In 2007, Harvard Business School professor Regina Herzlinger and McGraw-Hill published Who Killed Health Care? Americas $2 Trillion Medical Problem—And The Consumer-Driven Cure. In the book, Herzlinger describes the health care system of Switzerland as a case study in consumer-driven health care, one that has things for both liberals and conservatives to like (and dislike). Given the fact that both Obamacares insurance exchanges and Paul Ryans Medicare reform proposals borrow from Switzerlands model, its worth learning from Regis research on the topic. Her work has influenced my own thinking about how to use parts of Obamacare to reform Medicare, Medicaid, and the employer-sponsored health care system in the United States. What follows is an edited excerpt from her book and a related 2004 paper from the Journal of the American Medical Association, reprinted with permission from the author.
Switzerland has achieved private-sector universal coverage
Switzerland, the only developed country with a long-standing consumer-driven health care system, provides broad evidence and important lessons about its efficacy. Unlike the U.S. system, in which employers or governments select health insurance, in Switzerland, it is the consumers themselves who purchase their health insurance. The Swiss have considerable experience with some of the consumer-driven insurance policies newly introduced in the United States, such as those with high deductibles.
Switzerland has been politically neutral since at least 1907, unlike most of its European neighbors. It is a haven of quiet in a roiling sea. Its consumer-driven health care system mirrors the countrys traditional independence, as citizens may freely choose plans, and its solidarity, as it requires everyone to purchase health insurance and subsidizes the needy. But it more closely mirrors its neighbors centrally controlled health care systems in the constraints placed on insurers and providers.
Swiss consumers, not employers or the government, primarily pay for the countrys health care expenses. In 2000, 43 percent of consumers payments were for insurance premiums (about 67 percent of total health care costs), 0.1 percent for deductibles and copayments (about 5 percent of total health care costs), and 28 percent for all other out-of-pocket payments, such as those for over-the-counter drugs (19 percent of the total).
One-fifth of Swiss citizens received government subsidies
The Swiss consumer-driven system directly subsidizes the needy and also assures that sick people do not pay more for health insurance than others. Individual cantons provide tax-financed, means-tested subsidies so low-income individuals can purchase compulsory health insurance. In 2001, 19 percent of the insured received subsidies, and 18 percent of enrollee premiums were government financed. Subsidies are based on a consumers income and assets. The subsidy typically equals the average premium in a canton.
No insurance plans offer complete coverage, and the Swiss may not buy insurance for these out-of-pocket payments. The required benefits range from hospital care to health spas. Insurers may also offer supplementary, optional policies for private hospital rooms or child care for sick parents. Demand is thus constrained by governmentally-controlled, mandated coverage and benefits that must be featured in all policies.
Despite their mandated benefits, the compulsory policies offer some differentiation: they include plans with high deductibles, health maintenance organizations (HMOs) that tightly manage access, and bonus plans that reward enrollees who do not use insurance by reducing premiums over five years.
The health insurance plans vary substantially in price. Supplementary plans feature additional differentiation. For example, one popular policy contains a nonsmoker option with savings of up to 20 percent. The largest market share is held by high-deductible plans, while managed care plans have attained a relatively small market share.
Swiss government heavily regulates insurance policies
The Swiss government approves insurance prices. Compulsory insurers are also risk adjusted: those with above-average medical care costs receive transfers from those with lower-than-average costs. For example, in 1999, on average, $541.40 per enrollee in a high-deductible plan was removed from insurers because their enrollees were healthier than average, and it was transferred to the lower-deductible insurers who had enrolled sicker people. The adjustment is based on the insurers deviation from the average medical costs for enrollees in 30 different age and sex categories.
The Swiss health care system frees consumer demand much more than supply. The lessons we can draw from Switzerland are thus limited because the Swiss system is not a complete model of consumer-driven health care: demand is constrained by governmental regulation of the design of insurance policies, and supply is constrained by uniform prices paid to doctors. In addition, information about the quality of providers services is nonexistent. Nevertheless, it provides important lessons about the impact of consumers buying health insurance for themselves.
The Swiss lesson is generally a positive one. Switzerland provides universal coverage at substantially lower cost than the United States while avoiding the quality, responsiveness, equity, and provider compensation concerns of single-payer universal health care systems. However, perhaps because of its constraints on supply and lack of information, inefficiencies remain.
Comparing Swiss health care to that of wealthy U.S. states
The Swiss consumer-driven health care system achieves important, positive results. The general health of the Swiss population is at least as high as that of the U.S. population, while costs and rates of inflation are 40 percent lower as a percentage of the economy. Furthermore, Switzerland has universal coverage, unlike the United States, where more than 40 million people are uninsured.
Swiss health care expenses are considerably lower than not only those of the United States as a whole but also than those of U.S. states with comparable income, levels of education, and race and ethnicity—characteristics that profoundly affect health status. Similarly, the Swiss outcomes for diseases like diabetes, which are linked to the socioeconomic characteristics above, are roughly equal or better. Yet the Swiss generally have more of the resources that are typically considered in cross-national comparisons—such as hospital beds, physicians, and costly diagnostic and therapeutic equipment—than Canada, the United Kingdom, and even the United States.
Last, Swiss physicians are well compensated, although not quite as well as U.S. physicians. (Most other comparisons of U.S. health care outcomes to those of developed European countries fail to adjust for substantial differences in the sociodemographic characteristics among them, such as levels of education, ethnic composition, and income. Because health status is considerably affected by such characteristics, the value of the comparisons in isolating the impact of the health care system on outcomes is limited. The analysis herein, in contrast, compares Switzerland to the U.S. states that most resemble it, such as Connecticut and Massachusetts.)
Small insurers in Switzerland compete well with larger ones
One reason for lower costs is that competition among Swiss insurers has lowered annual insurance administrative expenses per enrollee, while in the United States, they have increased. The Swiss insurance industry demonstrates the viability of small insurers. In 2004, only 17.4 percent of Swiss insurance firms had more than 100,000 enrollees. The administrative economies of scale used to justify a single-payer system are not readily apparent in Switzerland. The administrative costs per enrollee for insurers with fewer than 5,000 members equaled those attained by the large insurers.
Indeed, small insurers frequently earned greater profits per enrollee than those with more than 500,000 members. Another reason for lowered costs is that competition among Swiss physicians caused them to experience sharper reductions in income as their numbers (supply) increased to levels higher than those in Germany, Sweden, and the United States.
Yet in comparison to the United States, resource inefficiencies appear, such as the number of hospitals, and perhaps, hospital admission rates and lengths of stay. These results may be attributable to the governments excessive involvement in designing the insurance policies and subsidizing Swiss public hospitals and thus sheltering them from competition.
Swiss success dispels concerns about consumer-driven care
Experts have voiced various concerns about consumer-driven health care. I can dispel some of their concerns through findings revealed in studies of the Swiss health care system.
Concern: "Fraudulent insurers will injure consumers in an individual health insurance market."
Individuals in the Swiss system can safely and effectively buy insurance from a large number of competent firms.
Concern: "Consumer-driven health care will end health insurance. Healthy people will not buy it, and sick people will not be able to afford it."
The Swiss system requires universal coverage. Prices to individuals are not risk adjusted. A sick 60-year-old man pays the same price for insurance as a healthy one. But insurers are motivated to provide policies to sick people because their premiums are risk adjusted.
Concern: "Sick people will not receive adequate care in a consumer-driven health care system."
Sick people, fully insured in Switzerland, have excellent prognoses when compared to patients in similar countries.
Concern: "Consumer-driven health care will create multiple tiers of care, with the poor relegated to the worst."
The quality of Swiss health care is differentiated primarily by amenities such as patients being able to stay in a semiprivate hospital room. Differences in health care utilization by income class are not substantial.
Concern: "Residents in low-population density areas will be denied access to insurance and/or care."
Some Swiss insurers specialize in rural areas, where, presumably, they earn sufficient profit to compensate for their smaller scale. Anecdotal evidence indicates that shortages of care do not occur there.
The U.S. can learn from Switzerland
Switzerlands universal-coverage health care system consumes a larger fraction of gross domestic product than most other countries, likely reflecting its citizens preferences and resources. Health care expenditures are closely linked to income. Yet, in contrast with the United States, whose health care expenditures are the highest percentage of gross domestic product in the world and where more than 40 million citizens are uninsured, the consumer-driven Swiss health care system achieves 30 percent lower per capita health care costs and universal coverage while providing reasonable quality of care.
These results can be attributed primarily to the control exercised by Swiss consumers and the relatively high cost-transparency of the system, requirement for universal coverage, and risk adjustment of insurers. Additional savings would likely be attained with liberalization of provider coverage and reimbursement policies.
Original Source: http://www.forbes.com/sites/aroy/2012/12/26/switzerland-a-case-study-in-consumer-driven-health-care/