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Home | Wire | From Direct Democracy to Centralization: the Swiss Health Care Experiment

From Direct Democracy to Centralization: the Swiss Health Care Experiment

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The problem of health care

No part of the economy seems as convoluted as the health care sector. It comprises a vast array of services and procedures, and is usually embedded in a complex legal framework, influenced by powerful interest groups and state monopolies. Medical expertise, gained over years of education and training, seemingly invalidates consumer choice. The complexities of health disorders and its terminology further dis-empower the individual from understanding and autonomous decision making.

On the other side, strong emotions act as a driving force, too. The fear of suffering and inaccessible care leads to a demand for safety in the hands of experts who ideally act under a medical ethos. It is probably our deepest fear as humans to become ill and not receive care, to deteriorate, face job loss, or even social exclusion. And of course, in the face of suffering one does not want to be at the mercy of profit-driven experts. Finally, neoclassical economists utilized the arguments of market failure (information asymmetry, uncertainty of outcomes, the principal-agent problem, moral hazard etc.) to claim health care is unsuitable to markets. Demands for government controls soon followed. 

A brief history of Swiss health care

And so it has also happened in Switzerland. By the end of the 19th century liability disputes over work related accidents triggered the call for mandatory insurance. The simultaneous introduction of health and accident insurance in its bigger neighbor Germany (under Chancellor Bismarck) in 1884 served as a role model for unions and corporative organizations. In 1914 a people’s referendum led to the introduction of mandatory accident insurance for certain industries. Further, health insurance companies were put under federal supervision and the country’s 26 cantons (or federated states) were given authority to subsidize and organize health care institutions. Apart from subsidizing, however, the government had little say in health care. In fact, 26 different health care systems emerged. Over the 20th century several referendums by social democrats were warded off by a traditional, but fading liberal mindset. The country’s government, the Federal Council, usually advocated individual responsibility and competition as hallmarks of this sector. Finally, in 1994, under the pressure of steadily rising costs and premiums, a slim majority of voters (51.8%) approved a new, more collectivist and interventionist law, leading to a typical “tragedy of the commons” by politically mutualizing most health care expenditures. This was the turning point in Swiss health care. The new legislation included mandatory health insurance (before 97% voluntarily contracted health insurance), equal per capita premiums with subsidies for low-income households, the free choice of a health insurance provider and a national service fee schedule (called the "Tarmed"). The basic, compulsory insurance package was politically determined and only limited by a clause providing that medical services must be “effective, economic and appropriate”.

The new law: calculating health care fees

It took nearly 10 years to develop and introduce the Tarmed in 2004, which comprised around 4500 coded "positions" defined by either time or procedure, for all kinds of ambulatory services.1 From then on, this schedule defined which services were profitable and which were not. It determined daily work processes on the basis of insurance reimbursement and thereby conditioned its users. It hampered innovation by a backward outlook and efficiency by the need to bill time. Only two strategies would lead to growing income, expansion of service quantity and/or focusing on the most profitable fees. But of course, MDs are not supposed to be guided by profit motives. In real life, among certain health professionals the Tarmed became scorned a “self-service shop” for revenue, limited only by mounting entry barriers such as certification and quality labels. This schedule also gained attention across borders. From 2003 to 2015 the number of practicing doctors per 1000 inhabitants grew from 3.7 to 4.2 (OECD average 3.3) with a growing part of them (32.9% in 2016) being trained abroad. Since billing terms are complicated and in part directly paid by insurance companies there is little control by the patient. Growing control by the third-party-payer was the response, aligned with its own interests.

Given the Tarmed’s imperfections, such as changing infrastructure costs, technological progress and inappropriate incentives, a need for adaptation over time was clear to everybody. Unsurprisingly, several attempted revisions failed since the negotiating interest groups (the medical association, insurance companies, and hospitals) could not agree with each other. What surpise! Meanwhile, insurance premiums grew annually 4% on average and around a third of Swiss residents now receive subsidies to pay for insurance premiums.

The most recent proposal for a revision in 2016, elaborated by a host of around 150 “experts”, was voted down by the medical association and led to the intervention of the Federal Council to impose a number of corrections. Full centralization was thereby achieved. From next year on, cataract operations, for example, will yield 44% less revenue, cardiac stenting 25% less, and a consultation with the GP 4.8% more.

The idea of centrally administered prices, based on the cost-theory of value still prevails in most people’s heads.

Let’s vote for alternative care

Another unique Swiss move happened in 2009 when a referendum on the inclusion of alternative care (acupuncture, anthroposophic medicine, phytotherapy, homeopathy) into the basic insurance coverage was accepted. A MD with a degree in one of those therapies could now get his treatments covered by basic insurance. In other words, being a certified MD one may treat anybody’s “life energy” with needles or globuli, financed by the collective. As a real-life example, the other day I talked to a young German MD who explained to me that her motive to move to Switzerland was exactly that. Billing basic insurance for acupuncture. It seemed immoral to her that in Germany only private insurance covers acupuncture. Everybody should have that health care privilege, in line with the tradition of Bismarck.

The current state: “system failure”

The current discussions among interest groups mainly revolve around how to adjust the system, in other words correcting “system failure” from the top down. For example on which payment system is better, fee-for-service, capitation, global budget or diagnosis-related groups. Patients and taxpayers are removed from this discussion. Calls for more competition have led to a “regulated” but heavily distorted market. It is private only in the sense that supply side (hospitals, medical practices, insurance companies) can be owned privately. But the supplier competes for centrally administrated fees under a tight regulatory corset, imposed by the government, federal law and the Swiss medical association. Insurance companies have become mere institutions for the apportionment of costs.

Socialized medicine creates entitlements

Unfortunately, the term “economic” was successfully hijacked by neoclassical economists and politicians. The nature of health economics is one measuring health outcomes and calculating with fixed prices. So far, no one dares to scrutinize its foundation, namely the dogma of “market failure” for this vast multitude of services. Sadly, health professionals commonly resist economic discussions. Together with ethicists and sociologists they equate economics with greed for profit, exploitation and a menace to the medical profession and ethical autonomy. But are they not themselves self-interested at the expense of captive insurance premium and tax payers? In fact, entitlements on all sides conflict each other. Mandatory insurance created an entitlement for care, scientific progress created an entitlement to cure. Medical associations created an entitlement to a monopoly in health care provision. And lastly, the long and ardous medical training created an entitlement to expert status and appropriate income.

The height of absurdity is reached with the fact that no such thing as a health care “sector” really exists. Similar to the concept of the nation, it only exists in our minds. It is made up of countless individual decisions driven by incentives and the intrinsic subjectivity of medicine and the concept of health itself.

Diagnosing the causes

How can we solve this puzzle? We might need to spell things backwards and question where this mess, although based on good intentions, started.

For that it is necessary to first question the dogma of market failure, the academic concept of medicine and monopolistic medical associations, as well as the idea of a third-party payer for all services, which is not real insurance, but a politicized “all-inclusive buffet” once the entry fee has been paid.

  • 1. In the law, each service or procedure has a "position" equal to a number or code. 
Marc Fouradoulas practices medicine in Switzerland. He is a board-certified internist with a subspecialty in psychosomatic medicine. He holds a Masters degree of advanced studies in managed health care.
Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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