces. Extra billing or ficient over time and government is forced either to raise more
balance billing refers to a situation in which the physician bills revenue or curb services. A number of the provincial health
the patient some dollar amount above the predominated fee set plans are moving to reduce spending by dropping services
by third party payer. For the profession as a whole, negotiated from the approved list of the “medically necessary”. A second
fee increases are implemented in steps, conditional on the rate lesson from the Canadian experience is that everything has a
of increase in the volume of services. If volume per physician cost. When care requires major diagnostic or surgical proce-
arises faster than a predetermined percentage, subsequent fee dures, the “free” system must find some other mechanism to
increases are scaled down or eliminated to cap gross billings allocate scarce resources. The Canadian system delegates this
– the product of the fee and the volume of each service – at authority to the government. Resource allocation is practiced,
some predetermined target. The possible scaling down of fee not through the price mechanism, but by setting limits on the
increases is supposed to create an incentive for a more judicious investment in medical technology. Proponents will argue that
use of resources. Physicians enjoy nearly complete autonomy using waiting lists as a rationing measure is reasonable and
in treating patients (e.g., there is no mandatory second opinion fair. Opponents find the lists unacceptable and an unwelcome
for surgery) because policy makers believe there is no need for encroachment on individual decision-making in the medical
intrusive types of controls given that the hospital global budgets sector. Proponents of the single payer alternative must deal
and physician expenditure targets tend to curb unnecessary with the fact that Canadians face waiting lists for some medi-
services (Santerre–Neun 38). cal services especially for high – tech specialty care. To avoid
Many feel that it is inaccurate to characterize the Canadian delays in treatment, many Canadians travel south to the United
system as “single – payer” because the provincial plans vary States for more advanced treatment.
considerably. In spite of the differences it is fair to say that Critics of the Canadian system must deal with the fact that
each provincial plan is a public – sector monopsony, serving most Canadians support their version of Medicare. The single
as a single buyer of medical services within the province and most important defense of medical care delivery in Canada is
holding down medical care prices below market rates. By U.S. that it works relatively well. Regardless of the problems faced
standards, physicians’ incomes are on average low. In 1992 by the system, critics must face the reality that the medical
the average income of self employed physicians was $104,000 care system provides its residents with access to all “medically
adjusted for purchasing power parity, about five times the necessary hospital and physician services” at a fraction of the
average Canadian worker, but less than two thirds that of the per capita cost of the U.S system (1).
typical U.S. physician.
The key element in the Canadian strategy to control overall
spending is the regionalization of high – tech services. Gov-
ernment regulators make resource allocation decisions. This
control extends to capital investment in hospitals, specialty mix

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Comparisons of Health Care Systems in the United States, Germany and Canada

2. Germany – socialized payment for ambulatory and dental care. Payment from these
funds represents about 70% of health care spending (Folland
medicine–overview, origins
et al. 537).
and history The sickness funds are required by law to provide a compre-
Germany’s health care system has its origins in the “mutual hensive set of benefits. These include physician ambulatory care
aid societies” created in the early 19th century. The German sys- provided by physicians in private practice, hospital care, home
tem of social benefits is based on the concept of social insurance nursing care, a wide range of preventive services and even visits
as embodied in the principle of social solidarity. This principle to health spas. Patient cost sharing is minimal. The funds, like
is a firmly held belief that government is obliged to provide a disability insurance also provide additional cash payments to
wide range of social benefits to all citizens, including medical those who are unemployed as a result of illness. The system is
care, old age pensions, unemployment insurance, disability weak in several areas. In particular, public health services and
payments, maternity benefits and other forms of social welfare. psychiatric services are minimal. As for reimbursement, am-
When Otto von Bismarck became Germany’s first chancellor bulatory providers are paid on a fee for service basis, hospitals
in 1871, hundreds of sickness insurance funds were already in on a prospective basis. Both public and private (including for
operation. Bismarck saw the working class movement of that profit) hospitals exist, though the public hospitals account for
time as a threat. This concern led him to advocate the expan- about half the beds. Hospitals tend to use salaried physicians,
sion of the existing sickness benefit societies to cover workers and unlike the United States physicians in private practice
in all low wage occupations. In 1883, the Sickness Insurance generally do not have admitting privileges. Thus, many doctors
Act was passed, representing the first social insurance program have invested in elaborately equipped clinics to compete with
organized on a national level. hospitals by being able to perform a wide range of procedures.
After WWII Germany was divided into two separate en- The German experience is especially relevant to the United
tities by the Allies. The German Democratic Republic (East States. Coverage is provided through a large number of rela-
Germany) was under the influence of the former Soviet Union tively small and independent plans. In this sense, the delivery
and adapted the socialist form of government. The Federal Re- of health care is similar to that found in the United States
public of Germany (West Germany) maintained its connections where, for the most part, large numbers of employee groups,
with the West and continued to utilize the pre–war economic independent insurers, and providers reach agreements without
system including the health care delivery system. East and direct government intervention. Many Americans propose
West Germany were reunited in 1990 and since that time the mandated coverage for the working uninsured. Germany
former East Germany has been subjected to most West German relies on a mandated approach where coverage for certain
laws including legislation relating to the medical insurance conditions is required by law. Germany also introduced cost
system. With the combined population of 82 million people, controls similar in principle to prospective payment under the
Germany is divided into 16 provinces (Laender), each with a U.S. DRG mechanism.
great deal of independence in determining matters related to
health care. Over the past 130 years the system has grown to 2.1. Government Role and Involvement
the point where virtually all of the population is provided ac- In the German health care system, each level of government
cess to medical care. All individuals are required by law to have has specific responsibilities. The central government passes
health insurance. Those earning less than $35,000 (1995) must legislation on policy and jurisdiction. State governments are
join one of the sickness funds for their health care coverage responsible for hospital planning, managing state hospitals,
(Henderson 495). Sickness funds are private, not – for – profit and supervising the sickness funds and physician associations.
insurance companies that collect premiums from employees Local governments manage local hospitals and public health
and employers. Those earning more than this limit may choose programs. Decentralization is extensive. The sickness funds
private health insurance instead. Approximately 74% of the and physician associations have considerable administrative
population is compelled to join a sickness fund. Another 14% autonomy. Despite this autonomy, government intervention is
are members who join voluntarily even though their income extensive and has been increasing steadily. Expenditures of the
exceeds the statutory cutoff. Of the remaining portion, 10% is sickness funds grew rapidly in the 1960’s and early 1970’s. As
covered by private insurance and 2% by police officers insur- a result, the Cost Containment Act of 1977 introduced a fixed
ance, student insurance and public assistance. One of every 10 budget for payments by the sickness funds to the physician as-
Germans covered by sickness fund insurance also purchases sociations. In essence, this program is similar to prospective
private supplementary insurance to cover co-payments and payment schemes developed in the United States. The Health
other amenities. Care Reform Act of 1989 introduced more major changes. These
Individual health insurance premiums for workers are were directed at attempts to further reduce the growth of health
calculated on the basis of income and not age or the number expenditures through means familiar to those in the United
of dependents. Premiums are collected through a payroll tax States. The changes included greater cost sharing, a strategy
deduction; the average contribution was 13.4% of workers gross increasingly favored in Germany’s many reform efforts. The act
salary in 1993. The social insurance component is organized also attempted to control hospital costs through reductions in
around some 500 localized sickness funds. The sickness funds hospital capacity, hospitals inpatient admissions, and hospital
are independent and self – regulating. They pay providers di- expenditures on capital equipment (2).
rectly for services provided to their members at rates that they As costs continued to rise for the sickness funds at a rate
negotiate with individual hospitals. Regional groups of funds faster than the rise in incomes, the call for reform continued.
negotiate with regional doctors’ and dentist’ associations for In 1993 the Health Care Reform Act was passed which intro-

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 Comparisons of Health Care Systems in the United States, Germany and Canada

duced supply- side competition. These reforms gave members The inability to contain costs in the 1990’s is partly an artifact
the freedom to choose among a range of sickness funds whose of Germany’s reunification. The former East Germany added
revenues would be determined by the risks of their members. considerably to Germany’s health care spending without add-
The reforms further changed the hospital payment system ing much GDP. The German health care system also faces ad-
from a per diem payment to a DRG – styled prospective pay- ditional cost pressures from having a much older population
ment basis. than the United States does. Germany has achieved a favorable
Germany’s success in controlling costs can be attributed rating along other criteria. It has a publicly funded system with
to the institutional framework of the system itself. By linking virtually universal coverage but has avoided queues and ex-
medical expenditures to the income of sickness fund mem- tensive government intrusion. Both patient and provider have
bers, the success of the strategy depends upon the continued considerable autonomy. Germany has managed to achieve cost
growth in wages and salaries and the success of the negotia- control by establishing an explicit trade off between volume
tions between the sickness funds and medical practitioners. and price. When utilization is higher than anticipated, fees are
The cost containment measures have resulted in a dramatic lowered proportionally. In addition, spending caps instituted in
decrease in the relative salaries of primary care physicians, the mid 1980s as a temporary cost containment measure have
which have fallen from 5.1 times the average for wage and sal- become permanent. New laws adopted in 1993 and 1997 de-
ary workers in 1975 to 2.7 times that average in 1990. By U.S. signed to increase competition among sickness funds, lowered
standards, physician’s salaries are relatively low. In 1993, the pharmaceutical prices and physicians’ fees, increased required
average German physician earned $75,700 with general practi- co-payments, and placed more regulations on hospital billing
tioners receiving $64,300 on average and orthopedic surgeons practices, all to reach desired spending targets. Even with all
receiving $107,600. More than 100,000 students attend one of these new changes, support for the system remains high, in part
the 29 medical schools run by the state. After completing the because wealthy Germans have a private insurance safety valve
six-year curriculum, physicians must first practice in a hospital and the ability to buy more physician time and better services.
setting for five years before they are allowed to enter private On the other hand, the German health system faces a new
ambulatory practice. Hospitals also have less high technology challenge. The German population is aging rapidly, causing a
diagnostic, therapeutic, and surgical equipment than is avail- demographic change that will place severe pressure on its social
able in the typical urban hospital in the United States. Ger- security and health care programs. (4)
many has 22.6 percent fewer MRI units per million compared
to the United States. The one area where Germany has more 3. United States – private
technology is CT scanners, where they have 17.1 per million
markets & pluralism
population compared to 13.7 per million in the United States
(Henderson 497) (3). The United States has no single nationwide system of health
The German system suffers from several problems that insurance. Health insurance is purchased in the private market-
bring into question its ability to contain costs over the long place or provided by the government to certain groups. Private
term. Possibly the biggest problem with the system is its reli- health insurance can be purchased from various for – profit
ance on third party payment providing virtually no role for the commercial insurance companies or from non – profit insur-
cost – conscious consumer. Patients have no incentive to limit ers. About 84% of the population is covered by either public
their demand and medical providers have no incentive to limit (26%) or private (70%) health insurance. Approximately 61%
their supply. Nothing would lead competitive forces to reduce of health insurance coverage is employment related, largely
costs. The only competition is among medical practitioners to due to the cost savings associated with group plans that can
attract more patient volume. The ability of the system to control be purchased through an employer (Santerre and Neun 46).
costs depends solely on the relative bargaining power between Employers voluntarily sponsor the health insurance plans.
sickness funds and medical providers. Another problem with Rather than purchasing an insurance policy from an external
the system is its tendency to use resources inefficiently. Incen- party (commercial insurance company) employer and employee
tives promote the provision of invasive acute care procedures premiums sometimes fund an internal health insurance plan.
and discourage the provision of personal services. Based on The fully self-insured firm assumes all the risk for its employees’
the latest available OECD figures, Germans see their doc- health care costs. A partially self insured firm limits the risk it
tors more often, are provided more prescription drugs, have a assumes by purchasing “stop loss” insurance coverage, which
higher hospital admission rate, and stay in the hospital longer protects it from incurring costs over a specified maximum
than citizens of the major developed countries in the OECD. amount. In either case, the firm usually contracts with a third
The average lengths of stay in the hospital are much longer in party to administer the health insurance program.
Germany than in the United States (12.0 days compared to 7.1 A conventional health insurance plan, which allows unre-
days). Significant excess capacity in the number of hospital stricted choice of health care provider and reimburses on a fee
beds relative to the population means 9.3 per 1000 population for service basis, presently covers less than 30% of all employees.
in Germany compared 3.7 per 1000 in the United States. Even these plans provide some type of utilization management
After examining the performance of the German system, program (e.g. preadmission certification, concurrent review of
we may question whether it is the United States or Germany length of stay, and mandatory second opinions for surgery).
that has the better system. Surveys of public opinion indicate Traditional plans differ depending on the medical services
that Germans by and large are satisfied with their health care that are covered and the co-payment and deductible amounts.
system (as opposed to the U.S. where a large portion of the Rather than enroll employees in a traditional insurance plan,
population thinks that system needs substantial changes). most employers have turned to managed care health insurance

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Comparisons of Health Care Systems in the United States, Germany and Canada

plans. Managed care organizations are defined as “systems that – term nursing home stay. Medicaid covers approximately 12%
integrate the financing and delivery of appropriate health care of the population.
services to covered individuals by means of: arrangements with However, another category of individuals exists: those
selected providers to furnish a comprehensive set of health care who are uninsured. Approximately, 16 % of the population
services to members; explicit criteria for the selection of health is estimated to lack health insurance coverage at any point in
care providers; formal programs for on going quality assurance time. This does not mean these individuals are without access
and utilization review; and significant financial incentives for to health care services. Many uninsured people receive health
members to use providers and procedures associated with the care services through public clinics and hospitals, state and lo-
plan”(SBHID 167). cal health programs, or private providers that finance the care
There are basically two types of MCOs: Health Maintenance through charity and by shifting costs to other payers. Neverthe-
Organizations (HMOs) and Preferred Provider Organizations less, the lack of health insurance can cause uninsured house-
(PPOs). About 70 percent of employees are currently enrolled holds to face considerable financial hardship and insecurity.
in MCOs. HMO is a health care delivery system that combines The uninsured often find themselves in the emergency room
the insurer and producer functions. HMOs are pre – paid and of a hospital after it is too late for proper medical treatment.
in return provide comprehensive services to enrollees. PPOs The U.S. health care system is much diversified in terms
are a third party payer that offers financial incentives such as of production methods. Government, not – for – profit, and
low out – of – pocket prices, to enrollees who acquire medi- for – profit institutions all play a role in health care markets.
cal care from a preset list of physicians and hospitals. A PPO Primary care physicians in the United States function in the
is also a prepaid type of MCO that combines the insurer and private for – profit sector and operate in group practices, al-
producer functions. though some physicians work for not – for – profit clinics or
In addition to private health insurance nearly 26% of the in public organizations. In the hospital industry, the not – for
U.S. population is covered by public health insurance. The two – profit is the dominant form of ownership. Not – for – profit
major types of public health insurance, both of which began hospitals control about 70 percent of all hospital beds. A dif-
in 1966 are Medicare and Medicaid. Medicare is a uniform ferent picture can be seen in the nursing home industry, where
national public health insurance program for aged and dis- 70 percent of all nursing homes are organized on a for – profit
abled individuals. Administered by the federal government, basis (Santerre and Neun 52). (5)
Medicare is the largest health insurer in the country, covering Up to the early 1980s most insured individuals had full
about 13 % of the population. The Medicare plan consists of choice of health care providers in the United States. Consum-
two parts. Part A is compulsory and provides health insurance ers could choose to visit a primary care giver or the outpatient
coverage for inpatient hospital care, very limited nursing home clinic of a hospital, or see a specialist if they chose to. The in-
services and some home health services. Part B the voluntary troduction of various Managed Care Organizations and such
or supplemental plan provides benefits for physician services, new government policies as selective contracting (a situation
outpatient hospital services, outpatient laboratory and radiol- when a third party contracts exclusively with a preselected set of
ogy services and home health services. Part A of Medicare is medical providers) have limited the degree to which consumers
funded by a Medicare tax that is similar to the Social Security can choose their own health care provider. For example, those
tax, and Part B is financed by monthly premiums (25%) and individuals belonging to a staff HMO must receive their care
general taxes (75%). The Medicare patient is also responsible for exclusively from that organization; otherwise they are fully
paying a deductible and a co-payment for most part B services responsible for the ensuing financial burden. The primary care
and for long-term hospital services under part A. Many Medi- giver acts as a gatekeeper and must refer the patient for addi-
care recipients also choose to purchase Medigap insurance, a tional care. The lower premiums of a staff HMO compensate
private health insurance plan offered by commercial insurance consumers at least to some degree for the restriction of choice.
companies that pays for medical bills not fully reimbursed by Even those individuals belonging to the less restrictive PPO
Medicare (Hoffman et al. 180). face a financial penalty when choosing health care providers
The second type of public health insurance program, Medic- outside the network.
aid, provides coverage for certain economically disadvantaged
groups. Medicaid is jointly financed by the federal and state 3.1. Reimbursement process
governments and is administered by each state. The federal Unlike in Canada and Europe, where a single payer – system
government provides state governments with a certain percent- is the norm, the United States possess a multiplayer system
age of matching finds ranging from 50 to 77%, depending on in which a variety of third – party payers, including the fed-
the per capita income in the state. Coverage under Medicaid eral and state governments and commercial health insurance
varies because states have established different requirements companies are responsible for reimbursing health care pro-
for eligibility. Individuals who are elderly, blind, disabled or viders. Reimbursement takes on various forms depending on
members of families with dependent children must be covered the nature of the third party payer. The most common form
by Medicaid for states to receive federal funds. Additionally, of reimbursement is fee – for – service, although prospective
although the federal government stimulates a certain basic payment (a method of payment used by third – party payers in
package of health care benefits (e.g. hospital, physician and which payments are made on a case by case basis) and prepaid
nursing home services), some states are more generous than health plans are becoming more popular. Most traditional
others. Following that, individuals in certain states receive a health insurance plans reimburse health care providers on a fee
more generous benefit package under Medicaid than those in for service basis. Health care providers contacting with most
others. Medicaid is the only public program that finances long MCOs are paid on a fee – for – service basis.

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 Comparisons of Health Care Systems in the United States, Germany and Canada

Physician services under Medicare (and for the most part advanced state of health care technology in the United States.
Medicaid as well) are also reimbursed on a fee for service basis, People 80 years and older in the U.S. tend to live longer than
but the fee is fixed by the government. Traditionally, the fees their counterparts in most other countries because of the abun-
were based on the “usual, customary and reasonable fee”. This dance of advanced medical technology. Also the United States
means the fee was limited to the lowest of the three charges: continues to be the world leader in pharmaceutical innovation.
the actual charge of the physician, the customary charge of These products save, extend and improve the quality of lives.
the physician, or the prevailing charge in the local area. Since Unfortunately, the U.S. health care system is not without
1992 physician services to Medicare patients are reimbursed weaknesses. Its most glaring weakness is exemplified by the fact
according to a point system called the “Resource Based Rela- that more than 42 million people are without health insurance.
tive Value Scale” RVS system. Various physician services are The lack of health insurance creates medical access problems and
assigned points based on resource costs, such as the time and subjects a family’s income to the vagaries of health status. The
intensity of the physician’s work, practice expenses and mal- inability to successfully control costs is another major weakness
practice insurance expenses. The RVS is transformed into a of the U.S. health care system. The growth of health care costs
schedule of fees when it is multiplied by a dollar conversion continues unabated, although the pace has slowed in recent
factor and a geographic adjustment factor that allows fees to years mostly due to the influence of managed – care organiza-
vary in different locations (Santerre and Neun 49). tions. Whether managed care can continue to slow the growth
Under both Medicare and Medicaid, the physician can of health care costs remains questionable. Eliminating the weak-
choose to accept assignments of patients. If the physician ac- nesses while maintaining the strengths is a challenge faced by
cepts the assignment, he or she agrees to accept the govern- any plan for changing the U.S. health care system. (Table 1). (6)
ment determined fee in full and cannot charge the patient an
additional amount beyond the normal 20 percent co-payment. United
1998 Canada Germany
The physician must also agree to treat all Medicare patients for States
all services. A physician who does not accept assignment can Population (mil.) 30.2 80.2 270.3
charge patients a price higher than the Medicare fee and accept GDP per capita $ 23,368 $ 22,951 $ 30,625
patients on a case-by-case basis. Without assignment, a patient Health care spend. per capita 2,312 2,424 4,178
pays the actual physician charge and receives reimbursement Health care spend. (% of GDP) 9.5 10.6 13.6
for 80 % of the Medicare fee. # of physicians (per 1000) 2.1 3.5 2.7
In contrast to the fee – for – service method, some health # of hospital beds (per 1000) 4.7 9.3 3.7
care providers are paid on a fixed – fee or prospective basis. For Avg. length of stay (days) 8.4 12.0 7.1
example, the consumer prepays the staff HMO, and physicians CT Scanners (per million) 8.2 17.1 13.7
are paid on a salary basis. The consumer also prepays the indi- MRI Units 1.8 6.2 7.6
vidual practice association HMO, however, health care provid- Lithotriptors 0.5 1.7 2.3
ers are usually paid on a fee – for service or capitation basis. Table 1. Empirical Evidence and International Comparisons.
Since 1983, the federal government has reimbursed hospi- Source: OECD Health Data 2000, OECD, Paris, 2000
tals on a prospective basis for services provided to Medicare
patients. This Medicare reimbursement scheme, called the From the table we can see that the United States has the
“diagnosis related group” (DRG) system, contains around 500 largest GDP per capita and the largest health care spending per
different payment categories based on the characteristics of the capita. The number of physicians per 1000, number of hospi-
patient (age and sex), primary and secondary diagnosis, and tal beds per 1000 and average length of stay (days) are largest
treatment. A prospective payment is established for each DRG. in Germany. The United States is ranked at the bottom of the
The prospective payment is claimed to provide hospitals with list in terms of hospital beds per 1000 at 3.7 beds and average
an incentive to contain costs. Beginning in the early 1980s, length of hospital stay at 7.1 days.
many states instituted selective contacting, in which various Medical care spending in the U.S. is the highest in the world,
health care providers competitively bid for the right to treat both in per capita terms and as a percentage of gross domestic
Medicaid patients. Under selective contracting, recipients of product (Table 2). (7)
Medicaid are limited in the choice of health care provider.
Country Infant Mortality
Moreover, to better contain health care costs and coordinate Males Females Males Females
(1998) Rate
care, the federal government and various state governments
U.S. 73.9 79.4 16.0 19.1 7.2
have attempted to shift Medicare/Medicaid beneficiaries into
Canada 75.8 81.4 16.3 20.1 5.5
MCOs. As of 1997, about 48% of all Medicaid recipients and
Germany 74.5 80.5 15.3 19.0 4.7
roughly 15% percent of all Medicare beneficiaries are enrolled
in MCOs (Santerre and Neun 50). Table 2. Life Expectancy at Birth and Life Expectancy at Age
65. Source: OECD Health Data 2000, Paris: Organization for
Economic Cooperation and Development, 2000.
3.2. Equity and efficiency – Analysis and
Evaluation Comparative Health Care System statistics (1998) for these
The advanced state of technology is the greatest strength three countries show that the United States has the highest in-
of the U.S. health care system. Premature babies for example, fant mortality (7.2) per 1000 and Germany has the lowest rate
face relatively good chance of surviving if they are born in the (4.7). The mortality rate in Canada is (5.5) per 1000. The percent
United States because of the state of technology. A relatively of population greater than 65 years according to 1996 data is
high life expectancy after age 80 is another reflection of the 12.1 % in Canada, 12.2 % in the U.S., and 15.3 % in Germany.

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Comparisons of Health Care Systems in the United States, Germany and Canada

4. Consumer Satisfaction with reduced substantially its cash transfers to the provinces. Grow-
ing complaints about long lines for diagnosis and surgery, as
Health Care Systems in 3
well as widespread “line – jumping” by the affluent and con-
countries nected, are eroding public confidence in Canada’s national
One interesting question is whether people in various na- health care system.
tions are satisfied with their current health care system. From A recent government study indicated that 4.3 million Ca-
the data several conclusions are worth mentioning. The first nadian adults – or 18 % of those who saw a doctor in 2001 –
is that Canadians are most satisfied with their health care sys- reported they had difficulty seeing a doctor or getting a test
tem. The Canadian health care system offers national health or surgery done in a timely fashion. 3 million Canadians are
insurance financed by taxes, private production of health care unable to find a family physician, according to several private
services, and regulated budgets and fees for health care provid- studies, producing a situation all the more serious since it is
ers. Approximately 56% of the respondents in Canada believed the family doctor who refers patients to specialists and medi-
the health care system requires only minor changes, and only cal testing.
5% thought the system needs complete rebuilding. Overworked technology is one reason for the long lines;
The second conclusion to be drawn is that people in the others include a shortage of nurses and inefficient manage-
United States are the least satisfied with their current health ment of hospital and other health care facilities, according to
care system. Only 10 % of the respondents believed that the several studies (Krauss 3).
present health care system could be improved with minor Waiting times have also increased because an aging popu-
changes, and an overwhelming 60% thought the system needs lation has put more demands on the system, while the current
fundamental changes. In addition, 3 out of every 10 respondents generation of doctors is working fewer hours than the last.
in the United States believed the health care system requires a Waiting can occur at every step of treatment. A study by the
complete restructuring. The surveyors speculated that the dis- conservative Fraser Institute concluded that patients across
satisfaction with the present U.S. health care system is due to the Canada experienced average waiting times of 16.5 weeks be-
financial insecurity caused by inadequate insurance protection tween receiving a referral from a General Practitioner and
and high out – of – pocket costs. The third conclusion is that undergoing treatment in 2001 – 2002, a rate 77 percent longer
the presence of a national health care (or socialized medicine) than in 1993. The recent Senate report noted that waiting times
plan does not guarantee high levels of consumer satisfaction. for MRI, CT and ultrasound scans grew by 40 % since 1994.
In Germany for instance 48 % of those surveyed indicated that In an effort to reduce waiting lists, some Canadian provinces
the system either needed fundamental changes or needed to be (Alberta, Nova Scotia and Ontario) have established about 30
rebuild completely. (Table 3) (8) private MRI and CT clinics, some of which offer non emergency
services to be paid for by private insurance.
Minor Changes Fundamental Completely
1990
Needed Changes Needed Rebuild System 6. Recent Developments–
Canada 56 % 38% 5%
W. Germany 41% 35% 13%
Germany
United States 10% 60% 29% Like other countries, Germany’s health care system faces
Table 3. Changes needed to improve health care systems in growing demands from an aging population and advances in
Canada, Germany and USA. Source: Robert J. Blendon, Robert medical technologies. But in the context of slower economic
Leitman, Ian Morrison, and Karen Donelan, “Satisfaction with growth, stagnant incomes, and a consensus that labor costs
Health Systems in 10 Nations,” Health Affairs 9 (summer
cannot rise much more without disastrous effects on com-
1990) Exhibit 2
petitiveness and employment, payroll based financing is not
The data suggests that the Canadian and German systems a sufficient revenue based (Giaimo 145). Even if payroll taxes
appear to be more effective than the U.S. system in several re- were permitted to rise, the resultant unemployment and inac-
spects. Costs are lower, more services are provided, financial tivity could, in the end, lead to a financing crisis of the social
barriers do not exist, and health status as measured by mortal- insurance system.
ity rates is superior. Canadians and Germans have longer life A number of proposals aimed at putting health care financ-
expectancies and lower infant mortality rates than do U.S. ing on a sounder and more equitable footing were presented
residents. However, the comparisons do not tell the whole story, in the late 1990s. These included raising the income ceiling for
nor do they necessarily imply that the United States should contributions, bringing civil servants and the self employed
adopt the Canadian or German approach. Some have argued into statutory health insurance, and bringing non–wage in-
that a system that is manageable for a population of 30 or 80 come and assets under the contribution levy. Other proposals
million people cannot easily be adapted to a more pluralistic, would have simply shifted costs from employers to employ-
heterogeneous country with a population of nearly 280 million. ees. One such proposal would have fixed employers’ share of
the contribution and let employees side float, with the latter
5. Recent developments– financing the difference. A more radical option suggested the
abolition of contribution-based insurance and its replacement
Canada
with compulsory individual insurance, while compensating
Many Canadians are no longer confident that the prov- employees with a “wage subsidy”. However, there was no real
inces will be able to afford their current systems. As a result of political support for this proposal and the immediate outcome
unprecedented federal deficits the Canadian government has was political paralysis.

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 Comparisons of Health Care Systems in the United States, Germany and Canada

Future German governments face difficult choices in con- Many analysts have concluded that health care costs and
tinuing to ensure that all individuals have access to high quality infant mortality are lower in other countries because a govern-
care at an affordable cost. Thus far, however, the political and ment plays a more dominant role in the health care sector and
sectoral configurations underlying German health politics because there is universal access to health insurance. Many
have impeded radical changes in governance or financing. health care policy analysts believe that a similar approach can
Most stakeholders still want to maintain the status quo. How- produce better results in the US.
ever, the situation is dynamic, not set in stone. The power of Many people in the US are dissatisfied with the perfor-
preferences of politicians could change in the future in ways mance of the health care system. The cost of health care in the
that would tolerate a bolder departure from the present gov- United States is alleged to be rising faster than in any other
ernance system or radical changes in financing. Such changes country. Many worry that the health care monster will con-
could either expand or undermine solidarity – or they might tinue to devour an increasingly large slice of the economic pie.
prompt a search to redefine it. Given the presence of powerful Moreover, at any one point in time, critics note that one out
countervailing forces in the health sector and in the political of every six non–elderly citizens lacks insurance coverage for
arena, successful adjustment will likely hinge on forging a acute care. Many others in the US are seriously underinsured
consensus with these stakeholders over a new conception of or lack proper long-term care insurance coverage. A number of
solidarity that continues to ensure broad provision, spreads the health care analysts and policy makers are searching for ways
burden of adjustment fairly, and shelters the most vulnerable to improve the American health care system.
from harm (Giaimo 147). Various groups have advanced a large number of health
United States – Recent Developments care reform plans. The plans differ in a number of respects,
From the discussions that were presented above we can see especially concerning the role the individual, employer and
that the prices and expenditures on various medical services government play in the financing of medical insurance and
continue to rise in the US, although at a slower rate than in the functions the government and marketplace serve in the
the past. The transition to managed care health care system allocation of health care resources.
has helped to promote some cost savings in various medical Several distinctive new approaches and plans have been pro-
care markets but has also resulted in some rationing of care. posed to improve and reform the US health care system. Four
Choice of physician, physician autonomy and income, hospital different approaches have surfaced in recent times; those in-
inpatient admissions, and selection among pharmaceutical clude medical savings accounts, individual mandates, managed
products have all been greatly limited by the movement to a competition and national health insurance (Santerre and Neun
managed care health care system in the United States. These 565). Medical savings accounts programs are not designed to
limitations pertain not only to private managed care insur- achieve universal coverage. However, health insurance pre-
ance plans but also to managed care plans under the auspices miums should become more affordable when they become tax
of the Medicare and Medicaid programs. Moreover, it seems deductible and apply mainly to catastrophic plans. Tax credits
that competition in the health care sector may have sown the and subsidies are used to make health insurance more afford-
seeds of its own destruction. For instance, benefit denial and able for poor individuals. The plan is financed primarily out
cherry picking behavior take place in the private health insur- of individual contributions to medical savings accounts. The
ance industry because of competition. Induced demand in the government expenditures on Medicare and Medicaid would
physician services industry and the medical arms race in the end and the deficit should diminish accordingly. Because
hospital industry are argued to occur because of competition consumers pay for most health care expenditures out of their
(Santerre and Neun 560). (19) own “Medisave” accounts, they have the incentive to minimize
In the discussion, it is important to compare the US health waste and shop around for competitive prices. A reduction in
care system with health care systems in other advanced in- administrative expenses also translates into cost savings (10).
dustrialized countries. Canada and Germany involve a single The individual mandates plan is implemented through man-
payer system rather than a multiple payer system like that of the dated insurance coverage and a guarantee by the government
US. Their health care systems provide nearly universal access that basic medical coverage is available across the country.
to medical care services and involve a greater financing and Tax credits and subsidies are available to make coverage af-
regulatory role for the federal government and less reliance on fordable to all. Under this plan near universal coverage would
competition in health care matters. The available data suggests be attainable. The plan is financed largely by premium pay-
that the US spends more on medical care as a fraction of GDP ments by consumers either directly or through employers. A
than to the other two countries. In fact, as a fraction of GDP, tax increase is necessary which negatively affects the budget
the US spends slightly over 35% more than Germany, the next deficit. Under this plan, both Medicare and Medicaid would
biggest spender. Comparatively high health care expenditures be eliminated. Costs are contained through the maintenance
coupled with low medical utilization rates have led some to of a highly competitive medical insurance market. Private in-
believe that medical prices must be significantly higher in the surance vendors are disciplined by the market place to provide
US than in the other two countries. The quality of medical competitive prices to consumers.
services may be higher in the US and account for the alleged Under managed competition plan employers are required
higher medical prices. Evidence suggests that waiting times to provide medical coverage to all full time workers. Subsi-
are shorter for most medical services in the United States. In dies are provided to make it possible for low-income families
addition, the government in the US is responsible for financing to purchase medical insurance. Medicaid and Medicare are
about 44% of all health care spending. The comparable figure maintained and almost universal coverage should be possible.
for other countries is well over 90% (Anderson, 1997). Medical coverage is financed primarily through employer man-

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Comparisons of Health Care Systems in the United States, Germany and Canada

dates so employees most likely pay through foregone wages. Compared to the US system, the Canadian system has lower
Government expenditures are paid through a payroll tax. costs, more services, universal access to health care without
The impact on the deficit should not be too significant. Cost financial barriers, and superior health status. Canadians and
containments results from the maintenance of a highly com- Germans have longer life expectancies and lower infant mor-
petitive private insurance market. A uniform benefit package tality rates than do US residents.
is offered, and employers are required to pay for 80% of the Part of the gap between US and Canadian health care costs
representative plan. The remaining 20 % provides an incen- may be explained by a failure to account for Canadian hospital’
tive for consumers to shop wisely. This plan would likely have capital costs, larger proportion of elderly in the United States
a significant effect on employment because employer mandates and higher level of spending on research and development in
may create substantial distortions in labor markets, especially the US.
among low – wage workers. One should mention that data from different countries may
Finally, a national health insurance system would provide not be directly comparable for several reasons and therefore,
universal coverage for all citizens. Medical coverage is financed should be accepted with some skepticism.
out of an income tax. In addition, funds for Medicare and For instance, no standard taxonomy exists across countries.
Medicaid are diverted to partially offset the cost of the plan. Also in practice it is often very difficult to draw a line separat-
An employer tax equal to the cost of employer – financed ing medical services such as acute and long-term care services.
medical insurance is levied. Costs are contained through the In addition, monetary values for health care expenditures and
utilization of a single payer system that decreases the admin- gross domestic product must be converted to a common de-
istration and billing costs that are the byproduct of a multi- nominator such as US dollars, before meaningful comparison
payer system. Moreover, global budgeting is used to establish can be made. Any conversion factor, such as purchasing power
a constant relation between gross domestic product and health parities or currency exchange rates is not without measurement
care expenditures. Employment effects will be concentrated in error (Santerre and Neun 561).
the private insurance market and health care administration Finally, most Canadians and Germans think that their
(Santerre and Neun 572). health care systems need minor to moderate changes, while
In addition, the states in the US have taken a very active in the United States a substantial portion of the population
role in health care reform. Almost every state has initiated, or thinks that large and fundamental changes are needed. Each
is contemplating, health care reform. Despite the fact that the health care system analyzed above is experiencing a continu-
policies vary immensely across states, the goal is always the ous process of changes and improvements and all three systems
same: simultaneously contain the growth of health care costs fight the never-ending battle of cost containment, provision
while improving access to quality care. of quality services and maintaining and expanding access to
health care. This goal is one that they can only hope to attain
7. CONCLUSION or come close to. Large portions of the economic pie are con-
In this research paper we have examined different health care sumed by the health care systems in these three countries and
systems in Canada, Germany and the United States. Variations the importance of health care is likely to have an even greater
exist in terms of financing, provider payment mechanisms, and significance in the years to come. Consequently, it will be
the role of government, including the degree of centralization. fascinating to observe the future developments and improve-
The United States stands out as the country with the highest ments in the health care systems of Canada, Germany and the
expenditures on health care. It would appear that systems that United States.
ration their care by government provision or government insur-
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