Andrew Brown, Associate Editor, Michigan Journal of International Law
Switzerland consistently ranks near to if not at the top of global health indicators, and the alpine air and plentiful chocolate don’t tell the whole story; the relatively small central-European nation exhibits an innovative health care system that boasts a high quality of care coupled with near universal health insurance coverage.[i] The Swiss system assures such impressive coverage rates not through government-provided healthcare as in other prominent European nations[ii], but rather through a mandate that citizens purchase their own health insurance from a varied menu of plans, regulatory controls of insurance companies, and government purchasing subsidies for the poorest Swiss.[iii] The success of the Swiss system, at least in terms of population coverage, proves instructive to countries such as the United States that seek to increase population coverage but do not desire full government control of the healthcare system. Furthermore, the Swiss system is no historical accident; they enacted these sweeping federal reforms in response to rapidly increasing costs of both insurance and care in the mid-1990s combined with the resultant inability of citizens at the lower end of the income spectrum to purchase insurance.[iv] These problems seem immediately familiar to Americans familiar with the domestic healthcare debate. In fact, the Patient Protection and Affordable Care Act (PPACA) mirrors the Swiss System in many significant ways, including the “individual mandate,” limits on insurer profits, and encouragement of community-rating.
The PPACA, however, failed to address the issue arguably central to the practicability of the Swiss system: the divorce of health insurance and employment. Where the majority of insured Americans receive their insurance through their employer,[v] the Swiss purchase health insurance independent of employment. Instead, the Swiss purchase heath insurance the market in a manner similar to the American experience in purchasing car or homeowners insurance. The Swiss model requiring individual purchasing from the market rather than an employer serves important functions absent from the American model: continuity and cost-transparency.
The Swiss System Generally
While at first glance the Swiss reliance on individual purchasing from non-governmental insurers to achieve comprehensive population coverage may seem like triumph of the free-market, a market driven conception of the Swiss system overlooks the intense regulation of the insurers that serves as an important cost-controller in the Swiss system.[vi] In fact, the Swiss health insurers are prohibited by law from earning a profit on basic health plans[vii] and must use a community-rating premium structure to increase cost-sharing between the sicker and healthier elements of the population.[viii] This community-rating mechanism works against the “adverse selection”[ix] problem that undermines the practicability of an experience-rating[x] system. Switzerland offers a variety of plan options, including some cheaper high-deductible plans that would be attractive to healthier demographics, but the government establishes minimum standards of insurance required to satisfy the purchasing requirement. Furthermore, the government mandates that health insurance purchasing not exceed 8% of an individual’s income and heavily regulates pricing of services on the provider side, as well as regulating reimbursements from insurers to providers as a mechanism to control costs.[xi] The Swiss purchasing requirement, coupled with minimum insurance standards and community-rating make it possible for insurers to accept policy-holders with pre-existing medical conditions, as Swiss law requires.
Community rating and employer-sponsored health insurance dominated the nascent American health care system.[xii] However, as private insurers entered the American health insurance market, they began to offer experience-rated plans to maximize profit.[xiii] Proliferation of experience-rating perpetuated adverse selection problems that limited the ability of individuals, especially relatively unhealthy individuals that did not qualify for Medicare or Medicaid, to purchase health insurance on the open market. To combat the laundry list of problems caused by experience-rating and adverse selection the United States enacted the PPACA in 2010. Among many other things, the PPACA implemented a purchasing requirement to combat adverse selection, attempted to limit insurer profits in a manner similar but less absolute than Swiss limits, and attempted to encourage community-rating. In contrast to the Swiss system, however, the PPACA actually encouraged employer-sponsored health insurance.[xiv]
Employer-Sponsored Care as a Major Hurdle
At first glance, the American system of employer-sponsored health insurance exhibits a glaring problem: when an individual loses a job or seeks change in employment, the availability of health insurance plays a major role in the decision-making process. An unhealthy individual’s need to maintain steady employment, especially if not eligible for Medicare or Medicaid, can create “job lock” where an individual has no meaningful choice whether to seek new employment opportunities or stay at their current employer that provides their health insurance.[xv] Furthermore, even if not an extreme case of a sick individual, the daunting task of finding new insurance can disincentivize individuals to leave a job that might not effectively utilize their talents. Hence, “job lock” in its varying degrees can have a chilling effect on entrepreneurship and innovation. In contrast, because the Swiss purchase insurance on the market in a fashion not tied to employment, a job or career change does not affect health insurance status and thus “job lock” does not operate as a barrier in the Swiss labor force.
The Swiss model of purchasing health insurance on an open market provides a cost-transparency function not present in American employer-sponsored health insurance. In making a purchasing decision, a Swiss consumer is aware of the full cost of their plan and increases consumer incentives to find plans that are “good value for their money.”[xvi] The significant degree to which Swiss consumers inform themselves about plans also increases competition between insurers to offer better and cheaper plans.[xvii] A Swiss consumer’s awareness of costs should serve as an effective cost constraint as Swiss consumers are less shielded from cost-value decisions than Americans with health insurance. In stark contrast, American consumers with employer-sponsored health insurance have limited awareness of the cost of their health insurance. In fact, it would probably surprise Americans to learn that health insurance for a family costs about $16,000 per year average, and that health insurance spending represents about 1/3rd of a median family income.[xviii] Americans do not see this total employer spending on their paycheck, or probably even recognize that the significant amount paid for health insurance by their employer ultimately comes out of their wages. Furthermore, because employers contract with insurance companies to provide a choice of plans to employees, these plans are limited by what the employer chooses to offer and insulated from the market. Thus, Americans have relatively little knowledge about true costs of their insurance, are much more insulated from costs, and have less choice than in the Swiss system. While the insurance exchanges implemented by the PPACA will increase the transparency function for individual purchasers to a degree, insofar as the PPACA still encourages employer-sponsored care, the consumer cost-awareness will be limited to individual purchasers; a minority in the health insurance market.[xix]
While the Swiss Health System is by no means perfect, the separation of employment and health insurance allows Swiss consumers more flexibility to change jobs without the threat of losing health insurance, as well as better information as to the costs of health insurance. The PPACA mirrors the Swiss system in important aspects, but the tie of employment to health insurance adds a significant level of complexity to the American health care system not present in the Swiss system.
[i] Avik Roy, Why Switzerland Has the World’s Best Healthcare System, Forbes, Apr. 29, 2011, http://www.forbes.com/sites/theapothecary/2011/04/29/why-switzerland-has-the-worElds-bst-health-care-system/.
[ii] Max Fisher, Here’s a Map of the Countries that Provide Universal Health Care (America’s Still Not on It), The Atlantic, Jun. 28, 2012, http://www.theatlantic.com/international/archive/2012/06/heres-a-map-of-the-countries-that-provide-universal-health-care-americas-still-not-on-it/259153/.
[iii] See Roy, supra note 1.
[iv] Britany Fijolek, Solidarity or Personal Responsibility? A Look at the Lessons Switzerland’s Health Care System Can Teach the United States, 21 Annals Health L. Advance Directive 1 (2012).
[v] Health Insurance Coverage of the Total Population, The Kaiser Family Foundation, http://kff.org/other/state-indicator/total-population/ (last visited Oct. 25, 2014).
[vi] Aaron Carrol, I don’t think the Swiss health care system is what they think it is is, The Incidental Economist, Feb. 20, 2013, http://theincidentaleconomist.com/wordpress/i-dont-the-swiss-health-care-system-is-what-they-think-it-is/.
[vii] Fijolek, supra note 4, at 3.
[viii] D. Andrew Austin & Thomas L. Hungerford, The Market Structure of the Health Insurance Industry, in Health Care Law and Ethics 46, 48 (Mark A. Hall et al. eds., 2013) (explaining that community rating devises more or less equal premiums for all individuals in the overall risk pool, the healthier demographics pay essentially the same, the benefit being that sicker populations or individuals do not experience prohibitively high health insurance costs).
[ix] Jessica L. Roberts, “Healthism”: A Critique of the Antidiscrimination Approach to Health Insurance and Health Reform, 2012 U. Ill. L. Rev. 1159, 1164 (2012) (explaining that adverse selection occurs where healthier people either choose to purchase cheaper experience-rated health insurance or not purchasing health insurance at all, thus leaving a more unhealthy and riskier pool). Adverse selection creates what health care economists refer to (not so subtly) as the “death spiral” where as costs rise, the number of healthier individuals that opt out of the risk pool increase and the increasing costs of the sicker risk pool make insurer solvency impossible. Id.
[x] Austin & Hungerford, supra note 8, at 47 (explaining that insurers that “experience rate” determine premiums based on an individual’s health indicators, thus healthier people can choose to pay a lower rate, and insurance companies are incentivized to maximize the healthiness of their pools, and healthy people are incentivized to be pooled with similarly healthy people). This encourages adverse selection, see supra note 9, and results in insurers either denying sicker individuals or demographics coverage, or simply being priced out of the market, to the same effect as overt denial. Id.
[xi] Carrol, supra note 6.
[xii] Austin & Hungerford, supra note 8, at 47.
[xiii] Id. at 48.
[xiv] Fijolek, supra note 4, at 7.
[xv] Austin Frackt, Job Lock: Introduction, The Incidental Economist, Mar. 19, 2014, http://theincidentaleconomist.com/wordpress/job-lock-introduction/.
[xvi] Regina E. Herzlinger & Ramin Parsa-Parsi, Consumer-Driven Health Care: Lessons From Switzerland, 292 JAMA 1213, 1217 (2004).
[xviii] 2014 Employer Health Benefit Survey, The Kaiser Family Foundation, http://kff.org/health-costs/report/2014-employer-health-benefits-survey/ (last visited Oct. 25, 2014).