Healthcare Reform: It’s the Cost Structure — Part II

by Greg Petty
September 2009

Note to Readers: I neglected to regard my own rule Thou shall not make blanket statements! A reader protested my statement that everyone agrees the private system has failed us. Many people with employer-sponsored plans are content with their coverage. What I hoped to convey was that there are many costly and inefficient outcomes in the existing healthcare system such as those uninsured because of pre-existing conditions, 50 million without coverage at all, unsustainable cost increases to employers and individuals, etc.

In Part One of this series, I described some of the major areas of cost dysfunction within America’s current system of healthcare. Part Two is a reprint of the May 2007 column that highlighted the healthcare system in Switzerland. Perhaps there are some things we can learn from them and not have to reinvent the wheel as we debate our proposed system reforms.

A few additional cost figures were released after Part One was issued that I would like to share with you before we proceed to the description of the Swiss system. Price Waterhouse Cooper released a study highlighting the major system costs that are relevant to both our debate about costs but also how any reforms must take steps to mitigate the costs before we can declare reforms successful.

The study cited the following annual costs: $200 billion for obesity, $191 billion for smoking, $210 billion for administrative (billings) actions that do not contribute to any health outcome, $91 billion for medical errors, $210 billion for "over" testing. (Fee income for doctors, avoidance of lawsuits — tort reform needed?) The top two preventable costs are lifestyle choices costing us nearly $400 billion a year! $210 billion for administrative costs explains why we should not take the single payer option off of the table (or at least regional payer systems as structured in Canada).

As you read the reprint below keep in mind that the Swiss system is one-half the current U.S. per capita cost.

Reprint from May 2007
Before we proceed further, I would like to offer the findings and recommendations offered by the Institute of Medicine in the article, Insuring Americas Health: Principles and Recommendations. The following recommendations were proposed by the Institute:

• Health care coverage should be universal.
• Health care coverage should be continuous.
• Health care coverage should be affordable to individuals and families.
• Health insurance should be affordable and sustainable for society.
• Health insurance should enhance health and well-being by promoting access to high-quality care that is effective, efficient, safe, timely, patient-centered, and equitable.

If we accept these goals as desirous, Americans only need to study systems in use in the developed world to realize the models exist; are in use; and, for the most part, are successful.

One of the options we should consider is the system currently in use in Switzerland. It offers the desired solution of being a consumer-driven competitive plan tempered with common sense regulatory controls exercised by the government.

How the Swiss System Works

In Switzerland, everyone is required to purchase health insurance from one of the more than 90 private insurance carriers. Each insurer must offer, at least, a mandated, comprehensive package of health benefits. The insurer cannot make a profit on the mandated package but is allowed to profit from offering supplemental packages that offer superior amenities.

Premiums for the type of policy sold are community-rated for risk. The risk is periodically reviewed and risk groups are allocated within the system so that no one insurer is adversely affected with higher risk. The premiums are monitored by the government for suitability to the risk. The government has the power to reduce the premium if found unfair. The premiums can vary, as in America, by the deductible chosen by the consumer. The individual also has a stake in the medical cost they incur by paying a 10% coinsurance cost up to a maximum. Insurers can also offer bonus policies to reduce costs to individuals who did not use services in the previous year.

Two types of managed care are offered, both of which are familiar to Americans. The first type is the gatekeeper model that requires the General Practitioner’s approval and referral to a specialist. The second type is a restricted network such as our HMOs.

The Swiss government establishes acceptable prescription drugs and establishes maximum allowable prices. The government also determines acceptable lab analyses and medical devices for the mandatory program.

Finally, the Swiss government will subsidize citizen’s payments for those low-income families for which the premium exceeds 10% of their income.

In retrospect, the Swiss system is not terribly different than the plan proposed by the Clinton Administration 14 years ago. To quote Uwe E. Reinhardt, PhD, in the Journal of the American Medical Association, September 8, 2004 article The Swiss Health System. “One could debate whether the Clinton plan would have been more or less regulatory than is the current Swiss health system... the Clinton plan would have achieved universal health insurance coverage, as does the Swiss health system, and that its envisioned workhorse for cost and quality control would have been consumer choice, albeit in a tightly regulated market for health insurance, just as it is in the current Swiss health system... Absent that regulation, the Swiss health system probably would metamorphose into something resembling the much less regulated, high-cost U.S. system, which is both more inefficient and more inequitable than the Swiss system...”