Swiping Ideas from the Swiss

(Thanks to Lee Dorsey, who asked me to write about Switzerland for this weekend's policy corner during the liveblog for Obama’s address to Congress.)

The year was 1994, and the fate of universal health care hung in the balance.  On the one hand, liberals were concerned with the fully private insurance industry’s ability to stop rising health care costs and anxious to do something about the uninsured and the lack of equality in cost or quality of care.  On the other, conservatives sided with the pharmaceutical and insurance industry who were concerned that they simply could not stay in business if government intervened to more heavily regulate health care.  Although the country was closely divided, the proponents of reform won a narrow legislative victory, and universal health care became a reality.  No, this isn’t America on a parallel Earth.  This is Switzerland, where the public referendum made LAMal (which translates as “the sickness”) the law of the land 15 years ago.  Fifteen years later, the U.S. is posed to catch up.  Indeed, many of the ideas you hear bandied about by American politicians come directly from universal health care as practiced by the Swiss.

If the 7.5 million residents of Switzerland can be characterized in one word, it would be “independent.”  They’re not what Americans tend to think of when we think “European.”  The conservative movement is as strong politically as the progressive.  Percentage of gun ownership is higher in Switzerland in the U.S.  As more and more countries have sought membership in the European Union, the Swiss have said, “Thanks but no thanks.”  In this context, it is not surprising that the Swiss health care system is the polar opposite of a single-payer system.  All health coverage comes from individuals purchasing plans from the 90 private insurance companies, and the market-driven competition is considered a healthy thing for the system.  Indeed, in 2007 there was another referendum to consolidate these private insurance companies into a single company – a single payer – with heavy regulation by the government.  This referendum was voted down.

Many people look upon Switzerland as a closer cultural analogue to the United States than other countries.  This has doubtlessly been overplayed, and was not helped by photo-op trips like HHS Secretary Mike Leavitt touring Switzerland and the Netherlands in 2007.  (The policy changes that came out of that trip for the U.S. health care system in the remaining years of the Bush Administration?  Absolutely nothing.)  For one thing, Switzerland’s insurance companies were already not-for-profit at the time of the 1994 LAMal reforms.  That’s a pretty huge difference:  the insurance industry was rallying against reforms that would make them less competitive, not reforms that would prevent them from lining their pockets with profits.  For another, 95% of the country had some form of health insurance at the time of the reform, compared to 84% (and declining) in the U.S. today.  Finally, there’s a pretty substantial difference in terms of compliance with the law.  Switzerland has mandated auto insurance and near 100% compliance.  Most states in the U.S. also have mandated auto insurance, but only have 83% compliance.  They may be similar, but there are clearly cultural differences at play.

Still, look at these features of the Swiss LAMal reforms and try to tell me that we’re not copying Switzerland’s final exam answers:

•    The individual mandate.  It’s said that Gov. Mitt Romney was directly thinking of Switzerland and the Netherlands when he insisted that the Massachusetts reform require every citizen to purchase insurance.  Unlike the tax penalty that American politicians have toyed with or instituted, the Swiss required everyone to buy insurance, and if you failed to do so, they simply enrolled you in a company and required you to pay the premiums.  Now all Swiss citizens and foreigners planning to be in Switzerland for a while are required to purchase insurance in a 3 month window.  Some still manage to squeeze their way through the cracks, but the country has 99.5% of residents insured.

•    A standard minimum set of benefits.  In the U.S., we’re calling this “benefits as good as a member of Congress.”  In Switzerland, the government requires the same basic package for everyone, including sickness, accidents and childbirth, in-patient care and out-patient care, and prescription drugs.  Insurance companies are forbidden from making a profit for the basic benefits package, and instead make their money from selling insurance above and beyond the basics, including dental, cushier accommodations if you have to be in the hospital, etc.  About 42% of the Swiss buy this supplemental insurance.  The high deductible, low service plans we have in the U.S. don’t exist.  Access to primary care and prevention is a given – indeed, it’s considered a right.

•    Community rating. Everyone is given the same price by an insurer, regardless of medical history, genetics, what have you.  The only variance is for age, and there are only three age categories:  pre 18, 19-25, and over 25.

•    Guaranteed issue.  Insurers cannot deny insurance to anyone.  It’s illegal for them to cherry-pick based on health.  However, part of the government subsidies includes risk-adjustment payments directly to the insurer to mitigate the costs of having sicker customers.

•    Subsidies for those who cannot afford the full premium.  These are tied to income such that no citizen is expected to pay more than 10% of his or her income on premiums.  About 1/3 of the population receives some type of a subsidy.  However, even with government picking up nearly all of the premium for the very poor, the government accounts for only about 25% of health care spending.

•    Nearly non-existent employer-based insurance.  Clearly a foretaste of the thinking behind the Wyden-Bennett plan.  Before 1994, a majority of individuals had benefits through their employers.  It’s a rarity now.  Individuals purchase the plan they want directly.  Instead of being tied to whatever benefits plan your employer selects, you can fire your insurance company with only a few months’ notice.  Since they have to offer the same benefits and cannot make a profit anyway, the insurers have to compete on price and choice.  Administrative costs – so high in the U.S. – are miniscule in Switzerland: around 5-7%, about the same as Medicaid.  Instead of charging whatever the market will bear, Swiss insurers find ways to reduce your premiums to attract more customers, but your benefits stay the same.  And, of course, the bigger your network of providers, the more likely someone will purchase your plan, which leads to …

•    Choice of doctor. The Swiss are second only to the U.S. (according to the WHO) in ability to choose the physician you want.  Ditto for wait times.

Looking at this list, the policy debates in the U.S. do seem to echo the Swiss.  There are differences, of course, that are ignored by our debate.  For one thing, there’s no Medicare, no Medicaid, no SCHIP, no public competitor – the subsidies from the government represent your safety net.  But there’s also ample competition among the private insurers – and in the way we would want our insurance industry to operate.  They compete on lower prices (insert jaw drop here), on services, on customer service, and on giving you more choices, not denying choices.

For another, much like Japan, the Swiss require cost-sharing by the individuals.  You can choose a higher deductible to get a lower premium (but without the bottom-of-the-barrel benefits that accompany high deductible plans in the U.S.) but you’re paying into the system one way or the other.  You also have a co-pay of 10% of the charges for medical care, but – again, similar to Japan – it’s capped at the equivalent of $420 per year.  (One systemic change we likely would never accept:  there’s no “family plan.”  You pay for children as individuals, albeit in the cheaper age bracket.)

Additionally, even though the pharmaceutical industry is vitally important to the Swiss economy, drug prices are negotiated and set by the government.  There’s no pushing the price to see what the market will bear.  The pharmaceutical industry, ironically, has largely survived by increasing the amount they sell to the price-gluttons here in the United States.  By contrast, physicians and hospitals are paid rates negotiated with each private insurance company.  It’s an entirely free-market approach for the providers, since the insurance companies have not much incentive to make obscene profits and far more incentive to hold onto customers and make them happy.  And yes, there is no Big Dog like Medicare setting the rates for a huge portion of the market and undercutting what the doctors can get in negotiation.

So how is the quality?  Excellent.  The Swiss have a life expectancy of 81.3 years, second to Japan among first-world nations.  The infant mortality rate, number of physicians per capita and number of hospital beds per capita is middle-of-the-pack for the single-payer nations of Europe – meaning it’s far better than the United States.  The WHO rankings name Switzerland 20th in the world, behind 19th Ireland and 18th Britain.  As the referendum in 2007 shows, the Swiss are very happy with their system. President Pascal Couchepin, the conservative who nevertheless is pro-LAMal, considers it a success.  When asked by an interviewer from PBS’s “Frontline”,  “I think [this] system is very good, good quality. Most of the people are satisfied. It is one of the only systems in Europe which is not near bankrupt.”

Why?  The reforms are working.  The insurance pays for the costs – again, only about 1/3 of citizens require the subsidies, and government only pays for about 25% of the costs.  Doubtlessly, these economics contributed to the Congressional Budget Office’s original assessment of the very similar Wyden-Bennett plan in the U.S. determined that it would be revenue-neutral within a few years.

So what’s the matter with the Swiss health care system?  Costs.

Now as an American writing about the Swiss, this is a little like the pot calling the kettle black.  The Swiss have the second highest per capita health care costs (behind… yep… us), but still only pay 65% of what we do, using the figures from 2006.  But costs are on the rise, even with government setting pharmaceutical prices and encouraging generics.  Every year, in October, the government announces the baseline of premiums based on changes to the standard package of comprehensive benefits.  Sure enough, every year it goes up.  President Couchepin describes the situation as, “Huge wave of protests [in October], and in November starts a huge wave of protest against limitation of services in the health service. And during the next 11 months, every[one] protests and say[s], ‘We want the new vaccines; we want improvement of that; we want these new drugs.’ And one month in the year, they protest against the consequences of the rest of the year.”  The humor is wry, but the concern is real, particularly in a country where citizens pay about 1/3 of their health care dollars out-of-pocket (between the premium, the co-pays, and the 42% who buy the supplemental insurance.)

Conservatives in the U.S. often tout consumer-driven purchasing as the key to health care costs, but Switzerland shows how limited its effect can be.  Combined with heavy regulation of the insurance and drug companies, it’s made a big difference in the patient’s ability to get high quality, affordable health care.  Being able to fire your insurance company and having them compete on value is a big deal.  But it hasn’t contained health care costs in aggregate as effectively as other countries do.  Much like in the U.S., once you have insurance, you use it.  Even with co-pays, the cost is largely invisible, and you’re not choosing your doctor based on a fee schedule.  Access to primary care means the Swiss use it... a lot.  They’re healthier as a result and that helps contain costs somewhat.  But the system lacks governmental price-setting – a la Japan or the British NIH – and as a result, it only derives  good savings, and not tremendous savings.

Clearly many politicians at home see a lot to borrow from the Swiss.  But we shouldn’t overlook the cultural differences, nor the quantum leap difference between a not-for-profit insurance industry that already has 95% of the market, and a for-profit industry in a tough economic recession which only has some 60% of the market.  One fought for its point of view, lost, and adapted to a new business model.  But one will fight like it's survival depends on it. We can learn a lot from the Swiss, but we should be careful of buying into the idea that they’re the parallel Earth version of the United States, or that breaking off the parts we like and rejecting the parts we don't will yield a system anywhere near as effective.

(Photo credit:  an untrained eye on Flickr.)