The Swiss healthcare system

A model for the US?

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20151109_Fouradoulas_Marc_002This week’s post is by Dr. Marc Fouradoulas who is a board-certified internist with a subspecialty in psychosomatic medicine. Marc’s ten years of clinical experience include psychiatry and primary care, and he currently works at the University Clinic in Bern, Switzerland.  For the past 3 years, Marc has been studying towards a Master’s degree of advanced studies in managed healthcare and health economics at the Winterthur Institute of Health Economics, School of Management and Law, in Zurich, Switzerland.  You can send him email.

An alternative take on the Swiss health care system

In a recent New England Journal of Medicine editorial, Nikola Biller-Adorno, a German ethicist now based in Switzerland, and Thomas Zeltner, a physician and former Secretary Director of the Swiss National Health Authority, painted a rosy picture of the Swiss health care system, which they qualified as a potential role model for the US.

Given the author’s backgrounds and positions, their viewpoint may not be the most objective. Here, I wish to give readers a more realistic glimpse into this highly complex system from the perspective of a practicing physician.

Swiss direct democracy and health care 

Switzerland is a direct democracy which means that people directly vote on policy initiatives.

In 1994, the people voted for a new health care legislation that incorporated the introduction of mandatory health care insurance and expanded the federal government’s regulatory powers.

Prior to that time, ninety-seven percent of the population had health insurance, but coverage varied depending on local (cantonal) policies.  Some cantons had mandatory insurance, others did not, but all were required to provide subsidies to comply with federal subsidiarity principles.  Fees for services were negotiated at the cantonal level between medical associations, insurers, and local authorities.

The stated aim of the new legislation was to guarantee universal access to health care, but more importantly to stem the rise in insurance premiums, which had been increasing sharply until then.  The law also aimed to “promote solidarity” between citizens with different illness risks, ages and incomes. The legislation led to the introduction of a national fee schedule/pricing system (TARMED) for ambulatory care services in 2003, and guaranteed that every licensed doctor could bill third party insurance .

The consequence of the new law is that every citizen now receives health insurance and every licensed doctor is able to obtain a contract with an insurer, within the national TARMED framework.  Every service is therefore paid by a third party and all prices are fixed.

The comprehensive insurance benefit package is determined by the federal authorities and now includes complementary care such as homeopathy, acupuncture and anthroposophy, if provided by a certified doctor. Dentistry is not included. TARMED determines not only the fee structure but also defines training requirements (specialization, subspecialization, additional training certificates) that physicians have to fulfill in order to be allowed to bill for a particular service.

Contract negotiations between physicians and insurers were concluded in 2003, and conditions for quality and efficiency were intended to be specified in an annex to the contract. However, by early 2015, an agreement had not yet been reached about how efficiency in service provision should be determined.

Insurance premiums are determined by region (community and canton), age (child, young adult, adult), and deductible (CHF 300 to 2500 per year—note: 1 USD ~ 1 CHF). So costs are collectivized through communities and regions, hence the term “community solidarity.”  Co-payments of 10% exist for each service, though limited to a maximum of CHF 700 per year. The maximal out-of-pocket expenditure is CHF 2500 per person.

In summary, the people voted for an entitlement, funded by mandatory insurance premiums and tax money, with no choice for differentiated insurance options. Insurance is not for catastrophic costs only, but for a wide variety of basic health care, so it’s more of an apportionment of costs than real insurance.

I will now review and clarify some concepts and terms used in the NEJM article

Individual responsibility?

The authors of the NEJM article assert that the Swiss system promotes individual responsibility.  But co-pays and maximum deductibles are modest, and utilization of services is increasing.  The authors do not mention that since the new law was passed, insurance premiums have risen on average 4.6% a year even though prices for services are fixed. As a result, 37% of the population aren’t able to afford the premium and must rely on subsidies.

As a consequence of the increased utilization, the amount of tax money used for health care funding has increased 8.9% annually over the past 5 years. In other words, rising health care costs are increasingly covered by public subsidy, i.e. tax money. This means there is a growing disconnect between real payers and the decision-making process.

Given that the new law was passed in part to stem the rise in insurance premium, it is noteworthy that a recent consumer survey from 2015 found increasing health insurance premiums to be the biggest concern of 92% of consumers!

Zeltner and Biller-Adorno state that the growth rate of per capita health spending has been 2% only (1999-2009), below the OECD average growth of 4.1%. Since then, overall health care expenditures as a percentage of GDP have increased from 10.5% in 2010 to 11.1% in 2013. Per capita costs increased a whopping 17.8% (from 5368 to 6326 USD) in the same time. So the health care sector is growing faster than the economy.

Regarding employment, healthcare is the third biggest sector after the construction and retail industry and employment has increased 2.5% annually from 2001 to 2011, whereas employment numbers in the other sectors are stagnating.


The authors speak of competition among health care providers. But prices for outpatient services are covered by third-party payers and are set through a complex national fee schedule (TARMED).  The only remaining margin of maneuver for physicians is to increase the volume of patients seen (if they are perceived as providing “quality” care) or to reduce their operating costs.

Prices are supposed to get re-negotiated periodically, but negotiations invariably fail.  The attempt to revise this system has led to the imposition of a price surcharge for primary physicians in 2014 by the Swiss Federal Council after years of failed negotiations between insurance cartels and the medical association. This year a total revision of this price system is supposed to be completed. About 150 experts from four parties (The Swiss Medical Association, the insurance association, the hospital coalition, and TARMED), each with different incentives, are trying to negotiate the right prices for thousands of ambulatory services—with the best interest for the community in mind, of course!

As could be expected, resource allocation through this price system has led to unintended consequences. For example, profit margins for radiologic procedures, such as MRIs, are high and this may have attracted more doctors to this specialty.  Since 2008, the number of radiologists has increased by 35%, compared to a 16% increase in the number of physicians overall.

For hospitals, a national “diagnosis-related group” system perpetuates the myth that a proposed diagnosis is a reliable indicator for what the treatment should cost, and gives administrations a powerful tool to regulate, restrict and ration medical treatment. The insured don’t have a say in this pricing decision but may chose hospitals on the basis of quality indicators. Payment for inpatient treatment is shared between insurance (45%) and regional authorities (55%).

Insurers cannot deny new patients and can only compete for complementary insurance options and private care. This of course leads to positive risk selection, i.e., a chase for young and healthy clients.

Attempts have been made to control the spiraling costs through more regulations, rationing and restrictions. One such attempt was the implementation of the rule that new services must fulfill the criteria of effectiveness, appropriateness and cost-effectiveness at the federal level. But who else but the physician-patient team can evaluate these criteria for a service?

When price are fixed or based on diagnosis-related groups, can we call this real competition? Can quality be improved when it is disconnected from price?

A flourishing industry? 

The authors claim that “the [Swiss] health care sector is seen as a flourishing, important, innovative industry and a strong motor for economic growth and prosperity.”  This is a typical argument of the defenders of socialized health care, such as health economists and politicians. Health care spending of all sorts is seen as a general benefit to society.

But our ever growing health care sector is funded by mandatory premiums and tax payer money. With each premium increase less money is left for private spending, like preventive measures. So the health care sector grows at the expense of private sectors. The end result of this development would be  some kind of health care socialism with growing staffs of bureaucrats and regulators trying to replace market allocation with centralized health services research and planning. Is this really the growth we want?

Innovation? If all services are price-fixed, isn’t the incentive for innovation and diversity diminished?

A satisfied population? At what cost? 

The authors claim that the population is satisfied.  Yes, polls show that people are indeed satisfied with healthcare, and that life expectancy is high. But there are thirteen other OECD countries like Denmark, Austria and Canada that spend 25-50% less for a good or very good health care system.  At the rate insurance premiums and taxes are rising, while services are stagnating, it is hard to know how much longer the population will be satisfied.


At the end of their article the authors state that this combination of “liberalism and solidarity“ seems to work for Switzerland. That is a restricted view of the terms, since the system offers only a single insurance package, rather than choice, and solidarity is manifest in the form of automatic premium and tax increases.

In the changes of the last decades, we can see a manifold trend towards centralization of the decision-making process regarding health care, and an exclusion of individual choice in care and cost.  This is not liberalism but, in the words of Swiss physician Alphonse Crespo, more like an unsustainable Swiss mix.

Editor’s note: The Swiss healthcare system has been praised by commentators as divergent as Paul Krugman and Avik Roy. But Dr. Fouradoulas’s account of the Swiss healthcare system should give anyone a sense of déjà-vu: measures of central-planning that have already failed in the US are now being tested in Switzerland in an attempt to control out-of-control costs. When it comes to identifying the culprit in the perennial healthcare crises, one can only conclude that “It’s the third party, stupid!”

10 thoughts on “The Swiss healthcare system

  1. A very good overview of the dangers of over-collectivization and top-down political management in healthcare. Swiss health insurance is no insurance based on actuarial principles, but an ideologized system of prepaid services through obligatory, regulated and subsidized premiums undermining personal responsibility, including prevention. A typical reverse tragedy of the commons.

    • Good points, Pierre. The question still remains in my mind of whether medical care can even be subject to insurance based along actuarial principles. I think there are inherent obstacles to that, in addition to the political will for collectivism.

      • Now we’re getting to the heart of the matter. The common collectivist argument against actuarial principles in health insurance is the one of adverse selection and the consequent death spiral ( This is the argument that served for introducing mandatory health insurance!
        But the question is, how would an insurance company react if its number of costly insurants (the chronic ill, responsible for about 80% of costs) increases and the healthy subjects leave?
        In a free market all insurance companies would face this reality and could either try to turn them away or they could try to focus on them to reduce their costs. This would mean research this group and improve care and treatment so that their health condition improves and costs fall. If the market was allowed to work, this increased “demand” would lead to increased supply, innovation and lower prices down the line.

        John Goodman pointed to some other solutions to this problem in his book “priceless”.

        The other question is wether the dogma of “market failure in health care” holds true or not, which would be a interesting subject for another blogpost.

        • I view the main problem with health insurance as being moral hazard (both patient and physician), not adverse selection. I think moral hazard is vastly underestimated, even after Amy Finklestein’s work. If moral hazard is indeed important, then mandatory or publicly subsidized insurance will not solve that problem but conceivably only make it worse.

  2. I may be naive, but was it even fair to consider Switzerland’s healthcare system as a viable role model for our country in the first place, when its population of 8.1 million is, for example, less than the 10.1 million members enrolled in a single US health plan, i.e. Kaiser Permanente, one of the highest ranked plans in THIS country?

    I always question when the US is compared with other nations on various lists and population is not factored in. Last April, a new “World Happiness Report” was released. The big headline was that the US ranked a mere 15th. Curiosity got the best of me and I looked at population numbers. All but one of the countries ahead of us had populations the size of individual US states. (Mexico, ranked 14th, has a population of 128.6 million.) In fact, countries ranked 1-14 had a combined population of 267.6 million well below the US population of 324.1 million. China and India, the only countries with populations greater than the US, ranked 84th and 117th, respectively.

    In today’s polarized political and cultural climate, I’m grateful – and amazed – that our country continues to remain whole. The ongoing healthcare debate/crisis is a perfect example of the, often hostile, intransigence. On one end of the spectrum there are those who are adamant about repealing the ACA, and on the other, those who are just as obstinate about single-payer system being the only solution.

    • You raise very important points, Janice. First of all, medicine is so entrenched in culture (as it should be) that to look to other countries as models can only get you so far. Secondly, as you point out, there is the scale issue. To strive for a healthcare model that will apply to 300 million individuals seems quite imprudent, but we’ve been imprudent in that way for many decades now.

  3. “health care expenditures as a percentage of GDP have increased from 10.5% in 2010 to 11.1% in 2013. Per capita costs increased a whopping 17.8% (from 5368 to 6326 USD) in the same time.”
    You should check your math. Growing as a % of GDP, yes, but your 17.8% figure, which clearly can’t be 2010 – 2013, is minor if for the period 1999 – 2009 or 1999 – 2013.

    “With each premium increase less money is left for private spending”
    How does spending on healthcare, most of which goes into the hands of health workers within Switzerland, and the hands of workers at pharmaceutical and medical device companies (not necessarily in Switzerland), hurt private spending? Would the author consider this spending helpful if it were paid directly to industry? Isn’t that an arbitrary distinction, whether the money is paid through a government-mandated structure rather than directly to industry (thinking beyond arguments around (in)efficiency)?

    • 17.8% refers to the increase in per capita health spending from USD 5368 to 6326 during 2010 to 2013. As a percentage of GDP the increase was 5.7% over the 3 years.

      If you assume that all health care work is 100% efficient and necessary and the prices for services are legitimate, then it wouldn’t matter how the money is spent. But real life is different, moral hazard abounds and the patient is taken out of the spending decision process. The question is how can we determine value in health care, how does resource allocation happen, by planning or by the market.
      Finally, what is health care anyway but a conglomeration of different market situations. The sheer term is too broad and leads to misunderstandings.

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