This Selected Issues paper reviews developments in health care spending in France and discusses the recent measures to improve the functioning of the system and contain costs. It argues that by addressing many of the issues that had bedeviled past reforms, the new measures offer a reasonable hope of containing France’s health expenditures. The paper presents a brief review of the institutional background and of past trends in health care spending and also offers an analysis of the major forces behind the recent and projected growth in expenditure.


This Selected Issues paper reviews developments in health care spending in France and discusses the recent measures to improve the functioning of the system and contain costs. It argues that by addressing many of the issues that had bedeviled past reforms, the new measures offer a reasonable hope of containing France’s health expenditures. The paper presents a brief review of the institutional background and of past trends in health care spending and also offers an analysis of the major forces behind the recent and projected growth in expenditure.

France - Basic Data

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Sources: Data provided by the French authorities; and staff estimates.

Data for 1996 are staff projections.

Changes expressed as a percent of previous year’s GDP.

National accounts basis.

Maastricht definition.

Average to September 26, 1996, percent changes calculated relative to the average for the previous year.

1996 second quarter over the same period in 1995.

I. Health Expenditure1

A. Introduction

In November 1995, the French government announced a far-reaching social security reform, including major new measures to address the financial imbalance in health care, which alone accounted for nearly half of the estimated 60 billion francs social security deficit expected in 1995. The health care reform reflected a recognition that France’s health care system and its financing needed to be fundamentally restructured.2 At over 9 percent of GDP, health care spending in France is by far the highest in Europe, and it has continued to rise more rapidly than overall public spending. Earlier reform efforts slowed these trends, but did not deal with many of the underlying causes of spending growth. This paper reviews developments in health care spending in France and discusses the recent measures to improve the functioning of the system and contain costs. It argues that by addressing many of the issues that had bedeviled past reforms (e.g., micro-efficiency, regulatory reforms), the new measures offer a reasonable hope of containing France’s health expenditures.

Following a brief review of the institutional background and of past trends in health care spending, an analysis of the major forces behind the recent and projected growth in expenditure is presented in Sections C and D. An overview of past reforms in France, with reference to some other country cases, is presented in Section E. The reform proposals contained in the “Juppé plan” and some observations on their design in light of earlier experience are presented in Section F. Some concluding remarks are offered in Section G.

B. Institutional Setting

The French health care system is based on the social insurance (or Bismarckian) model. It combines universal health insurance, involving significant cost-sharing and supplementary insurance on the financing side with a pluralist system of provision involving both independent and public providers on the supply side Almost the entire population is covered by the statutory health insurance (a part of the social security system) which is managed by the unions and employers’ federations, but is in many respects under the control of the government.

Despite extensive government controls,3 the system is largely based on the principle of médécine libérale. For ambulatory care, a patient may choose any medical practitioner on a fee-for-service basis and can later file a claim with social security for reimbursement of a portion of the bill. While fee levels are not subject to government regulation in principle, reimbursement by social security follows a national fee and drug reimbursement schedule, which is below established standard costs, the patient paying the difference (ticket modérateur).4 In the hospital sector, patients have virtually free choice between using a private or public hospital. Services in both are covered by the national health insurance, for the private sector in the generous limits set by the fee schedule.

On the financing side, about 80 percent of total health care expenditures are paid by the insurance funds, and a further 5 percent by the central government. Most of the remaining 15 percent is borne directly by patients (notably through the so-called ticket modérateur for the non-reimbursable part of the standard cost of consultations and drug prescriptions). Statutory health insurance funds (the largest being the CNAMTS—Caisse Nationale d’Assurance-Maladie des Travailleurs Salariés—which insures most employees), cover about 70 percent of expenditure.5 Mutual-insurance companies (mutuelles) cover 6 percent of expenditure and are mainly financed by voluntary contributions. Private-insurance schemes, and the Ministry of Health and other public institutions cover, respectively, 3 percent and 4 percent of total expenditures. Contributions vary by scheme, but all are income-related. Currently, employers contribute 12.8 percent and employees 6.8 percent of total salary without an upper limit.6

C. Health Expenditure Trends

The French health care system has been characterized by rapidly rising expenditure for several decades. The share of health expenditure in GDP rose from 4 percent in 1960 to over 9 percent in 1995 (Table 1). Health care consumption in per capita terms is well above the OECD average. In 1992, for example, the per capita volume of health care expenditures in France was some 25 percent higher than in Germany and as much as 60 percent higher than in the U.K. Worldwide, only the United States spends more per capita than France. Health spending by the public sector rose even more rapidly than total health spending during 1960–80 (Table 2) as the coverage of public insurance expanded.

Table 1.

France: Total Expenditure on Health Care

(Percent of GDP)

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Source: OECD Health Data File. 1992.
Table 2.

France: Public Share in Total Spending on Health

(In percent)

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Source: OECD Health Data File, 1992.

In addition to a higher level of costs, real per capita health care spending has grown more rapidly in France than in other European countries. Since the 1960s, it has risen steadily by about 1½ percentage points per decade; real spending, while growing less rapidly during the 1980s than the 1970s, advanced much faster than the OECD average. In contrast to other industrialized countries, most of the increase in nominal health spending reflected volume rather than price increases. Per capita spending in volume terms increased by 4.5 percent annually in the 1980s, double the OECD average, while price levels for health services were considerably below OECD averages (Tables 3, 4, and 5).

Table 3.

France: Growth in Per Capita Health Spending, 1980–92

(In percent)

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Source: OECD, Health Data File.
Table 4.

France: Volume Growth of Health Outlays in France

(Average rates of change)

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Source: SESI (1993)
Table 5.

France: Price Increases of Health Services in France

(Average rates of change)

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Source: SESI (1993)

Growth was pronounced in nearly all sectors: ambulatory care, private hospitals, and drug consumption. The contribution of the main components of health care to total spending has not been even. In the 1970s, hospital services were the major factor behind expenditure growth. During the 1980s, hospital spending, which now accounts for about half of total health care consumption (Table 6), grew at a much slower rate, but this was partially offset by faster growth in the ambulatory, pharmaceutical, and residual components. During 1992–95, expenditure growth on ambulatory care decelerated appreciably, while spending growth in the hospital sector has accelerated again.

Table 6.

France: Breakdown of Health Expenditure

(In percent)

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Source: SESI (1993)

Despite the high level of spending on health care in France, public health has not improved markedly more than in other countries (Table 7)7 Moreover, as was highlighted by the High Commission on Health, France is only a mid-ranking country in terms of life expectancy at birth.

Table 7.

France: Health Status and Outcome Indicators, 1992

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Source: OECD Health Data File.

D. Factors Underlying Past and Future Spending Pressures

Health expenditure in France has been and continues to be driven by a mix of supply and demand-related factors: increased income, ageing, and advances in medical technology However, while these factors contributed to the growth of spending, they do not appear to account for all of the increase in health expenditure during the past decades. Institutional factors have probably also played a role. These include the role of the government in paying for health care facilities and providers, and the role of the private insurance market as an alternative or a supplement to the national health system.

Increased income

As income levels rise, consumers demand relatively more health care, controlling for the effects of changes in insurance coverage and other variables. A close association between income and spending on health care in OECD countries has been highlighted in a number of studies [Newhouse (1975, 1977), McGuire et al., (1988), Culyer (1988), Parkin et al., (1989), OECD (1993). Table 8 reports the income elasticities found in various studies, which for the most part use international cross-section data. In most of these studies, GDP is the income variable. Even after taking account of the effect of a number of other variables (for example relative health care prices, the share of public financing of health care, and the age structure of the population), the implied income elasticity of health care expenditures in all cases exceeds one, suggesting that health care is a luxury good. These results contrast with the evidence obtained from national household level data, where numerous studies have revealed a low income elasticity for the utilization of health care. Nonetheless, the international cross-section estimates are probably more telling, as the within-country income elasticities may be distorted by the endogeneity of income at the household level. In particular, sickness may simultaneously depress income and raise medical spending

Table 8.

France: Studies of the Association Between National Income and Health Care Spending

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OLS = ordinary least-squares, WLS = weighted least-squares

significant at 5% level.

significant at 1% level.

However, the income hypothesis does not explain fully why health care spending in France, relative to GDP, is the highest in Europe. It is estimated that France spends close to 20 percent more than can be explained by a cross-sectional model of the type discussed in the previous paragraph (OECD, 1994). Institutional factors clearly play a role as well, both in explaining the growth rate of health spending and its high level. Recent studies (e.g., OECD, 1994) find that, correcting for a variety of institutional factors (notably the extent to which the health care system provides universal coverage, and the size of the health care infrastructure), the income elasticity for health care spending in France is less than one. This also implies that changes in the regulatory environment could break the link between higher income and higher health care spending.


A second factor underlying the increase in health care costs is the aging population old people tend to consume more health care than younger ones A calculation based on the 1980 Health Survey by the CREDES indicates that people aged over 80 consume three times as much as those aged between 20 and 40 years In France, as in other OECD countries, the proportion of the elderly in the population has been growing steadily for the past five decades Between 1981 and 1991, the proportion of people 60 and over rose by 2 1 percentage points

Simulations performed by the OECD indicate that aging could add on average 0.3 percent per year to health spending in the 1990s (Table 9).8 Estimates by the Ministry of Finance (1992) point to smaller increases. However, the figures could well be higher if account is taken of “generational effects”: given income and prices, older individuals would choose more health care than previous generations of elderly.9 The OECD study also reckons that in order to offset the impact of aging on health spending, it would be necessary to hold growth in per capita real public health spending about ½ to 1 percentage point lower than productivity growth.

Table 9.

France: Effect on Health Spending of Changes in Age Structure

(Percentage point change in growth of health spending)

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Source: OECD.

Technological progress

Technological change and improvements in medical science have also contributed to the growth of health spending worldwide (Evans, 1983, Waldman, 1972, Davis, 1974).10 New technology often involves expensive equipment and skilled staff to use it. In France as elsewhere, it is difficult to evaluate the contribution of technology to health spending growth, for only in the last fifteen years has the need for comprehensive technological assessment been recognized. The Commissariat Général du Plan (1993) estimates that about four-fifths of medical procedures and two-thirds of medical goods have never been evaluated with respect to their effectiveness or cost in France. Also, Beraud (1992) and the CNAMTS (1992) found that in many instances, the use of more expensive technology was not warranted by improved health outcomes.

Institutional factors

As alluded to earlier, institutional factors explain a considerable portion of the growth in health care spending in France These factors range from market imperfections and regulatory provisions to incentive structures that are a particular feature of the provision of health care services through increased coverage. As noted above, the French health care system is based on universal social insurance.11 In such an insurance-based system, the potential for “excess” demand and supply of services exists because of moral hazard both from the consumer and provider sides.12 On the demand side, there is an increase in the demand for health care because patients do not pay the full marginal cost. On the supply side, incentives exist to over-supply medical services whenever a third party pays for the bulk of services that doctors choose to provide, a situation that is exacerbated by a fee-for-service payment arrangement.

Typically, the moral hazard problem can be countered by the use of copayments, whereby the insured person pays some fraction of the supplier’s charge. France’s social insurance is characterized by the widespread use of such cost-sharing arrangement, but their effects are generally undermined by supplementary insurance.13 More than 80 percent of the population carry such supplementary health insurance, and some 10 percent are exempted from the ticket modérateur. Provider moral hazard has been exacerbated by the fee-for-service system, which allows consumer choice and flexibility, but which also tends to increase the volume of activity and therefore costs. With prices subject to national fee schedules, doctors tend to increase turnover in pursuit of their income targets.

Asymmetry of information is another source of higher costs. The vast majority of patients lack the information necessary to make an informed choice. Hence, to varying degrees, they are compelled to delegate treatment decisions to the medical professionals who also supply the services demanded, creating a potential conflict of interest. This situation has led to a supplier-induced demand for medical care, as patients often confuse quality with the quantity of treatment and medicine prescribed, and providers are eager to oblige. For example, the high level of prescription drug usage was driven not only by the freedom of doctors to prescribe, but also by fierce competition among doctors who often use prescriptions to retain patients Excessive resort to specialists and overly technical and expensive treatment have been further consequences of asymmetric information.

Finally, administrative costs have risen with the size and complexity of the health enterprise. France’s double layer of social security and complementary insurance has also added to such costs. It is estimated that when all costs are included, health care administration accounts for a higher percentage of total health outlays in France than in other European countries with similar social insurance systems.14 The problem is most acute in the public hospital sector. The involvement of elected officials who chair the hospital boards helps to explain the strong growth of employment in the health sector. Labor costs alone represented about 70 percent of hospital costs in 1995.

E. Past Reforms in France and Elsewhere: Some Comparisons

Faced with budgetary pressures, nearly all OECD countries introduced some kind of health care reform in the past decade. Governments attached different weights to equity, income protection, micro-efficiency and macro-efficiency considerations in designing these reforms. Still, according to a recent OECD study, all governments that undertook reforms enjoyed some degree of success in limiting health expenditures. In France, where contribution rates to the statutory system had reached an unprecedented level, continuing strong expenditure growth led to policy changes during the 1980s aimed at controlling expenditures in at least part of the health care system.15 This section reviews and assesses these reforms in light of the experience in other countries.

Global budgets for hospitals

The most important reform in France’s hospital sector over the past decade was the introduction of global budgeting for public hospitals in 1984, which was later extended to private hospitals The budgets cover operating costs, as well as debt service expenses for hospital construction and high-cost medical equipment Hospitals receive monthly installments from the health insurance funds, with payments distributed among the funds according to their shares of total patient days. The government uses its participation in the budget negotiations to set a nationwide spending limit. Rates of increases in hospital budgets have been determined centrally and have on the whole been applied evenly to all hospitals.

Prior to this reform, hospitals faced controlled rates of increase in per diem prices, which had given incentives to hospital managers to extend the average length of stay The introduction of global budgets has resulted in a marked deceleration in the rate of growth of expenditure on public-sector hospital care, with growth rates in this sector just half of those in the private sector (Table 3) Consequently, from 1992 on, private hospitals were also subjected to global budgeting, previously these hospitals had been paid on a per diem and fee-for-service basis. Any over- or under-shooting relative to budgets is compensated by downward or upward revisions in fee schedules. The success of this reform is difficult to evaluate given that doctors in private hospitals were not covered by the global budget constraints, even though they are mainly responsible for the level of hospital activity. Global budgets for hospitals were also introduced, and met with success, in Belgium and Germany in early 1980s.

Global Hospital Budgets: The Belgian Experience

A prospective global budget system, which involves differentiation of the budget into separate components for support and medical services, was introduced in Belgium in 1982. This financing reform also had the objective of standardizing budgets across hospitals in accordance with case-mix and other criteria that were considered critical to the financing of hospital services. A budget and a quota of days were fixed for each hospital. Days in excess of this quota were paid at a rate which reflected variable costs; any shortfall in actual days was paid at a rate which reflected fixed costs only. A case-mix adjustment was applied to the budgets for laboratory service beginning in 1990 and radiology beginning in 1992. Providers were obliged to engage in a continual assessment of patterns of clinical services and outcomes.

The 1982 reforms of the hospital sector also included steps to reduce the number of hospital beds. A moratorium was imposed to prevent the number of hospital beds from exceeding the number reached in 1982. No new hospital could be opened without the closure of an equivalent one. In addition, financial incentives were introduced for closing hospitals or converting beds, leading to a 14 percent decrease in the number of acute hospital beds between 1982 and 1989, half of the targeted reduction Belgium also proposed a method to cap expenditures related to diagnostic testing in 1986, which consists of giving each teaching hospital a global budget for all MRI (magnetic resonance imaging) operating and amortization costs, including radiologists’ fees.

As the Belgian experience in the 1980s suggests, global budgets can be a successful cost containment mechanism However, a global budget does not guarantee cost effectiveness Much depends on how budgets are determined and implemented First, if the budget is too small, care that is economically appropriate will be denied Second, since hospital managers and local politicians have an incentive to resort to political maneuvering in order to increase funding for their own institutions, clear and strongly enforced policies are necessary to pre-empt such attempts Third, hospital budgets are often based on historical costs and tend to penalize efficient producers while placing little pressure on inefficient providers to improve In France, budgets were initially set at generous levels, they were not correlated with the efficiency of the individual institutions, and they did not make allowance for shifts in demand Moreover, the ceilings were not enforced for all of the health professions. While successful in breaking volume-oriented production attitudes, the budgeting procedure thus did not do much to promote structural change and cost effectiveness.

Another reform in the public hospital sector was the introduction, in 1993, of an information system to track hospital costs and spending (programme de médicalisation des systèmes d’information, PMSI), which had been developed and implemented on a trial basis in 1982–83. This program was among the first in Europe to experiment with case-mix measurement and costing within the acute hospital sector. Its success has been modest. Excess capacity in hospitals has been reduced only slightly; the utilization of beds remains low and the number of beds per inhabitant high by international standards (Table 11). The government estimates that there is currently a surplus of 60,000 hospital beds. Furthermore, the state’s ability to cut services has been severely limited for political reasons as local mayors usually head the public hospital administration and hospitals are often major local employers.

Table 10.

France: Public Expenditure on Health

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Ratio of per capita public spending on health of those aged 65 and over and of those aged less than 65.

Projection, assuming 1 ½ percent productivity growth per year.

Table 11.

France: Hospital Care Statistics, 1990

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Source: OECD.

Number of beds per 1000 inhabitants.

Ratio of beds filled to beds available.

Ratio of number of patients admitted to hospital per year to population.

Global budgeting for physicians

In ambulatory care, global budgets for aggregate payments to physicians have been introduced in several other countries. Germany adopted such a system after 1977. Belgium also extended global budgets (retaining fee-for-service) to those parts of its system which lacked them in 1991. Another cost control measure in the ambulatory sector has been the capitation payment system, which was introduced in Ireland in 1989, and recently in Italy (with some fees), the United Kingdom, and Sweden (1994). Capitation systems as implemented in the United Kingdom allow funders to control the overall level of primary expenditures, and the allocation of funding between general practioners is determined by patient registration.

Only France, among EU countries, had until recently no means of capping payments to physicians outside hospitals. Instead, doctors and other providers of health care services had in recent years been subject to negotiated expenditure ceilings. This began to change in 1992, when a spending target was first set for medical laboratories. The new policy also provided that spending in excess of the target would be refunded to the social security system. If spending was below the target, an indemnity would be paid (in the form of a higher estimate for volume growth the following year) and the fee schedule would be adjusted upward During the same year, an annual budget ceiling was negotiated with private practice nurses, the quantity of nurse visits was restricted to 22,000 per nurse per year, after which only half the costs are refunded by the social security system Both of these policies have met with some success in restraining the growth of spending on these services.

Controlling Physician Spending: The German Experience

Since 1986, Germany has controlled physician payments on the basis of spending caps that are negotiated between physician organizations and sickness fund associations. Increases in the caps are tied to the growth rate of sickness fund members’ wages and are enforced by adjusting fees downward when the volume of health services exceeds the level consistent with the spending limit. These adjustments are made by the regional physician associations, which receive a prospective lump-sum from the sickness funds and in turn monitor the quality and volume of services of each physician. Largely as a result of these cost containment efforts, health care spending as a share of GDP fell from 8.4 percent in late the 1980s to 8.1 percent in early 1990.

In 1992, the expenditure cap was replaced with an expenditure targeting mechanism. Under these targets, the growth in physician payments was no longer capped each quarter by the growth in the income of sickness fund members during that quarter. Instead, an annual target was set, which could be exceeded in certain circumstances (for example to increase the volume of services deemed appropriate). In response to the continued high growth rate of health care spending, especially on physician services, further legislation was put in place by the beginning of 1993. It aims to cap overall spending by controlling the volume as well as the price of physicians and drugs. The new law limits the growth rate in spending on physician services in 1993–95 to the growth rate in the income of members of the sickness funds. Given the expenditure target, unit prices are calculated for each service based on a volume target. During the first two quarters of each year, these unit prices are negotiated prospectively. If actual total expenditure exceeds the limit, the unit prices are reduced in the third and fourth quarters to compensate.

However, this system provided for no direct restrictions on volume, which continued to expand at an excessive rate. Mindful of this, the government adopted a new mechanism to limit the number of practicing physicians and to favor family practitioners over specialists. First, the new law limits the licensing of new ambulatory care physicians in a region if physician density there exceeds a given norm by 10 percent. Second, beginning in 1999, physicians over the age of sixty-eight will have their licenses revoked. Third, the practice of family medicine will be financially upgraded by transferring savings in laboratory services to family practitioners. To offset incentives for overspending, physicians are subject to random audits of their practice patterns by a committee representing the sickness fund and the physicians’ associations. The committee compares a physician’s overall level of services, including prescribing patterns, with the average level for the physician’s specialty group. If the physician’s level of services is 15 percent above the norm for his specialty, an audit will be ordered. If the physician’s provision of services is 25 percent above the norm, he is required to return his excess earnings. It is hoped that these changes will both limit spending and force physicians to compete on quality.

Increased cost-sharing in the publicly financed sector

France and Germany both introduced negotiable cost-sharing for specific services under their public schemes. In France, out-of-pocket payments account for approximately 15 percent of total payments for health care. Copayment levels are 25 percent for physician visits, 20 percent for hospital services up to the 30th day of care (plus 30 francs daily room charge), 30 percent for laboratory tests and dental services, and 30–70 percent for covered prescription drugs (plus 100 percent for non-covered prescription drugs).

Regarding pharmaceuticals, France has introduced a positive list of medications that may be prescribed and a negative list of those that are not covered. Pharmaceuticals must be approved for reimbursement at a price set, product by product. Prices for innovative products are in principle set at a level that will help to defray research and development costs. However, if a new drug offers no therapeutic advantages over its rivals, it will be added to the list only if its cost is lower. Since 1990, pharmacists have been paid according to a sliding scale, which is related to the cost of the drug dispensed. Recently, Germany and the Netherlands have introduced a somewhat stricter system of reference pricing: a price is fixed based on the cost of similar products (generics), and if the product prescribed costs more, the difference is paid by the patient.

While increased cost-sharing reduces the cost to the government and possibly the volume of health care, total spending may not necessarily fall. For this to happen, the increase in the copayment must be significant enough to affect behavior and private insurance must not replace the coverage removed through cost-sharing under the public scheme. Given the existence of numerous mutuelles which pay a significant part of shared costs, it is not clear how effective cost sharing has been as a cost-containment tool in France.

Efficiency and competition

A common feature of past reforms in France has been their emphasis on macro-controls, which alone rarely appear to have encouraged greater micro-efficiency and effectiveness of providers, and in some cases may even have weakened the achievement of those objectives. Although these macro-controls on health spending have clearly yielded a marked slowdown in the growth of expenditures, it is difficult to assess their success in terms of efficiency. Concerns about micro-efficiency emerged in other countries’ operating systems similar to that in France Recently, a few countries (Germany, the United Kingdom, and the Netherlands) have started to instil an element of competition among providers and insurers, while keeping a universal social insurance system. Such moves towards managed markets are likely to offer better choice, producer autonomy, and efficiency in the health system, without sacrificing equity considerations and cost control.

Efficiency in Health Care: The Case of Finland

Finland’s health system is recognized as one of the most efficient in the world. At the same time, Finland has kept health expenditure to less than 7 percent of GDP throughout the 1980s. The centerpiece of the Finnish system of cost control is a rolling 5-year operating expenditure plan controlled by central government agencies that allocate monthly national government subsidies to municipal health collectives. Hospitals and primary care clinics prepare annual incremental operating expenditure requests for both personnel and minor capital expenditures. These budgets are reviewed first by the health collective that owns the hospital and/or the clinic and then by a series of local and national government bodies. In general, 40 percent of the expenditure requests are accepted and adopted in the 5-year plan. Although local health collectives have the option of funding unaccepted personnel and equipment, the government maintains the right to cut off funding for previously accepted costs as “punishment”.

Competition in Health Care: The United Kingdom Experience

The central idea that underpins the recent reforms of the National Health Service is the distinction between the purchaser and the provider of hospital and community health services. The providers compete with one another to provide such services by means of contracts with purchasers of health services. There are two kinds of purchasers. First and largest are the District Health Commissions (DHC), which operate under a budget. The reforms recast their role from one of organizing and providing hospital care to selecting the services required to meet those needs and then contracting with various health services providers. A greater role than formerly is attached to identifying the health needs of the district population. DHC are monopsonists in contracting for many hospital services.

The second type of purchaser comprises fundholders (self-employed primary care doctors) who manage a budget which they must use to secure a defined range of hospital and primary care services for their patients. The fundholder’s practice receives a transfer of roughly ⅕ of the per-capita costs of hospital and community health services to purchase a variety of services and products, including some surgical treatments, diagnosis, prescriptions, and community nursing services. Since GP fundholders compete with DHC and private insurers in purchasing certain services (with the area of competition being defined by health care regulation), the purchasing side of the market is now also subject to some competitive pressures.

F. The Current Reform in France: The “Juppé Plan”

Because of the fragmented nature of the reforms, the dozen plans d’urgence implemented since the mid-1970s had little success in curbing health expenditures, and despite significant measures taken by the previous government in the spring of 1993 (loi Veil), the financial situation of the social security system continued to deteriorate. By 1995, health insurance accounted for about half of the F 60 billion (0.8 percent of GDP) deficit of the régime général social security funds.

While these deficits partly reflected a delayed response of revenue to the recovery,16 they were also attributable to structural factors, notably the tendency of health spending to grow more rapidly than potential output. It became apparent that fundamental structural reform would be needed in order to durably reduce social spending. In the health care sector, this implied the necessity of addressing not only the huge financial imbalance in the short-run, but more importantly the need to put in place measures that could ensure that spending targets are met without jeopardizing the quality of health care.

Main elements

The objectives of the health care measures contained in the Juppé plan are threefold. First, to achieve financial balance by 1997 through strict limits on expenditure growth in ambulatory and hospital sectors in 1996 and 1997. Second, to put in place detailed regulations and incentive mechanisms designed to keep health spending under control. Third, to improve the efficiency of the system through a series of structural measures so that more and better quality health care is delivered at a relatively lower cost than is presently the case. These objectives are reflected in the measures contained in the constitutional law adopted on February 19, 1996, and in the three decrees—adopted by the Council of Ministers on April 24—dealing with the management of social security funds, the reform of hospital administration, and the control of ambulatory medical services.

The main element of the reforms is a constitutional amendment giving Parliament final authority over social security expenditure. This amendment puts responsibility for the management of the social security system primarily in the hands of the government and the legislature rather than in the hand of the social partners (employers and trade unions, with the government as arbiter) as is presently the case. Thus, it will have the effect of subjecting social spending to the disciplines of financial management.

In the context of the Social Security Financing Law, Parliament will each year set quantitative targets for the growth of health expenditure (these targets will take account of revenue developments) It will also take a decision on the national health goal as defined by the National Conference on Health Once the national spending target has been set, quantified objectives will be defined for each sector within multi-year agreements between the state and the social security funds, starting on January 1, 1997. This means that care provided by medical doctors, the remuneration doctors derive from reimbursable fees, and hospital spending will henceforth be subject to constraints based on the annual decisions taken by Parliament.

The multi-year conventions, which are based on contracts between the state and the health insurance funds, are aimed at clarifying the respective role of each agent and also at providing greater autonomy to sickness funds in the area of financial management. The conventions provide a framework for the government’s health policy. A surveillance committee (made up of citizens and elected officials) will be created to monitor the implementation of these agreements.

The health administrative boards will be replaced with a view to promoting greater social democracy and strengthening administrative controls (four qualified government-appointed persons will sit on each board). Regional associations of health insurance funds (URCAM) will be created before January 1, 1998.

The most important element of the reform of the hospital sector is the creation of regional hospital agencies, which will be headed by a director appointed by a ministerial council. These agencies will be in charge of managing both public and private hospitals. In addition to allocating global budgets to individual hospitals (the overall increase in spending has been limited to 2.1 percent annually in 1996 and 1997), regional agencies will be responsible for coordinating with the activities of national agencies and insurance funds, and for ensuring that hospital activities are in line with the directives of the regional health conference. To foster a better management of hospital resources, the establishment of multi-year contracts setting objectives for each hospital are envisioned. Regional agencies will also have considerable leeway to decide which hospitals to restructure or close.

The hospital reforms aim at increasing the role of doctors and other medical personnel in the management of hospitals, with the ultimate goal of ensuring the participation of all hospital staff (administrative, technical and medical) in the organization and management of these institutions. It is envisaged that, in view of their preeminent function as health service providers, doctors could form at their own initiative new decision centers, exercising some management functions. Another objective of the plan is to foster a better integration of hospitals into their environment by requiring them to adapt their activities to the needs of the local population.

To help maintain good health care quality, hospitals are required to initiate, over the next five years, an external review of their activities. This review will take place under the aegis of an accreditation agency made up of independent experts. Following the Canadian model, a national review agency (Agence Nationale d’accréditation et d’évaluation en santé, ANAES) will be created to monitor the standard of health care. This agency will be administered by a board composed of health professionals. Continued training of hospital doctors and patient feedback are further elements of the hospital reform.

In the ambulatory sector, the short-term financial objective is to limit the increase in spending to 2.1 percent in 1996 and 1997. To achieve these objectives, controls are being imposed on the activities of physicians. Beginning in 1997, physicians’ reimbursements will not be raised if there are overruns in the previous year. Moreover, physicians’ rates of remuneration could be lowered retroactively by decision of Parliament if the expenditure targets for the previous year are exceeded; any increase in reference fee schedules will be reimbursed at the end of the year if and only if the spending targets set by the convention are met, with the new fees taking effect the following year.

The reform envisages sanctions in the form of reimbursements by doctors to the insurance fund if the spending targets are exceeded. The practice since 1993 of setting medical guidelines (RMO) which define norms and includes penalties, will be extended. However, in contrast with the last two years, these guidelines will be set by a national health commission. Likewise, expenditure on drugs will be controlled through a wider recourse to generic drugs and stricter dispensing by pharmacists of the exact quantity of drugs required by a prescription.

Another element of the reforms in this sector is the creation of regional physicians’ associations, which will monitor the development of medical services and technology, while insuring that doctors participate in mandatory training. A number of administrative reforms such as the introduction of centralized individual medical files (to avoid duplication of treatment) and more intensive use of information technology are also envisaged. Individual medical files will be introduced between now and 1997, and a computerized coding of treatments and diseases will be introduced before the end of 1996 in order to assess doctors’ performance and encourage preventive medicine. By 1999, all insured patients and doctors are to have an electronic health card.

Some observations

A salient feature of the “Juppe plan” is its emphasis on structural measures to durably reduce the growth of health expenditures. Thus, while still relying on global macro-constraints through “OQNs” (objectifs quantifiés nationaux), its main focus is on achieving greater micro-efficiency by providing a mix of services which maximizes a combination of health outcomes and consumer satisfaction, given the overall budget constraint. The creation of regional hospital agencies and the linkage of doctors’ funding to the respect of OQNs provide a mechanism that should help achieve this objective. As the German experience in the areas of mobile care suggests (Box 2), accompanying incentive mechanisms are necessary in order to support the targets for overall expenditure restraints.

An important element of the reform is that it seeks to clarify and strengthen the role of health funders. Under the existing system, funders (in this case the social security funds) have been relatively passive intermediaries between health consumers and providers. Their function had been to allocate available funds among an established group of health care institutions, employing payment methods such as ticket directeurs, per-diem payments, or fee-for-service, which paid little attention to resource allocation and in many cases permitted supplier-driven spending increases to go unchallenged. The current reform redefines the role of health flinders, making them accountable to the state. The creation of regional associations of health insurance funds to be in charge of coordinating activities in the ambulatory sector and setting up global management strategies is intended to serve this goal.

Moreover, there is an attempt in the current reforms to make flinders more effective purchasing agents for health consumers. This means that they will now be in a position to be much more active in assessing the relative merits and cost-effectiveness of different treatment strategies, and in selectively buying health services from potential suppliers, thereby becoming accountable to consumers for the quantity and quality of medical services provided. The extension of medical guidelines (RMOs), which will henceforth be defined by a national agency, and the introduction of generic drug use in the pharmaceutical sector, should both contribute to the achievement of these goals.17

Another feature of the reform is its emphasis on fostering greater market competition through better contracting. In contrast to bulk funding all the outputs of a supplier, or to passively reimbursing bills submitted by providers, contracts provide the scope for competitive bidding for particular services sought by the purchasers and the transfer of resources to alternative providers. As the UK experience (Box 3) demonstrates, contract-based systems may provide a formal mechanism for performance indicators (such as quality, quantity, and cost dimensions of services) to be specified and monitored. At the provider level, competitive contracting for health services would require providers to improve their management capacity and to face appropriate accountability arrangements (including relevant objectives and goals, and information systems which permit their achievement to be assessed)

While recent reforms are far-reaching, a central question is whether, from a budgetary perspective, they will help to slow the growth of public spending. It is somewhat too early to answer this question. However, the Commission des Comptes has already observed that the deficit of the régime général would have been worse in the absence of these reform measures (see tablulation below). The failure to meet spending targets in early 1996, particularly in the ambulatory sector, probably stems from the fact that a number of recent measures have not yet come into effect. In particular, the built-in sanctions and penalties would not start to bite until 1997.

Financial Position of the Health Care Branch

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Source: Comptes de la securité sociale.

In addition to measures to restrain spending, a number of revenue measures were also taken, including a 2.4 percent increase during 1996–97 in the preferential rate of contribution for health care insurance (applying to old-age pensioners and to the recipients of unemployment benefits in excess of the minimum wage).

G. Concluding Remarks

France has enjoyed considerable success in providing high quality health services to the whole population, achieving considerable equity in access, and protecting insured persons from catastrophic financial burdens. However, policy has thus far been less successful in containing the cost at which these services are provided. Although this difficulty arose in part from circumstances outside the control of the government, such as the aging of the population and the continued development of expensive medical techniques, it also reflects inappropriate incentives and other institutional weaknesses.

Reform steps implemented during the past decade have attempted to slow the growth of health expenditure, but have not been too successful in achieving this objective. To address the underlying long-run spending pressures highlighted in this paper, this first set of reforms needed to be supplemented by measures to increase the micro-economic efficiency of the health care system.

The current reforms contained in the “Juppé plan” have made some headway in addressing some of these micro-economic issues through hard budget constraints and other structural measures. Their success, however, will depend on their firm and credible implementation. The measures consisting of conditioning doctors’ funding to overall spending restraints would need to be firmly enforced if the growth in ambulatory care is to be contained. This would need to go hand in hand with a consistent application of sanctions and penalties. In the hospital sector, a rapid move to put in place regional hospital agencies would help to reduce excess capacity, while at the same time keeping operating expenditures in the sector (notably on personnel) under control.

On the structural front, further efforts could well be needed to achieve greater efficiency in the system, for instance by introducing performance-based reimbursements. Reimbursements for performance rather than the use of resources, as is presently the case with hospital budgets, may give incentives to boost productivity, depending on how performance is measured and compensated. For example, in the hospital sector, per diem reimbursement could be replaced by reimbursement per treated patient (paiement à la pathologie), as classified by Diagnosis Related Group (DRG). Such a system has since 1993 been tested in a pilot project in Languedoc-Roussillon. When a similar system was introduced in Sweden, productivity rose by nearly 10 percent the first year and 3 percent in the second year (Charpentier and Samuelson, 1994). For physicians in general practice, fee-for-service could eventually be replaced by a capitation fee as in Ireland in 1989.

Finally, the long-run effectiveness of the reforms may be hampered if users of health care are not given additional incentives to consume health care wisely. As noted earlier, a system of universal coverage performing both insurance and solidarity functions is bound to generate higher demand for health care than is economically efficient. Greater emphasis would need to be placed on demand-side measures. One possible measure would be to automatically adjust copayments (the so-called ticket modérateur) in the event of spending slippages.


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Prepared by Ousmane Dore.


An extensive debate on the future of the health care system culminated in the Livre Blanc sur le système de santé et d’assurance-maladie (1994), which provides a complete analysis of the system.


The government exercises control over the health care system through the regulation of social security contribution rates, the control of global budgets for public hospitals and of wages and posts in public hospitals. It also supervises the negotiation of fees and prices for doctors and private hospitals and directly controls the prices paid by the statutory insurers for drugs and medical goods.


In mid-1993, the ticket modérateur for consultations with a doctor was 25 percent of the conventional fee, for necessary drugs it was 30 percent, and for comfort drugs, 60 percent.


There are also about 15 smaller funds, which cover for example farmers and the self-employed (including self-employed miners and transport workers).


The employees’ contribution has been lowered from 6 8 percent to 5.5 percent under the tax reform proposed by the government.


In general aggregate health outcomes are only weakly related to medical care spending. This weak association between health spending and available outcome indicators partly reflects well-established evidence that direct spending does not capture the full array of social, environmental and cultural factors which influence health status.


Using as a broad rule of thumb that persons aged over 65 consume on average roughly four times as much health care as those below 65.


For example. Hourriez (1992) found that in 1950 persons aged 70 saw generalists and specialists, respectively 1 5 and 0 8 times more than persons aged 40. by 1990, this had increased to 2 6 and 1 1 times.


Improved cataract operations, renal dialysis, organ transplants, coronary bypass, micro-surgery, and hip and knee replacements have increased the range of conditions which can be successfully treated Advances in anaesthetics have reduced the risks of operating on older patients New imaging and other technologies (echography, improved radiology, magnetic resonance scanners, endoscopy and biological tests) have improved diagnosis.


Compulsory health insurance dates back to the aftermath of World War I, when the provinces of Alsace and Lorraine, where the German health insurance (Bismarckian model) had been established, were returned to France. A 1920 law creating compulsory insurance did not become operative until 1930, due largely to the opposition of doctors to the capitation of pay.


See the seminar paper by K. Arrow (1963).


There are numerous non-profit insurers (or mutuelles) and private insurers providing supplementary voluntary insurance in the system. They cover the ticket modérateur, some extra billing, and a few benefits not covered by the social security scheme.


In 1992, the Caisses Primaires d’Assurance Maladie were employing some 80.000 staff, not counting personnel collecting contributions See Pouilier (1992).


The typical household currently pays about 20 percent of gross compensation on health care, including voluntary contributions to mutuelles.


This delay may be attributed to the financing of social security through payroll taxes, which tend to reflect the lagged response of employment to output.


The experience with the 1994 law concerning a set of some 30 références médicales opposables (RMO), setting out “good practice” procedures and treatments for a range of illness and provides for sanctions in case of abuse has been quite successful, during the first eight months of 1994, physicians’ fees and pharmaceutical spending fell by around 4 percent compared with a year earlier (CNAMTS, 1994)