Obamacare Sees Swiss Show Mandatory-Private System Works

Obamacare Sees Swiss Show Mandatory-Private System Works

Money manager Tim McCarthy has worked in the U.S., Russia and Switzerland, and has seen doctors in all three countries for Hashimoto disease, a condition in which his immune system attacks his thyroid. He has no doubt which health system is best.

“On a price-quality ratio, Switzerland is better,” McCarthy said in a phone interview. “It’s not cheap, but you get what you pay for.”

McCarthy, 46, has lived in Switzerland for about five years, where he oversees more than $1 billion at Valartis Asset Management SA in Geneva. He said he pays about 16,500 Swiss francs ($17,220) a year in insurance premiums for his family of four. Buying private health coverage has been obligatory in Switzerland for all residents since 1996.

As the U.S. moves towards mandatory health insurance, the small alpine nation offers clues about what does and doesn’t work, said Valerie Paris, a senior health policy analyst at the Organization for Economic Co-operation and Development, who co-authored a 2011 report on the Swiss health system.

“Everybody has access to a wide benefit package, which is uniform and very popular,” Paris said in a telephone interview. “It is a unique system that makes sense.”The U.S. is embarking on a massive overhaul not unlike the one Switzerland lived through starting in 1996 when that country changed its system to mandatory coverage. On Jan. 1, the U.S. will require all residents to buy insurance, or pay a penalty to opt out. The law prevents insurers from refusing coverage or charging higher premiums to the sick.

Swiss System

The Affordable Care Act also expands the U.S. Medicaid program for the poor to cover people earning near-poverty wages, and sets up a system of insurance marketplaces, called exchanges, to sell coverage to people who don’t get it via their employer. Republicans in Congress have repeatedly tried to repeal or de-fund the law, and at least 33 states have refused to build their own exchanges, leaving most of the work to the federal government.

About 25 million people are expected to receive coverage under the law’s programs by 2017, according to the Congressional Budget Office. The Obama administration is faced with an Oct. 1 deadline to get the exchanges up and running.

Here’s how it works in Switzerland: Unlike many of its European neighbors, Switzerland has no government-funded health insurance system. All residents are obliged to buy a basic private health-insurance policy that provides a standard set of benefits. Insurers must accept all applicants, regardless of their age or state of health, according to the nation’s public health office.

No Profits

While premiums vary among insurers, age groups and the 26 cantons, or states, an insurer may not charge different premiums within a canton to different individuals in the same age bracket. People with low incomes in Switzerland are eligible for subsidies, which vary according to canton.

Individuals can choose to buy supplementary insurance that covers extra benefits such as dental care, glasses and contact lenses, gym memberships and acupuncture and allows patients to choose their own doctor or get a private room in a hospital. Benefits differ between policies, and insurers can refuse coverage or specify conditions.

Insurers aren’t permitted to make a profit selling the basic package, but can do so on supplementary policies.

The system gives the Swiss easy access to a wide range of health services, and a vast array of choice in insurers and health-care providers, according to the OECD. Combined with high rates of patient satisfaction and the world’s second-longest life expectancy behind Japan, that makes the Swiss system one of the world’s best, the OECD said.

Older Population

Switzerland has some of the lowest rates of cancer, stroke, obesity and childhood diabetes in the OECD. Yet it also has a higher proportion of smokers than the U.S., and rates of dementia are among the highest in Europe, reflecting an older population.

Unlike the U.S., where about 160 million people get health insurance with their jobs, individuals in Switzerland are responsible for buying their own coverage.

There are other key differences between the Swiss system and the Affordable Care Act. First, insurers in the U.S. will offer a range of policies with varying benefits, rather than the standard coverage that insurers in Switzerland are obliged to provide.

‘Quite Complicated’

“Our system will continue to be quite complicated compared to the Swiss,” said Cathy Schoen, senior vice president for policy, research and evaluation at the Commonwealth Fund, a New York-based foundation that works for health-care access and quality. “We can learn from Switzerland about streamlining it and keeping it simple.”

Still, Switzerland health-care system does not have all the answers. For starters, it’s one of the most expensive, according to the Paris-based OECD. The nation spent $5,270 on health care per person in 2010, the third-highest globally behind the U.S., at $8,233 per person, and Norway’s $5,388, OECD data show. Health spending in Switzerland equaled 11.4 percent of gross domestic product that year, putting it tied for fifth with Canada among the OECD’s 35 nations. The U.S. spent 17.6 percent of GDP.

“The one thing Switzerland hasn’t done is deliver an ever-less-expensive care system,” Schoen said in a telephone interview. “We’re looking at Switzerland and saying insurance isn’t enough, but it’s a lot better to have everybody in the care system.”

Unsustainable Costs

Part of the reason for high health-care costs in Switzerland is the number of hospitals, according to the OECD, which is high for a nation of 8 million people in an area smaller than West Virginia.

“Maintaining a large number of hospitals drives up costs,” the organization said in its 2011 report.

More worrisome, Switzerland has not yet figured out how it will handle a surge in its elderly population in coming decades. “Though this system has served Switzerland well in the past, it will not be able to support the increasing numbers of patients suffering from chronic diseases who will need less intensive care on a more regular basis.”

Prices for health-care services are also relatively high, and the nation’s fee-for-service system encourages doctors to order unnecessary tests, according to the OECD.

“There’s a financial incentive to provide one more test, one more procedure, even if it provides marginal benefit,” Schoen said.

Insurance Subsidies

While Switzerland has no state-funded health insurance for the poor, elderly and disabled to match Medicaid and Medicare in the U.S., the cantons provide insurance subsidies for the poor, and also subsidize nursing and old age homes for the elderly and disabled. About 40 percent of long-term care for the elderly and disabled is directly financed by health insurers, cantons and municipalities, with the rest paid for by households, according to the Swiss health accounts. Household spending is reduced by extra government payments.

Because premiums aren’t tied to incomes, the system puts a greater burden on the poor, the OECD’s Paris said.

“Equity is not really what the system aims to do,” she said.

Dutch Example

The Netherlands also requires residents to purchase health insurance, and was the top-ranked system for the third time running among 34 European nations in last year’s Euro Health Consumer Index, published by Health Consumer Powerhouse, a Danderyd, Sweden-based think tank. Switzerland was ranked seventh. The survey ranks nations according to criteria such as waiting times, medical outcomes, range and reach of services, access to new drugs, and patients’ rights and information.

Competition among insurers is more robust in the Netherlands than in Switzerland, and the Dutch have developed a more sophisticated risk-adjustment formula that reduces insurers’ incentives to attract healthier people and avoid the sick, researchers led by Ewout van Ginneken at the Berlin University of Technology wrote in the journal Health Affairs last month.

While neither system has reduced costs, both have ensured universal coverage, a goal the U.S. aims to achieve under Obama’s health overhaul.

Standard Benefits

“We need to take into account where the U.S. is starting from, and Switzerland is a good example to follow,” said the OECD’s Paris. “I don’t know of any perfect system.”

The bottom line: the experience in Switzerland shows that a standard benefits package might work best in the U.S. rather than the myriad of offerings now under consideration. And Americans should not expect the health law to contain costs. Even so, Switzerland has proved that privately supplied mandatory health-care coverage can work.

“In the U.S. if you’re unemployed you might have difficulty finding insurance,” said McCarthy, the Valartis money manager. “It’s a bizarre system. In Obamacare — and I hate to call it that, because it’s just common sense, I think — everyone can have insurance without having to have an employer.”

To contact the reporters on this story: Simeon Bennett in Geneva at sbennett9@bloomberg.net; Carolyn Bandel in Zurich at cbandel@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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