Swiss Health Care: The Good, the Bad and the Ugly
I have often wondered why we don’t hear more about the Swiss health care system — especially by folks on the left. After all, just about every study of the topic finds the Swiss system to be the most egalitarian in the whole world.
During the debate over Hillary Care, the White House flirted with Germany and France. Michael Moore bounced from Canada to France to England and even Cuba in his movie, SiCKO. A recent documentary praising national health insurance focused on Taiwan. The Physicians for a National Health Program has been perpetually fixated on Canada (the only “single payer” system in the world, other than North Korea). The Commonwealth Fund is continually judging European systems superior to our own. But no one on the left ever mentions Switzerland.
Until now. A front page article in The New York Times the other day extolled the virtue of Swiss health care. Even Paul Krugman had good words to say about it. On the right, Regi Herzlinger has been a consistent champion. Gary Becker and Richard Posner have weighed in with positive assessments.
So what do we think about all this? Here’s the good, the bad and the ugly.
Heidi
The Good. Swiss health care is predominantly private. Individuals are required to buy insurance and almost all of them do. Private companies compete to provide insurance, and there are subsidies for lower income buyers. The insurance is individually owned, personal and portable. In my opinion, this system stands head and shoulders above other European systems of national health insurance.
In comparison to the US system, a feature of Swiss health care that I like (but that is rarely mentioned) is that the Swiss tend to join a health plan and stay in it for many years. This long-term relationship with an insurer encourages a long-term relationship with doctors, which is important for continuity of care.
The Bad. Despite competition, choice, private ownership and portability, the Swiss system is still very bureaucratic – perhaps as much as or more so than our own. It has mandated benefits, price controls on providers and other regulations that make it hard for entrepreneurs to solve problems in the way we often talk about at this blog. Linda Gorman has provided a summary of some of these problems in a piece we posted a few months ago.
The Ugly. Although long-term insurance relationships are the norm, the Swiss have been moving in the direction of managed competition, which encourages people to switch health plans. As I have written before, when plans are forced to charge community-rated premiums, no one ever faces a real price, pays a real price, or receives a real price. Under managed competition, everyone’s incentives are perverse.
On the buyer side, people have an incentive to underinsure when they are healthy and overinsure when they are sick. On the seller side, health plans have an incentive to overprovide to the healthy (on whom they make a profit) and underprovide to the sick (on whom they incur losses). The more competitive the market, the worse these perverse outcomes will be.
Nice post. Very informative.
This is the best thing I have read on the Swiss system. It’s fair and balanced, as they say at Fox News.
John,
Thank you for the great overview of the Swiss system. Great information. Do you think we can get the President and Congress to read it?
The Swiss model is a good one to consider, though not perfect. Many of the “mechanisms” are present that we can modify to be more culturally comfortable. However, it is important to note that they essentially impose what amount to price controls on the providers and suppliers. While I am not adverse to a rational approach to setting boundary conditions on pricing for stuff like devices, drugs, and other “things” including the technical component of labs and radiology, I believe that both hospitals (I realize they can largely be considered as “things” rather than services, but….) and physicians should be more or less free to set their fees and package prices where they wish, and then let the market work, both for patients choosing providers, and insurers evaluating them for inclusion in a preferred network or not. The KEY element in all the pricing considerations, however, is that everybody be charged the same by the same provider of product or service, and that no special deals be allowed for any payer player in the system, government included. If the Swiss had that as central to their system, the market structure would work even better, and they would be a better overall model that we might realistically attempt to emulate. However, we can get there with our own American version if we just fix the pricing issue correctly. A proper metric will then exist to evaluate cost/benefits for all the other aspects of reforming the system. Until a measuring stick that is meaningful and in which we can all have confidence is established, no one can tell what will work and what won’t.
“The KEY element in all the pricing considerations, however, is that everybody be charged the same by the same provider or produce or service, and that no special deals be allowed for any payer player in the system…”
This is already a KEY element of US Medicare, where docs can go to jail for discounting their prices for a little old lady who needs charity. How’s that working out for the US elderly?
A lot of medical care is elective. Charging different prices to different people at different times is efficient. It spreads the load and makes more efficient use of labor and capital. It also lets people who couldn’t otherwise afford something get it at reduced price–sales are common in vision correction surgery, for example.
Plus, it is impossible to determine if providers are actually offering the same service–should a routine appointment at a practice with no waiting cost the same as one that makes you wait an hour? Should an appointment made 14 days in advance cost the same as one made 1 hour in advance?
Why making charging the same thing for everyone and everything should be a KEY component of health care reform remains, therefore, a mystery.
Note that this is not in disagreement with the proposition that government should apply all laws equally to all providers and methods of health care finance.
Thanks, Linda. That’s good information.
I wonder if their health plan is more like their cheese, or their watches.
Linda – you appear to misunderstand the Key element. Nowhere do I suggest prices be fixed for all providers for the same service, which you seem to think I said. In fact, I am diametrically opposed to that. I want each and every provider to establish their own fee schedule (including “package” and global prices), publish them, but then be totally consistent in applying them to every patient who walks in the door. That is certainly NOT what Medicare does.
This latter requirement is essentially aimed at all third party payers involved in the system (government plans, health plans, insurers), so that there can be no deals made on that published, transparent price list. Once the third party payer has made whatever payment they are going to make for the service based on their own policy benefit coverage (i.e., a maximum allowable fee schedule), and any required copayments (copays, deductibles, coinsurance), the patient then de facto is responsible for the balance. The provider is then, and only then, free to do whatever arrangement they wish with the patient with regard to that balance owed. They can forgive it, discount it, etc. The thing is that they should never be allowed to do that based on third party payer affiliation, or we get right back into the cost shifting mess that has been the main cause of the health system financing chaos we have today.
Having providers set their own rates (but be consistent) is the only way to bring order and creative responsiveness to the market that has never been allowed to work because it has been so distorted by the price controls/fixing of both government (Medicare/Medicaid) and large health plan network “discount” requirements. It is patently ridiculous, and administratively expensive and inefficient, to allow a given provider to charge a different “net billable” rate to two different patients based upon who their affiliated third party payer is. You would have an extremely difficult task to justify your statement that “Charging different prices to different people at different times is efficient. It spreads the load and makes more efficient use of labor and capital.” in relation to medically necessary (not any medically unnecessary or legitimate cosmetic or truly elective surgery such as vision correction surgery and tummy tucks) services. They are not the same kind of economic goods.
The system can achieve its greatest efficiency by applying rational process to something that society, whether it is liked or not, has deemed to be a “utility” that all persons are entitled to. That means creating a market environment where the basic economic transaction is based on consistency and fairness. Those transactions are those between the provider and the patient, and those between an insured and an insurer. Unfortunately, we have allowed there to be a “cut through” largely eliminating the patient/insured from the action. To get back to that requires a reasonable playing field for all the relevant parties so that a proper market equilibrium can be reached without the distortion created by hierarchies of fee schedules for the same provider, with none of them serving as a true benchmark for what the service really is going to cost.
By the way, the “time” element is an allowable variant to distinguish a “service,” so there is nothing inconsistent with having a consistent fee schedule and varying the price based on how far out you make the appointment – it is a different service. Just like package pricing might not equal the sum of the parts. It doesn’t matter so long as any such differential be charged consistently to different people, and that it be transparent so that the potential patient can weight it into their economic decision. The same can be said for variations in complexity – we already have that in the RBRVS system and others. There is nothing technologically difficult in service distinction.
I have a Swiss friend who is studying in the States. She has had serious sinus problems for years. While on a visit with her in Switzerland she had a flare-up. Her doctor, also her good friend, prescribed head-ache powder and gave her sleeping medication. This was the extent of her solution! I was livid because the symptoms were clear and her doctor did not refer her to a specialist or discuss further treatment. Also, her insurance dropped the level of her coverage to major medical because her condition was costly to them. Since then, she has had treatment and surgery in the U.S. and has said that she her faith in the Swiss system has been severly shaken.
How can you compare nationally insuring the population of a country (Switzerland) with 7.5 million people with the complexities of “fully” insuring 306 million people(USA)? Last I heard 80-90% of the citizenry in the USA were relatively happy with what we have. How about fixing what we have with the free enterprise system we have????
By the way Cuba has about 11 million and Canada about 33 million people.
Why should a provider charge every patient the same amount? Historically about a third of the care individual physicians provided was free or reduced cost. That was how they did charity care. It worked, because they knew the people involved.
There is nothing transparent about the prices for the other services we buy in market economies. They seem to do just fine without transparency regulations. I would suggest instead that the problem is third party payment. RVRBS is Marx’s labor theory of value reincarnated by Medicare from the ash heap of history–it does a lousy job of substituting for the information contained in a honest to goodness price.
Why not simply require 3rd party price lists to be out in the open? This would address the anti-competitive nature of 3rd party pricing, preserve flexibility for private two-party transactions, and give individuals a bit of guidance as they attempt to negotiate terms for direct purchase of services. Not everyone understands that they can negotiate with a hospital, let alone how or for what price. To be honest, I’m not sure I’d be able to.
With great respect to Prof. Herzlinger, I think that she was a little too enthusiastic about the “re-insurance” element of the Swiss health-insurance system, which (in my words) relies on a cartel of the government and the health insurers to decide how much each medical condition is “worth”. Although I hate to commend the Commonwealth Fund here at the John Goodman blog, it did commission a nice paper from some Dutch and Swiss health economists [R.E. Leu, et al., The Swiss and Dutch Health Insurance Systems: Universal Coverage and Regulated Competitive Insurance Markets, pub. no. 1220 (New York, NY: The Commonwealth Fund, January 2009], in which the Swiss economists concluded that risk selection still occurs there, i.e., that despite risk-adjusted re-insurance, health insurers are able to earn more money by enrolling healthy people (p. 15). If we reject centralized price fixing for health goods and services, I don’t see why we would think that centralized price fixing for risk would be an improvement. As Prof. John Cochrane has demonstrated (via health-status insurance), the market would be able to price risk quite well if the government allowed it to.
You may inform your readers that at least 1 Member of Congress read your post.
John, Left or right is not the issue really and many health care students study the Swiss System. It is a interesting blend of government levels and insurance companies. . May be too many insurance companies perhaps to be efficient. Most Cantons have strong public hospital system .. similar to Parkland .. where the public.. middle class, etc all go to this quality public facility . Often as I remember , a university is often linked to these facilities. Also Reinsurance for insurance companies is neat concept in Swiss system. This how they handle expense conditions , like renal care.
For 7 million or so .. with 98% coverage, the Swiss keep costs down compared to USA System as I recall fairly well.
Renal care is interesting. Even though they have an older population, the average of age of their renal dialysis patient is ten years younger as I recall. Swiss physicians often believe we have cowboy physicians who treat too many older serious ill patients, because of economic incentives. Renal care in Swiss is mostly outside the profit motive system . A physician friend of mind has introduced new German treatment system that costs 1/3 of typical renal dialysis system in his hospital. His guess is that it will never be introduced here because the hospitals , physicians and insurance companies will not see the high levels of reimbursement that they now see with this new system. What do you think John?
The US has an extensive market for reinsurance so a reference outlining the functional differences between Swiss reinsurance and US reinsurance would be most helpful.
Care must be taken in comparing costs across countries. Due to price controls on health care providers and vastly different accounting systems, international comparisons often use cost data that compare apples and oranges.
The US does not have an extensive market for reinsurance in the Medical Expense arena because most of the commercial business is in the hands of the BUCAHs that do not reinsure at all. Yes, there is a bit, but it is tiny compared with the Life and P&C insurance markets, and most of what passes for “reinsurance” in the medical area is restricted to stop-loss on self-funded contracts, which is not immaterial, but still a small drop in the bucket. There might very well be plenty of capacity available if appropriate use of reinsurance as the chosen mechanism for “risk adjustment” were used to pool certain levels and kinds of claims in an environment where insurers could no longer underwrite for medical status or apply limits on pre-existing conditions. Such an environment would still require the necessary incentives for “healthy” people to buy insurance early in life rather than wait till they are older and/or sicker. The Swiss health system uses the pool to spread the risk that a particular insurer picks up an irregularly high number of expensive insureds than expected, but this can of course be exacerbated by some of the companies effectively “redlining” in the marketplace, which an earlier responder mentioned continues to be a problem, though probably not a major one.
Now that ‘Obamacare’ has passed I’m scared to death. I suffer from a cronic illness and 1 of my 4 medications has already gone through the roof. Five months before the plan was passed my cost went from $72.00 to $475.00. I’m scared to death to stay in America and am studying other countries to move to. I have friend’s and relatives in Sweden but that system is very broken. It is hard to emigrate to Switzerland from what I understand. They want the very wealthy.
No doubt Swiss Health care System is popular in world.But system should be changed with time. It’s model compare than US health model is not so good.