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Der Open-Access-Publikationsserver der ZBW – Leibniz-Informationszentrum Wirtschaft The Open Access Publication Server of the ZBW – Leibniz Information Centre for Economics Henke, Klaus-Dirk; Schreyogg, Jonas Working Paper Towards sustainable health care systems: Strategies in health insurance schemes in France, Germany, Japan and the Netherlands ; a comparative study Diskussionspapiere // Technische Universitat Berlin, Fakultat Wirtschaft und Management, No. 2004/9 Provided in Cooperation with: Technische Universitat Berlin, School of Economics and Management

Suggested Citation: Henke, Klaus-Dirk; Schreyogg, Jonas (2004) : Towards sustainable health care systems: Strategies in health insurance schemes in France, Germany, Japan and the Netherlands ; a comparative study, Diskussionspapiere // Technische Universitat Berlin, Fakultat Wirtschaft und Management, No. 2004/9, http://hdl. handle. net/10419/36410 Nutzungsbedingungen: Die ZBW raumt Ihnen als Nutzerin/Nutzer das unentgeltliche, raumlich unbeschrankte und zeitlich auf die Dauer des Schutzrechts beschrankte einfache Recht ein, das ausgewahlte Werk im Rahmen der unter http://www. econstor. eu/dspace/Nutzungsbedingungen nachzulesenden vollstandigen Nutzungsbedingungen zu vervielfaltigen, mit denen die Nutzerin/der Nutzer sich durch die erste Nutzung einverstanden erklart. zbw Leibniz-Informationszentrum Wirtschaft Leibniz Information Centre for Economics Terms of use: The ZBW grants you, the user, the non-exclusive right to use the selected work free of charge, territorially unrestricted and within the time limit of the term of the property rights according to the terms specified at > http://www. econstor. u/dspace/Nutzungsbedingungen By the first use of the selected work the user agrees and declares to comply with these terms of use. Towards sustainable health care systems Strategies in health insurance schemes in France, Germany, Japan and the Netherlands – A comparative study – 23. March 2004 Klaus-Dirk Henke, Jonas Schreyogg1 Berlin, March 2004 1 Berlin Technical University, Faculty of Economics and Management, Department for Public Finance and Health Economics and Department for Health Care Management, E-mail: k. henke@finance. ww. tu-berlin. e; jonas. schreyoegg@tu-berlin. de,The authors would like to thank Mr. Tom Stargardt for excellent research assistance. Abstract In all four countries health care expenditures grow while the revenue remains at the same level or even shrinks in many cases. Due to medical progress, ageing and many other factors the gap is widening over time. The pay-as-you-go approach is running against limits either with rising employer and employee contribution rates as is the case in the so-called BismarckSystems or with higher taxes in the so-called Beveridge-systems.

There are differences regarding the solutions of each country to tackle the described challenge and they might be able to learn from each other if they are compared. Therefore the study compares the health care systems of France, Germany, Japan and the Netherlands. Due to the complexity of the different institutional settings it seems necessary to select certain criteria in order to make a comparison at all possible. The comparison is divided into three different sections.

The institutional and organizational framework as first section compares the general organization of social health insurance in all four countries. It comprises the benefit structure, the enrolment, ownership issues and other criteria. The second section focuses on the funding of social health insurance comparing the different approaches according to criteria like contribution rates, contribution assessment bases, burden of contributions and others. The final section analyses different strategies in the provision and purchasing of health services in the four countries.

Next to other hospital ownership infrastructure characteristics play an important role in this section. In the last part of the study certain lessons are drawn from the comparison of the four countries. Furthermore certain developments are described which can be anticipated for the future of social health insurance systems. Abstract (deutsch) Sowohl die demographische Entwicklung als auch vielfaltige medizinische und medizinischtechnische Fortschritte fuhrten in den letzten Jahren zu starken Ausgabensteigerungen in den sozialen Krankenversicherungssystemen.

Neben Deutschland sind von dieser Entwicklung auch andere Lander mit sozialen Krankenversicherungssystemen betroffen. Die vorliegende Studie nimmt einen systematischen Vergleich zwischen verschiedenen Landern vor, deren Gesundheitssystem auf einer sozialen Krankenversicherung aufbaut: Deutschland, Frankreich, 2 Japan und die Niederlande. Anhand definierter Kriterien werden die unterschiedlichen Auspragungsformen im Hinblick auf den organisatorischen und institutionellen Rahmen, die Mittelaufbringung sowie die Leistungserbringung bzw. ie Mittelverwendung der einzelnen Lander verglichen. Anschlie? end werden mogliche Handlungsstrategien aus dem Vergleich abgeleitet, um den zukunftigen Herausforderungen zu begegnen und eine nachhaltige Entwicklung der sozialen Krankenversicherungssysteme sicherzustellen. Abschlie? end werden bestimmte Entwicklungen beschrieben, Krankenversicherungssysteme antizipiert werden konnen. 3 die fur die sozialen Contents in short Figures ……………………………………………………………………………………………………………………… 1. Introduction ………………………………………………………………………………………………………….. 6 2. Impacts on health care systems …………………………………………………………………………….. 14 2. 1 Trends in expenditures for health care ……………………………………………………………….. 14 2. 2 Causes for expenditure trends …………………………………………………………………………… 16 2. 2. Demographic characteristics ………………………………………………………………………. 16 2. 2. 2 Changes in disease structure ………………………………………………………………………. 20 2. 2. 3 Technological Progress ……………………………………………………………………………… 23 2. 2. 4 Economic situation …………………………………………………………………………………… 24 2. 2. 5 Changes in Preferences ……………………………………………………………………………… 7 2. 2. 6 Structural weaknesses of the systems ………………………………………………………….. 28 3. Comparison between the social health insurance systems of Japan, Germany, France and the Netherlands ………………………………………………………………………………………………… 30 3. 1 Institutional and organisational framework …………………………………………………………. 30 3. 2 Funding ………………………………………………………………………………………………………….. 42 3. Provision and Purchasing of health services ……………………………………………………….. 55 3. 3. 1 Health expenditures by type of services ………………………………………………………. 55 3. 3. 2 Hospital Care …………………………………………………………………………………………… 57 3. 3. 3 Ambulatory Care………………………………………………………………. ……………………… 66 3. 3. 4. Long Term Care ………………………………………………………………………………………. 3 4. Lessons to ensure sustainable social health insurance systems and future developments…………………………………………………………………………………………………………… 76 4. 1 Lessons towards sustainable social health insurance ……………………………………………. 76 4. 2 Further Developments ……………………………………………………………………………………… 79 References ………………………………………………………………………………………………………………. 5 Contents Figures ……………………………………………………………………………………………………………………… 4 1. Introduction ………………………………………………………………………………………………………….. 6 Financial and other current problems 6 Risk management in theory 8 Health policy: goals and entitlements 10 Elements of health care reforms 11 2. Impacts on health care systems …………………………………………………………………………….. 14 2. Trends in expenditures for health care ……………………………………………………………….. 14 2. 2 Causes for expenditure trends …………………………………………………………………………… 16 2. 2. 1 Demographic characteristics ………………………………………………………………………. 16 2. 2. 2 Changes in disease structure ………………………………………………………………………. 20 2. 2. 3 Technological Progress ……………………………………………………………………………… 3 2. 2. 4 Economic situation …………………………………………………………………………………… 24 2. 2. 5 Changes in Preferences ……………………………………………………………………………… 27 2. 2. 6 Structural weaknesses of the systems ………………………………………………………….. 28 3. Comparison between the social health insurance systems of Japan, Germany, France and the Netherlands ………………………………………………………………………………………………… 0 3. 1 Institutional and organisational framework …………………………………………………………. 30 Membership, Enrolment, Coverage 30 Benefits 31 Ownership, number of sickness funds and freedom of choice 32 Competition and risk structure compensation 37 3. 2 Funding ………………………………………………………………………………………………………….. 42 Contribution rates, income ceiling and contribution assessment bases 42 Contribution of pensioners 44 Separation of health and long term care 44

Burden of contributions at different income levels 45 Burden sharing between employers and employees 48 3. 3 Provision and Purchasing of health services ……………………………………………………….. 55 3. 3. 1 Health expenditures by type of services ………………………………………………………. 55 3. 3. 2 Hospital Care …………………………………………………………………………………………… 57 Ownership 57 Access to services 59 Hospital planning and contracting 60 Reimbursement and spending control 62 User charges 63 3. 3. Ambulatory Care………………………………………………………………………………………. 66 Employment status and organisation 66 Dispensation of pharmaceuticals 66 Manpower planning 67 Contracting 70 Claiming fees 70 2 3. 3. 4. Long Term Care ………………………………………………………………………………………. 73 Planning 73 Benefits 73 Access 74 User charges 74 4. Lessons to ensure sustainable social health insurance systems and future developments…………………………………………………………………………………………………………… 6 4. 1 Lessons towards sustainable social health insurance ……………………………………………. 76 Competition vs. regulation of sickness funds 76 Separation of long term care and high cost medical care 77 Private Health Insurance 77 User charges 78 Reimbursing hospital care with DRG’s 79 4. 2 Further Developments ……………………………………………………………………………………… 79 Functional approach and comprehensive all-round care 80 Setting priorities in health care 81 New ways of funding health care 82 The future of the European Welfare State and international comparisons 83

References ………………………………………………………………………………………………………………. 85 3 Figures Figure 1. 1: Financing gaps in social health insurance systems ………………………………………….. 7 Figure 1. 2: The current situation of the four health care systems ………………………………………. 8 Figure 1. 3: Risk management and social welfare ……………………………………………………………. 9 Figure 1. 4: Goals of social security……………………………………………………………………………… 0 Figure 1. 5: Entitlements to Health Care ……………………………………………………………………….. 11 Figure 1. 6: Elements of a health care reform ………………………………………………………………… 12 Figure 2. 1: Total Health Expenditures per capita ………………………………………………………….. 14 Figure 2:2: Total Health Expenditures in % of GDP ……………………………………………………… 16 Figure 2. 3: Ageing of population in the four countries …………………………………………………… 7 Figure 2. 5: Average Life expectancy at birth in the four countries ………………………………….. 22 Figure 2. 6: Lost life years due to disease in the four countries ………………………………………… 24 Figure 2. 7: Standardised unemployment rates in the four countries …………………………………. 25 Figure 2. 8: Development of state budgets in the four countries ………………………………………. 26 Figure 2. 9: Maslow’s hierarchy of needs pyramid …………………………………………………………. 7 Figure 3. 1: Different Sources of funding as % of the total health expenditure…………………… 46 Figure 3. 2: Contributions at different income levels according to contribution rates in the four countries…………………………………………………………………………………………… 48 Figure 4. 1: Integration of providers in the care for elderly ……………………………………………… 80 Figure 4. 2: Setting priorities in health care …………………………………………………………………… 81 Figure 4. : Financing health care in the future ……………………………………………………………… 82 Figure 4. 4: The future of the European welfare state I …………………………………………………… 83 Figure 4. 5: The future of the European welfare state II ………………………………………………….. 84 4 Tables Table 2. 1: Population and population density in 2001 and 2050 Table 2. 2: Body Mass Index in the four countries Table 2. 3: Healthy life expectancy (HALE) from WHO at birth and at age 60, estimates for 2000 and 2001 Table 3. : Membership in different sickness funds in % of total population Table 3. 2: Number of sickness funds according to different schemes Table 3. 3: Comparison of the institutional and organizational framework of social health insurance on the basis of selected criteria Table 3. 4: Change of funding sources as % of the total health expenditure Table 3. 5: Comparison of funding principles of social insurance systems according to selected criteria Table 3. 6: Health expenditures by type of services as % of total health expenditure Table 3. 7: Development of ownership in general hospitals in each country Table 3. 8: Access to inpatient services

Table 3. 9: Hospital infrastructure and utilization Table 3. 10: Planning, contracting, reimbursement and user charges in hospital care Table 3. 12: Organisation, Employment status, planning and access of ambulatory care Table 3. 13: Purchasing and contracting of ambulatory care Table 3. 14: Infrastructure characteristics of long-term care Table 3. 15: Long term care: planning, coverage, access and user charges 5 19 21 22 35 36 40 47 53 56 58 60 61 65 69 72 73 75 1. Introduction Apart from differences in health care systems of France, Germany, Japan and the Netherlands the starting points for health care reforms are similar in each country.

They refer to – the financial gaps in health insurance systems and other current problems of the four countries (figures 1. 1 and 1. 2). The basis for providing and financing health care are – the theoretical approaches of risk management and social welfare. Their basic forms and arrangements are basically the same for all countries (figure 1. 3). The – goals of social security in general and the entitlements to health care in particular are often codified in social laws and provide the foundations for health policy (figures 1. 4 and 1. 5) and the – lements of a health care reform which have to be analyzed (figures 1. 6). Financial and other current problems In figure 1. 1 the financial gaps are easily to be seen: health care expenditures grow while the revenue remains at the same level or even shrinks in many cases. Due to medical progress, ageing and many other factors the gap is widening over time. The overall answer to solve this situation is relatively easy and consists of three approaches. The nations facing financial gaps may firstly cut back expenditures through budgets and/or exclusion of benefits and services.

Secondly they can increase revenue by either higher contribution rates, by using a broader base for financing and/or through higher co-payments and out-of-pocket-expenditures. Thirdly major structural reforms could be the answer to close the financial gap. These reforms can be accomplished from an overall perspective on the basis of the ability-to-pay-principle or with the help of the benefit or insurance principle. These overall approaches occur in all nations at a time. They offer not much more than a simple structuring of the overall roblem that more or less all nations face. But there might be differences depending on how nations are financing health services. Tax-financed systems may perhaps run into heavier financial problems than social health insurance systems in France, Germany, Japan and the Netherlands 6 Figure 1. 1: Financing gaps in social health insurance systems revenue, expenditures expenditures Financial gap due to ageing, medical progress etc. revenue 2000 2050 More specific are other current problems that the four health care systems face in the short and in the long run.

The technological change, the medical progress and the demographic development were already mentioned and without going into details one faces with the given demographic challenge an intergenerational equity problem which has to be solved. And in addition, as just mentioned, the pay-as-you-go-method is running against limits either with rising employer and employee contribution rates as is the case in the so-called BismarckSystems or with higher taxes in the so-called Beveridge-systems. None of the two ideal systems are able to regulate themselves quasi automatically.

The number of political interventions increases more and more and patchwork repair is the reality everywhere. Major reforms are either too difficult in a more and more overcomplex area or are politically not manageable in a highly sensible area as health care is. This situation describes very shortly why in Europe and in Japan the public is calling for more substantial and longer lasting reforms. Sustainability in health care systems has become more than a mere phrase used by the media. Muddling through on a comparatively high level characterizes the situation we are facing in France, Germany, Japan and the Netherlands. 7 Figure 1. : The current situation of the four health care systems • • • • • Demographic development, technological change, medical progress Pay-as-you-method running up against limits with rising employer and employee contribution rates Systems are no longer able to regulate themselves Spiral of political interventions and patchwork solutions has not solved basic problems Europe’s and Japanese citizens are calling more and more emphatically for a basic, lasting reform, i. e. sustainability in health care systems. Risk management in theory The analytical background for the overall risk management in social welfare is the same for all countries.

To provide the basic needs you may divide two general forms: a more private or a more public approach, each of which has different arrangements and ways of financing. In all systems the existence of social assistance for the unemployed and those who need support for other reasons is essential. These expenditures stem in all systems from general revenue, i. e. mainly taxes. Health expenditures in countries like the United Kingdom or the Scandinavian Countries with national welfare systems are financed mainly through taxes on the basis of the budgetary decisions taken year by year by their parliaments.

Although nations with social insurance systems are mandatory social welfare systems as well they are financed differently. Their revenue stems from so-called payroll taxes, which are levied on the basis of wages and salaries as employer and employee contributions. The payroll-tax rates are perceived by the public as labour-costs and they are relevant in the context of international competition between nations. In addition to the parliamentary system some countries, e. g. Germany, have institutionalised so-called self-governmental structures trying to discuss and solve health policy issues outside the parliament and the market. Figure 1. 3: Risk management and social welfare provision of basic needs 1. Basic Forms voluntary individual protection mandatory social welfare options 2. Arrangement savings enrolment in free choice of enrolment in private mandatory insurances insurances 3. Financing out of pocket 4. Relationship between benefits and contributions national social insurance welfare principle plans riskoriented premiums wage/salary oriented social insurance contributions general revenue i. e. mainly taxes marketoriented benefit principle between costoriented benefit rinciple and ability-to-pay principle social assistance ability-topay principle Source: Zimmermann and Henke (2001). Apart from the different options within mandatory social welfare many nations offer substitutional or in complementary individual protection against the risks of life. Thus the enrolment in private insurances may be mandatory for the total or part of the population. It could also be a free choice to enrol in mandatory insurances or in private ones which are in general more risk- and less income-related in regard to their financing mechanisms.

Whilst the risk management on the basis of private insurances relates merely to the tasks of an insurance, the risk management in payroll- or tax-financed systems generally includes elements of income and family redistribution as well. Allocation and distribution is thus not separated from each other. This relationship between benefits and contributions may be described through the market-oriented benefit principle on the one hand and the ability-to- 9 pay-principle on the other hand. And many systems are between these two possible principles of risk management in social welfare. Health policy: goals and entitlements

The goals of Social Security are to be seen in close relation with the more theoretical background in figure 1. 3. These goals are probably the most basic elements underlying all systems. They are comparatively general and thus being supported by all the four nations (figure 1. 4. ). But problems will definitely arise, when people or politicians have to decide how „equitable distribution“, „optimal prevention and rehabilitation“ or the scope and content of the „most important risks of life“ is interpreted. And even if this will work out the parliament or other bodies have to decide about the weight of the different goals respective criteria.

Thus value judgements play a significant role in health care issues and in setting the health policy agenda. Figure 1. 4: Goals of social security • • • • • • • • Adequate coverage of the population against the most important risks to life No arbitrary discrimination As much transparency as possible Optimal prevention and rehabilitation Self-responsibility Equitable distribution of burdens Maximum efficiency and Minimization of administrative costs In the German Social Security Law the legislator wanted to be more precise and codified the six prerequisites in figure 1. 5 for health care in a German setting.

Again everybody will probably like these postulates in figure 1. 5 and agree to them. But the problems arise when one tries to operationalize them. What is the „current state of medical science“ in a nation and what is it in a growing common market in Europe? Are patient`s needs everywhere the same? And are adequate services the same in France, Germany, Japan and the Netherlands? In which 10 moment do health services exceed what is necessary? More questions than answers. But nevertheless these goals are codified and the legal basis for claims of the insured population in general and the patients in particular.

Thus the courts of justice play more than a minor role in these decisions. Figure 1. 5: Entitlements to Health Care • • • • • • Focus on patient’s needs Be equally accessible to all Correspond to the current state of medical science Provide adequate services Be appropriate, effective and humane Not exceed the necessary level of care Elements of health care reforms A last set of starting points refers to a health care reform from the onset. In all countries the health care sector is a labour intensive growth sector.

About 10 % of the working population is employed in this part of the economy, where many new professions developed over the years. Good health, fitness, wellness and aging healthily are key concepts in an ageing society. The numbers also impressively demonstrate a desirable trend: the paradigm for the health care system is changing from a cost factor to a fast-growing service sector. While economic growth and increasing employment are generally seen as desirable goals for an economy, mounting health care expenditures are usually seen in a negative light and are always associated ith „cost explosion“ and undesired oversupply of services. 11 Figure 1. 6: Elements of a health care reform • • • • • Labour-intensive service sector Interest-driven system Risk-structure-equalization Moral-hazard, adverse selection, asymmetric information Mobilisation of efficiency reserves Another point of departure for health care reforms is the fact that there is no overall rationality in a given or planned system. Health care reforms are driven by the interests of all the participants and other driving forces, e. g. the media.

The ability to achieve acceptance for proposed reforms does not by any means depend solely on the diverse professional and personal interest of doctors, economists, lawyers and commission members. It is also critically influenced by the driving forces in the health care system – the health insurance associations and the bureaucracy of the ministries. In addition to the political atmosphere the pending elections have to be considered. Ultimately the „chemistry“ must be right among the few persons who ultimately must pull together under strong, statesmanlike leadership and achieve a politically acceptable, viable, sustainable solution.

Finally there are three economic prerequisites for health care reforms. One of them is valid everywhere and at all times. And that is the mobilization of efficiency reserves. There is always structural change, medical progress and political pressure for reform, which means that permanent adjustments will take place in order to avoid an inefficient allocation of resources on the different micro, meso and macro levels. Thus the mobilisation of efficiency reserves is a permanent challenge and not the panacea for financing problems in health care.

Furthermore there is agreement that everywhere and within all reforms moral hazard and adverse selection as two forms of misbehaviour should be avoided. Moral hazard ax ante takes place through an unhealthy lifestyle or a behaviour which provokes the event insured against. Ex-post moral hazard happens when a doctor does more out of income interest than is necessary. And the patient requires unnecessary services because he has paid his contributions and wants to make the best out of it. 12 Finally a risk structure equalization or compensation is necessary to avoid adverse selection and to allow fair competition within health care.

In addition a mandatory minimum coverage for all is necessary and obligatory so that all sickness funds have to accept applicants without individual risk review. In chapter 2 impacts on health care systems are analyzed on the basis of expenditure trends in the different countries. This will be followed by a classical comparison of France, Germany, Japan and the Netherlands on the basis of financing health care, provision and purchasing health services in the different sectors with the help of selected criteria (chapter 3).

The conclusion in the final chapter gives hints for the future development of the four systems compared and of course for other systems as well (chapter 4). 13 2. Challenges for health care systems 2. 1 Trends in expenditures for health care Basically health care expenditures have risen considerably in the past ten years in all four compared countries. However, there are significant differences regarding the scope and the structure of changes. While Japan, Germany and France experienced an average yearly increase in total health expenditures between 1992 and 2001 of 3. 8%, 3. 75% and 3. 98%, health care expenditures in the Netherlands have risen with an average of 6. 18% per year in this period. 1 Nevertheless, expenditures per inhabitant in the Netherlands have still not reached the spending level dedicated to health care in Japan or Germany as shown in figure 2. 1. Figure 2. 1: Total Health Expenditures per capita 2800 2600 in € 2400 2200 2000 1800 1600 1400 1992 1993 1994 1995 1996 1997 1998 1999 2000 years Japan Germany Source: OECD Health Data (2003). 1 Based on OECD Health Data 2003 and own calculations. 14 France Netherlands 2001

It has to be pointed out that the increase in health care expenditures in each of the four systems is due to different reasons. Between 1992 and 2000 total spending for out-patient care remained nearly the same in Japan (+2%) while at the same time it drastically increased in Germany (+37%), France (+27%) and the Netherlands (+62%). During the same period pharmaceutical expenditures, for instance, even decreased in Japan (-5%), but increased considerably in the three European states (Germany: +25%, France + 60%, Netherlands +50%). All four countries experienced increased expenditure for in-patient care between 1992 and 2000.

In Japan it increased by 52%, followed by the Netherlands (+39%), Germany (+37%) and France (27%)2 (see also figure 2. 1. above). Although the differences might be due to a different design of institutional provision or due to different priority setting in health care policy they might also give evidence whether certain actions taken by the governments or the sickness funds have been successful in containing health care expenditures. As revealed in figure 2. 2 the percentage of GDP spent on health care services is increasing in all four countries while Japan experienced the highest rise from 6. % in 1992 to 7. 6% in 2000. Therefore health care is obviously gaining in more importance. Nevertheless a slight tendency in reducing the public share of total health care expenditures is observable. The public health expenditures of the Netherlands, which include sickness funds expenditures as a percentage of total health expenditures, dropped by 9. 5% from 72. 8% to 63. 3% between the years 1992 and 2000. The German government reduced its public share by 2% while the Japanese and the French public share remained at the same level. 2 Based on OECD Health Data 2003 and own calculations. 5 Figure 2. 2: Total Health Expenditures in % of GDP 12 % of GDP 11 10 9 8 7 6 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 years Japan Germany France Netherlands Source: OECD Health Data (2003). 2. 2 Causes for expenditure trends There are many factors which definitely contribute to rising health expenditures although due to the complexity of the health care systems it is hardly possible to identify their impact. 2. 2. 1 Demographic characteristics One major reason for recent expenditures growth in all four countries can be attributed to changes in demographic characteristics.

A higher life expectancy combined with lower birth rates led to an ageing population in most industrialized countries. In Japan, the share of people above the age of 65 years has risen from 5. 7% as percentage of the total population in 1960 to 17. 4% in the year 2000. At the same time, the share of young people between 0 and 19 years has decreased from 40. 1% to 20. 1% of the total population. The changes in the three European countries have not been that drastic, but nevertheless the number of people above the age of 65 years has increased as well from 11. % to 16. 4% in Germany, from 11. 6% to 16 16. 1% in France and from 9. 0 % to 13. 6% in the Netherlands as percentage of the total population in 2000 while the number of young people between 0 and 19 years has decreased from 25. 3% to 21. 2% in Germany, from 32. 5% to 25. 5% in France and from 37. 9 to 24. 4% in the Netherlands as displayed in figure 2. 3. 3 Until today, the demographic development had only minor effects on the labour markets, since the number of people in working age in the four countries stayed about the same.

As further factors an increasing number of women in the work force and an increasing immigration are counter-balancing the shortfalls but are not able to fully compensate the development mentioned. Figure 2. 3: Ageing of population in the four countries 100 90 80 70 60 50 40 30 20 10 0 1960 2000 1960 * 2000 1960 0-19 Japan 1960 2000 20–64 54,2 62,1 France Germany > 65 5,7 17,4 0–19 25,3 21,2 20–64 63,1 62,3 1960 Netherlands France > 65 11,6 16,4 2000 > 65 Germany Japan 0–19 40,1 20,5 20-64 2000 0–19 32,5 25,5 20–64 55,9 58,4 Netherlands > 65 11,6 16,1 0–19 37,9 24,4 20–64 53,1 62,0

Source: OECD Health Data 2003, Federal Statistical Office of Germany, Stat. Yearbook 2002. *Germany 1960: 0-19, 19-65, >65 3 OECD Health Data 2003. 17 > 65 9,0 13,6 In the near future however, it can be predicted that the four pay-as-you-go based systems will face severe problems. Age groups of low birth rates are soon entering the labour market while age groups of high birth rates are going to retire from work. This development is going to continue over the next decades because births per women in all four countries are below 2. 00 (Germany 2001: 1. 29; Japan 2000: 1. 41; Netherlands 2001: 1. 69 and France 2001: 1. 0)4. As a consequence the proportion of the total population over 60 years of age is constantly growing and this population group is to a significant extent no longer part of the labour force. Since, however, the pay-as-you go approach is working on the theoretical basis of an intergenerational redistribution and the major part of the contributions is funded by those members of the population who are still employed, an increasing volume of health care services is to be funded in these systems by a decreasing number of employed people. A third factor combined with the demographic challenge is the development of the population.

As presented in table 2. 1 the population for Germany and Japan is predicted to shrink until 2050 while the French and the Dutch populations are estimated to rise slightly. A shrinking population especially has implications on the provision of health care infrastructure. It means for instance for Japan, that much less hospitals will be needed if this development is not offset by a much higher demand for health care of the elderly. At the same time a shrinking population also leads to lower population density which could in the case Japan lower the risk of epidemics. 4 OECD Health Data (2003). 8 Table 2. 1: Population and population density in 2001 and 2050 Japan population in 1,000 (2001) estimated Population in 1,000 (2050) population density (per km? ) estimated population density in 2050 size of area (in km? ) Germany France Netherlands 127,130 82,350 59,188 16,046 100,496 64,973 64,032 18,000 336 230 109 386 265 182 118 433 377,835 357,026 543,965 41,526 Sources: OECD Health Data (2003), Federal Statistic Office of Germany (2000), National Institute of Population and Social Security research, Institut National de la Statistique et des Etudes Economiques (France).

It is difficult to anticipate the impact for the health care system, as cost development especially for the elderly population is not reliably predictable. On the one side, crosssectional data show a clear correlation of health care costs with age as shown in figure 2. 4 in the case of Germany. 5 It can be seen that for instance in Germany the expenditures for people above 60 are almost 3 times as high as for those between 20 and 60. On the other much of this increase with age can be attributed to the larger percentages of persons in their final year(s) of life for whom health care is especially costly.

If life expectancy is increasing, this portion of the costs will be shifted upwards. However, currently implicitly applied age limits for using certain diagnostic or therapeutic procedures will also be shifted upwards with increasing health (and life expectancy) of older people which increases costs. This effect can be seen by the so-called “steepening” of the age-cost curve over time. Finally it is very likely that in pay-as you-go systems the demographic development leads to the problem that the number of net-benefit-receivers is increasing while at the same time the number of net-payers is decreasing. This hypothesis is not undisputed in the literature. Some authors argue that rising costs do not primarily depend on age but on the time of death since they are reach the highest level in the period before death. Zweifel, Meier and Felder (1999). 19 Figure 2. 4: Standardized Expenditures in Germany according to age and gender e xpe ndit ur e pe r day in DM 40 35 30 25 20 men 15 women 10 5 85 >= 90 80 75 70 65 60 55 50 45 40 35 30 25 20 15 5 10 0 0 age Source: Bundesversicherungsamt (2002). 2. 2. 2 Changes in disease structure

Changes in disease structure are partially linked to the demographic development having direct impact on the provision of health care and therefore on the health expenditures. First of all a shift to chronic diseases can be observed. Allergies, asthma and diabetes are becoming widespread. This is only partly due to ageing, but also due to changes in the environment. Environmental pollution in the past decades has decreased in general, but there is a time lag between the uptake of harmful substances and the effects on the health of an individual and the total health care system.

For example, the long term effects of pollution in the 1960ies and 1970ies are affecting the health care systems today, while the effects of stronger ultraviolet radiation in 1980ies and 1990ies will be experienced in the future. Due to increased economic welfare excess of weight is becoming more and more a mass disease. Measured as body mass indexes the number of people considered to be overweight e. g. in France has risen from 5. 8% in 1990 to 9% in 2000. The Netherlands and Japan have similar problems as displayed in table 2. 2.

This development is alarming since diseases in coherence with skeleton, muscles and circulatory diseases are expected to increase. 20 Table 2. 2: Body Mass Index in the four countries Japan 25< Germany 25< France 25< Netherlands 25< BMI BMI BMI BMI BMI BMI BMI 30 >30 >30 >30 >30 >30 >30 17. 5 18. 0 19. 7 19. 6 21. 0 2. 0 1. 9 2. 3 2. 6 2. 9 33. 0 18. 0 39. 4 29. 2 23. 9 26. 4 27. 2 5. 8 7. 0 9. 0 28. 0 28. 8 31. 0 34. 7 5. 0 6. 1 6. 9 9. 4 Source: OECD Health Data (2003); Bundesgesundheitssurvey 1998; Deutsche-HerzKreislauf-Praventionsstudie 1990.

In spite of this development life expectancy and healthy life expectancy have increased in all four countries over the last forty years (figure 2. 5; table 2. 3). As revealed above in figure 2. 5 Japan has the highest average life expectancy at birth with 81. 3 (2000) years followed by France with 79. 0 (2000) years and the Netherlands with 78. 0 (2000) years. Germany had the lowest average life expectancy at birth of all four countries since more than 30 years, but has since 2000 a higher average life expectancy than the Netherlands with 78. 4 years.

As far as healthy life expectancy (HALE) is concerned the situation changes as one may see from table 2. 3. The healthy life expectancy in citizens in Japan is even 2. 3 years higher than in France which has the second highest healthy life expectancy. This hypothesis is further supported by column 4 and 5 as Japan. Column 4 documents that Japan has the lowest expectation of lost healthy years at birth in 2001 while column 5 shows that is also has the lowest healthy life years lost as % of the total life expectancy. 21 Figure 2. 5: Average Life expectancy at birth in the four countries 82 80 expected life years 78 76 74 72 70 68 66 1960 1965 970 1975 1980 1985 1990 1995 2000 years Japan France Germany Netherlands Source: OECD Health Data (2003). Table 2. 3: Healthy life expectancy (HALE) from WHO at birth and at age 60, estimates for 2000 and 2001 Healthy life expectancy (HALE) Males Total 2001 population Females 2001 Japan (1) At At birth birth 2000 2001 73. 5 73. 6 (2) At At birth age 60 71. 4 17. 1 (3) At At birth age 60 75. 8 20. 7 Germany 70. 1 70. 2 68. 3 15. 0 72. 2 France 71. 1 71. 3 69. 0 16. 1 Netherlands 69. 7 69. 9 68. 7 15. 0 Country Expectation of lost healthy life years at birth in 2001 (years) (4) Healthy life years lost as % of the total life expectancy (5) >

Insert surname4 Professor’s name Student’s name Course title Date The current process

Insert surname4

Professor’s name

Student’s name

Course title

Date

The current process

Theory of constraints can be explicitly defined as a method normally used to identify the most visible factor seen to work against a progressive process of achieving goals. It is developed further to become undeniably a non-work together factor. It further states that in a manufacturing industry, there are many variables and factors which act as supporting pillars but among them exist a smaller force called the constraints. These are forces that work against the rest of the process. The constraint in this case acts as the weak linking point that works to drag the rest of the process down. This works well enough to encourage best practices as well as assisting people to begin putting priorities in the activities that are geared towards the improvement. This system has reliably been seen to find background information to assist in making proper and desired improvements in relation to the steps provided in the methodology. Some of the benefits found after the theory has been applied include a fast improvement due to focusing the attention to a specific area of interest. It also assists in a smooth flow of products, which in turn transforms to enormous profit margins of the organization.

By reducing inventory, one benefit is that there would be less pending activities. For instance, in the stock markets, the theory is applied to harmonize and project a better result than there was before its application. The thinking process as described as the means to relate a group in coming up with a better and well-rounded solution to the problems of the process. Learning this and more importantly making the desired changes as per the constraint. Looking at the case of the stock markets, the main issue was to maximize on share price maximization and the use of a currency monitoring system to evaluate the most suitable means of intervention. So as to close in on the competition, the most reasonable thing was to ensure that the currency price would not deter the sales volume. It should however produce a better understanding of the favorable option. This option should focus on how to acquire the shares from leading companies and to also decide on the most favorable in terms of turnover predictions. The theory of constraints here applies in making sure that the several factors to share pricing are observed keenly so as to create a unique environment for the appreciation of changing trends.

Fourth step (evaluation)

Fourth step (evaluation)

Third step (implementation)

Third step (implementation)

Second step (formulation)

Second step (formulation)

First step (design)

First step (design)Fig: Flow chart of the process.

The chart above shows exactly the process progress from the initial stages which normally involve the design of the work. The procedures are put together and a conclusive work plan is placed ready for application. The second step is the formulation whereby the ideas discussed in the design stage are further exploited. The schedules are made and a good sequence is placed so as to prepare for implementation. The implementation then puts all the work to the ground. All the specific components are normally incorporated to the entire system. This ensures that the work now is able to progress but this time in a better goal oriented way. The final step involves going back through the previous steps then focusing on both the status before and after the implementation of the theory of constraints results are then evaluated to see if really the concept has worked. The result will determine the future of the system of the functionality of the set principles will primarily depend on the evaluation result.

As theory of Constraints is the methodology to identify the most limiting factoring that hinders the achievement of goals, while systematically improving the constraint until it is no longer a limiting factor. It provides a powerful set of tools which help in achieving that goal and improving process flows. The five focusing steps of this theory show how to achieve ongoing changes by considering these challenges in a continuous fashion.

On project B, the objective was to release valuable features which were actively used by its users. The measurement was the Business Value, an estimate that the onsite customer uses on each user story. If the constraint is properly identified and broken; it gives the fastest route to significantly improve the system and can provide a long term basis and strategic improvement.

Identify the system’s constraint

To manage a constraint, you have to identify it. Surprisingly, it is a straight forward process to do so. Just the same way as the doctor assesses symptoms and draws conclusion that they are from a common source, a review of symptoms which are undesirable and which an organization suffers from may quickly lead to a diagnosis of the system constraints. In this step, the manufacturing process may be looked again in to and if the constraint is identified, a simple and often technique is normally to walk through the whole manufacturing process and look for the constraints indications. The fundamental insight of theory of constraints is that a chain is as strong as its weak link and if one wants to strengthen the chain, the weakest link needs to be worked on.

The bottleneck is easy to spot at the start of improvement process. The bottleneck resource is that many systems are mistakenly optimized to earn more utilization from all resources, work piles up in front of them, and downstream resource is mostly idle.

In this project, the constraint is the development team. Having a list of features piling up in front of them, it could have taken few releases to implement the backlog. Users are impatient for features to get implemented and deployed.

Decide how to best exploit the constraint

As the output of the constraint is the limiting factor of the whole system’s output, the desire to exploit it is translates to ensure that the most which can be done is squeezed to the maximum. The productivity and utilization of the constraints must be maximized. If the system output is constrained by the bottleneck output, first trying to increase the bottleneck is essential. Any idle time of the bottleneck reduces system output.

Any non-value adding work, impediments and interruptions must be removed. Bottleneck resource should be left to work at a steady pace and high quality tools and materials should be provided. Ensuring that the team has enough work and it is always engaged so they do not become idle through lack of input.

In this project, the team lead received and prioritized every incoming questions and requests. Dealing with most of them, the team was not interrupted. Production issues needed to be handled rapidly. This provided a balance between keeping the team focused and feeling the pain of production issues. This resulted to everyone working at a sustainable pace and there was no more overtime.

Subordinate everything else to the above decision

Subornation idea suggests that the use of the constraint itself should not be allowed to be less by anything else that it cannot control including habits, assumed requirements of non-constraints and policies. The other aspect of subordination relates to the ability of the constraint itself. As it makes no change to expect a chain to lift more than its weakest link that it can handle. It should not be expected that the system can do more than the constraints can handle. Pushing more work than the constraint can deal with in to the system leads to excess work in the process, lead times being extended and also too many decisions relating to what is important that often devolves in to no sense of importance.

In the project, the team lead subordinated all the work to the team whenever requested, an impediment or a production issue. The team lead had to drop all the work and support the team. The team always had something to work on. The inter-relation between the variables improves only at the time when the constraints also improve. To achieve more profits, the constraints improve and this is also reflected onto the records for future reviews. This works well as variables stands together as they tell which company production goal they should give. The constraint suggests that improvement should always be made and early enough to impact the production as well as deal with the process speed as it moves ahead. This works within a sequence where by the constraint is identified, then in the next step it is a point of exploiting it. The next step is getting the familiar point of the constantly while the final had. From this step, the next one thing that is required in the process seems to boil up the cabinet secretaries. After these, the client now observes the next idea which is elevation the last one is known as the process repetition level. This chart shows clearly how the flow of ideas goes and this helps in managers being able to understand importantly, it is low key elections of ideas and the presentation to the main arena which utilizes cars but he never stopped talking business. Below is the chart that summarizes the process in the and particular steps taken by delegates

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