NOTE: The Swiss have a universal, highly regulated system of social insurance based on nonprofit private insurance plans. Many consider their system to be superior to ours and one that ours might eventually emulate. Though this message is long, you should save it if you don’t have time to read it now. It explains why an “ideal” system based on private health plans is not such a great idea after all.

OECD Reviews of Health Systems: Switzerland 2011

OECD, World Health Organization

Organization for Economic Cooperation and Development (OECD)

October 18, 2011

Chapter 2 – Health Insurance

(Excerpts)

In 1996, Switzerland implemented the Health Insurance Law (LAMal), which sought to achieve three main objectives: strengthening solidarity in the Swiss health system, containing health spending, and guaranteeing high-quality coverage.

2.1 General trends in the Swiss health insurance market

The Swiss health insurance market relies on regulated competition based on a set of key principles: health insurers cannot make profits on contracts for mandatory health insurance, consumers have free choice of insurer, and insurers are compelled to accept any applicant. The benefit basket covered by health insurance is defined at national level for all insurees and health insurers must offer the same premium to all enrollees with the same health insurance contract provided they are in the same age category and same region. Health insurers can propose optional health insurance contracts which provide lower premiums in exchange for higher deductibles or “managed care” contracts. Insurers can also offer “bonus” contracts, where insurees receive premium reductions if they do not claim any reimbursement from their insurance fund.

# Swiss health insurance offers comprehensive coverage of health care

In principle, all medical treatments and diagnostics prescribed by doctors and dispensed by licensed professionals are covered, unless they are explicitly excluded from the benefit basket. Mandatory health insurance also covers the costs of medical care provided to patients receiving long-term care in institutions or at home.

After paying a deductible, patients contribute to the cost of care through coinsurance rates – usually 10% of costs – up to an annual ceiling.

“Rationing” has not been part of the political agenda. The level of user charges, however, is one of the highest in the OECD.

# Consumers can choose between different options for health insurance plans

Ordinary contracts offer the highest level of financial protection against health care spending but also have the highest level of premiums. Other forms of health insurance contracts offer lower premiums with either higher deductibles or restrictions in the choice of doctor or hospital.

The take-up of ordinary plans has been continuously declining, first to the benefit of high-deductible health plans. However, since 2004, the popularity of plans with restricted choice of provider has increased dramatically, with the share of insurees choosing such plans (36.9%) now higher than ordinary plans (35.2%), high-deductible plans (27.9%) and bonus plans (0.1%).

# Consumer choice has increased at cantonal level, in spite of market concentration nationally

# Private supplementary health insurance covers one third of the population

2.2 The 1996 Health Insurance Law has strengthened solidarity, but health financing inequalities remain

# Switzerland has reached universal coverage

Health insurers have been required to refuse payment for health care bills presented by negligent defaulters (366,000) until they have fully recovered unpaid premiums and related interests. In March 2010, the parliament revised the law with the objective of protecting people facing serious financial problems for paying premiums.

# Health insurance premiums vary widely across and within cantons

These intra-cantonal premium differences persist because of insurers’ risk-selection activities and also because relatively few insurees switch insurers from year to year, although this number has been rising recently.

# Public subsidies help some individuals and families pay health insurance premiums

By nature, non-income related premiums are very regressive. In 2008, premiums accounted for 11.8% of household income for the lowest income quartile and 3.4% for the highest income quartile.

The LAMal requires premium reductions of at least 50% for children and young adults in training in low and middle income households, but lets cantonal authorities define the thresholds used to define “low and middle income.”

Sixteen cantons fix a maximum percentage of households’ income to be spent on premiums and subsidise any additional amounts. While this limits the households’ effective burden, premium payments remain regressive.

It is worth noting that achieving horizontal equity in health financing is not an explicit policy goal in providing premium subsidies in Switzerland. Furthermore, subsidies do not address health financing inequities resulting in out-of-pocket expenditure, such as copayments and deductibles which are independent of household incomes.

# Swiss patients face relatively high out-of-pocket payments for health care

Per capita out-of-pocket payments in Switzerland are significantly higher than in all other OECD countries: they are 60% higher than the United States and almost three times as high as the OECD average.

# Out-of-pocket payments are usually regressive and thus the least equitable means to finance health care.

The fact that an increasing number of consumers are opting for high-deductible plans is very likely to increase user charges for “essential care” and weaken the solidarity of the health insurance system.

# Contributions to the financing of health spending are inequitable

# Financing health care is a high burden for low-income families

There is some indication that people forego health services due to high out-of-pocket expenditure, and that this is related to socio-economic status.

2.3 Competition in health insurance markets does not deliver all its promises

# Switching rates are still low, though increasing in the recent period

# Fragmentation increases administrative costs and premiums

Multiple fund systems, especially with small pools, often coincide with relatively higher administrative costs. Moreover, a risk equalisation mechanism also creates additional administrative costs. Switzerland has relatively higher administrative costs for both social and private health insurance. Those accounted for respectively 5.9% and 17.0% of total health insurance costs.

# Health insurers mainly compete on risk-selection

Van de Ven et al. (2007) listed possible strategies for insurers to select good risks despite their obligation to accept any applicant. The list includes:

* Marketing through targeted advertisements aimed at the healthier.

* Selective contracting with providers (i.e., in managed care contracts) likely to attract the healthier who are more willing to accept limited provider choice.

* Designing complementary insurance benefits packages and setting premiums such that low-risk individuals are attracted.

* Exclusively offering contracts with high deductibles, which will offset higher risk individuals.

* Establishing insurance conglomerates to channel new enrollees to specific contracts depending on their

health risks; this strategy most often works due to the huge number of different contracts on offer, limiting the consumer’s ability to be fully informed.

* Identifying high risks via a health status declaration for those seeking complementary insurance.

* Delaying reimbursements for chronically ill persons in order to make them leave the insurance.

* Terminating insurance activity in areas with any high-cost patients.

Many of these strategies are indeed manageable options for Swiss health insurers. The extent to which they really use them is not easy to determine.

# Managed care plans have taken off since 2006 but insurers only modestly “manage care”

The extent to which current managed care networks increase quality and efficiency in health care delivery is not well known. By nature, the impact of managed care is difficult to assess and disentangle from risk-selection, since these specific forms of contracts are known to attract people with good health risk profiles. Thus, age and gender adjusted comparisons of health care spending of managed care policy holders and other insurees are not sufficient to estimate savings achieved through managed care.

# The inclusion of another risk factor into the risk-equalisation formula is a good step but may not be enough

Initially, the risk equalisation mechanism was based on two simple risk factors only: age and gender.

A new and third risk factor – hospitalisation beyond three days in the previous year – has been included in the risk equalisation formula and will be applied from January 2012 onwards. While this new factor will not fully avoid risk selection, it will now also be profitable for insurers to invest in product innovation, i.e. further develop managed care contracts.

(Single payer)

The high levels of fragmentation in a country with a small population raises questions about a single health insurer. In theory, a single insurer could pool risks more effectively. In light of risk equalisation mechanisms that are imperfect as long as there remain incentives for risk selection, a single insurer might in principle better ensure health financing equity across the population and strong purchasing, in addition to a tendency for lower administrative costs. Moreover, it provides incentives to focus more on prevention. A single insurer system thus has some important advantages. However, it has also its drawbacks, since it eliminates consumer choice, may inhibit innovation in insurance products or risk under-provision and rationing care when negotiated prices are too low.

Shifting from a multiple insurer system to a single insurer system is with no doubt a tremendous challenge, although Korea demonstrated that a step-wise merging into a single fund is possible. However, this is likely to be particularly difficult for Switzerland, which has a very long history of multiple insurers for over 100 years, a strong preference for choice, and as a reflection of its federalism, an attachment to cantonal organisation. Moreover, there are considerable transaction costs to consider, not least the question about where to place all staff from the current health insurers. Any such reform option thus needs to be critically assessed as to its overall financial implications, its practical implementation as well as political feasibility. In fact, the option of a single insurer in Switzerland has already been rejected several times so far by the population, although a new initiative was launched in 2011.

OECD Reviews of Health Systems: Switzerland 2011 (160 pages):

http://www.oecdbookshop.org/oecd/display.asp?sf1=identifiers&st1=9789264120907

Comment:

By Don McCanne, MD

It is not clear why so many in the U.S. are enamored of the Swiss health insurance system when this OECD/WHO report confirms that it is highly inefficient and fragmented, with profound administrative waste, inequitably funded, with regressive financing and with wide variations in premiums, has the highest out-of-pocket costs, has an increasing prevalence of managed care intrusions, and is controlled by a private insurance industry that has learned how to game risk selection at significant cost to those on the losing end.

There is one bit of good news buried in this report. A single payer system would correct these deficiencies. Although the report mentions the drawbacks of eliminating consumer choice and inhibiting innovation in insurance products, these are actually advantages. The loss in consumer choice is the loss in the ability to choose from a large market of private health plans which often take away provider choice. Eliminating the plans returns choice of providers to the patient. Innovations in insurance products are designed to benefit the private insurers by gaming the system to the detriment of the patients. That’s innovation that they can do without.

The report also cautions that a single payer could “risk under-provision and rationing care when negotiated prices are too low.” This is a criticism of single payer systems that does have some merit, but it ignores the fact that this risk is even greater in privately insured managed care models. All systems face capacity and access problems, but the public stewards of a single payer system are in a position to act in the public interest, whereas private insurers use tools to deliberately obstruct access in order to reduce spending. Public single payer stewards are much more capable than private insurers of using capacity refinement and queue management to reduce the risk of under-provision (rationing) of care. It is true that conservative fiscal hawks, when they are in control, continually threaten excessive budget constraints, but the behavior in the private sector is much worse as ever more of the costs are shifted to those with greater health care needs, creating a formidable financial barrier to care. Our U.S. system of inhumanely rationing care by ability to pay is far worse than systems that struggle with capacity and queues because of budgetary limitations, especially when you consider that we already have by far the largest per capita health care spending of all nations.

The important take-home point is that an “ideal” social insurance program based on the mandatory purchase of highly regulated, nonprofit private health plans, such as that in Switzerland, is far from ideal in that it fails to prevent the flaws inherent in the private insurance model – including segmentation and fragmentation, costly administrative excesses and inefficiency, inequitable regressive financing, excessive premium variation, shifting of costs (risks) to patients in order to protect insurance plans, and, perhaps most fundamentally, rejecting a public service model in favor of a private business model that intrudes in the relationship of patients and their health care professionals and institutions by gaming the system for the primary purpose of achieving success as a business, while relegating serving patients to a secondary role.

In 2007, even though the Swiss understood the advantages of a single payer system, they rejected it in a ballot measure. The predominant reason was that 70 percent of the Swiss were not willing to trade their private insurance plans, which were perceived to be functioning fairly well except for high premiums, for a public program for everyone that they feared would be like their existing health welfare program for the poor, which most believed was plagued by bureaucratic inefficiency and cost overruns. They feared that they would be worse off in such a public program. In their campaign against the single payer proposal, the organization representing Switzerland’s private health insurers, santésuisse, deliberately mislead the public by modeling the single payer proposal as a welfare program that would be funded primarily by middle-inc

ome citizens, creating this widely held misperception that resulted in the measure’s defeat.

The Swiss voters will get another chance with a new initiative launched this year. The question is, when will we get our chance?