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Swiss Health-Care Costs

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The Swiss health-care system has the highest out-of-pocket payments of any OECD country, including the United States. They also spend a lot less than the United States. This, David Leonhardt argues, is no accident. "Because they feel the costs of their medical spending more than we do, they’re less likely to want care that brings little or no benefit," he writes. "We, on the other hand, are fooled into thinking our health care is free — because the costs are hidden, in the form of taxes and insurance premiums — and we end up with more expensive care."

I agree on the theory of that, but the Swiss health-care system is actually a bad example. As you can see in the graph above (click on it for a larger version), the Swiss pay quite a bit less than we do, but more than virtually everybody else. And that's despite the fact that everybody else has lower, rather than higher, out-of-pocket payments. This seems to be evidence that substantially public systems hold down costs much better than substantially private systems, like the Swiss system, or more starkly, the American system.

By Ezra Klein  |  October 2, 2009; 4:30 PM ET
Categories:  Health of Nations  
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Comments

Surely you see the difference between patients paying out of pocket costs versus the total costs paid by a patient. The point is that patients will use less medical care if they have to pull more money directly out of their pockets at the time of treatment. Patients can see and feel these costs.

Posted by: epollard1 | October 2, 2009 4:48 PM | Report abuse


I can't believe how flawed your analysis is!

Switzerland has among the highest per capita incomes.

Ergo, it is not a surprise that Switzerland spends more than other countries on healthcare expenditures.

Posted by: RandomWalk1 | October 2, 2009 4:55 PM | Report abuse

it makes complete sense. if you think you've already paid for something you are going to use it as much as possible. from the user's perspective it's nothing but sound economics. the more you pay for something the more you expect in return.

it's just like how premiums are gonna go up after creating a captive market and prohibiting cost cutting moves (prexisting etc from the insurance company perspective). why these basic observations of rational human behavior are not getting through to our congresspeople and elite gatekeepers is a continuing mystery to me.

Posted by: PindarPushkin | October 2, 2009 4:55 PM | Report abuse

Surely you can see that
- patients are not the best to judge the cost effectiveness of medical care
- the real cost of healthcare is in very expensive procedures which no one is suggesting individuals pay and which few could afford, for example, cancer treatment
- many very expensive procedures can't be shopped - if you have a heart attack, you can't start worrying about cost-effective treatment
- there is a danger individuals will be so concerned with cost they will skimp on prevention, leading to greater expense later
- in most of the developed world, patients don't have to think about costs at all, yet medical spending is much much lower than in the US.

Posted by: fuse | October 2, 2009 4:59 PM | Report abuse

>>if you think you've already paid for something you are going to use it as much as possible>>
This is only true if you like doing the thing you paid for.

Most people I know wouldn't prefer not going to a dentist because they find it uncomfortable if not scary. Most people I know find going to a doctor a hassle and would prefer avoiding it, not matter what it cost.

Posted by: fuse | October 2, 2009 5:24 PM | Report abuse

No the idea that higher out of pocket expenses does anything is stupid based on flawed econ 101 reasoning. People just don't go to the doctor for no reason, they go because they are sick or for preventative care. Going to the doctor even with great insurance isn't free, there's a substantial time cost which can include a substantial loss of wages.

Posted by: endaround | October 2, 2009 5:26 PM | Report abuse

re: "this seems to be evidence that substantially public systems hold down costs much better than substantially private systems, like the Swiss system, or more starkly, the American system."

The very fact you would even make such a statement implies:

1. That you know what the right amount of spending on health care should be
2. less is better.

I strongly suspect that if the Washington Post had a reporter on this beat who had a serious chronic health issues- vs. a healthy 25 year old- we would never even read such statements being made.

Posted by: mcgreivy | October 2, 2009 5:39 PM | Report abuse

1.) epollard1: the chart shows both individual and total per capita spending (hard to see, I admit, because of a poor choice of colors and the small size. It shows better blown up.) It clearly shows that your hypothesis that higher out of pocket costs lead to lower spending is wrong. There is no connection. Switzerland has the third highest per capita spending despite its high out of pocket. There is no relation whatever between out of pocket and total per capita spending, except in the dreams of armchair market economists who are unfamiliar with the real world of health care.

2.) Per capita income and health spending are poorly related as well. Although the top three countries -- the US, the Swiss, and Luxembourg -- are very high per capita income countries, that hypothesis goes to hell immediately after that, with a hodge-podge effect totally unrelated to per capita GDP. Several very wealthy countries are in fact far down the list, and several relatively less wealthy high.

Otherwise, Fuse has hit the other important points square on the head.

I am sort of embarrassed for David Leonhardt, who I usually respect a lot. He probably just can't shake off econ 101. Oh well, even Babe Ruth struck out.

Posted by: PatS2 | October 2, 2009 5:53 PM | Report abuse

Leonhardt is one of those guys who thinks he can take a few principles from Econ 101 and apply them to anything in life and suddenly he's an expert. He clearly doesn't know jack about health care. I try to avoid his health care columns but I can't because other bloggers keep quoting him.

Posted by: bmull | October 2, 2009 5:53 PM | Report abuse

WRONG DATA-SET, KID


By OCED. One of the agencies that always says "USA awful" and "oops -- we goofed on data analysis." Like, USA K-12 equal to Mexico's K-12 -- which, if it were true, USAers should be INVADING Mexico.

Why don't you do your economic analyses YOURSELF??? Get your hands dirty. Prove you know how to use a calculator.

Oh. You went to the MESSIAH School of Economics? Where reality is not important?

Sorry.

Posted by: russpoter | October 3, 2009 8:54 AM | Report abuse

It looks like we have a couple of health care skeptics - who deny that there's any problem with the US health care system - on the board, but they are unfortunately correct about one thing. Switzerland's high GDP has a positive effect on health care spending. The McKinsey Global Institute analysis of OECD data finds that among the 13 OECD countries reporting detailed cost data, the correlation between GDP and health care spending per capita has an R-squared of 0.951 - meaning that 95% of the variation in per capita spending is explained by GDP.

I do think that smartly-structured cost sharing is one thing that any system, whether it's private, public or any hybrid, can use. Higher cost sharing does reduce overall use of healthcare services, without any significant effect on overall health status. This is, I think, especially true of outpatient services, which have more of an elective component. It's true that all patients mainly depend on their doctors to help them navigate the system. However, in systems like the US where doctors have financial incentive to order more and more aggressive tests and treatments, cost sharing can put a check on that.

It should go without saying that the rules are different for the poor, for whom cost sharing would sharply curtail their use of all services, and impact their health.

Additionally, the emerging trend of value-based insurance design has promise. In value-based insurance, cost sharing is reduced for services that are known to be necessary and effective. For example, an insurer might reduce copays for insulin and other highly recommended services for all enrollees diagnosed with diabetes.

Posted by: weiwentg | October 3, 2009 10:22 AM | Report abuse

weiwentg:

The McKinsey report is a classic example of cherry picking data. By eliminating most reporting countries, they massage the data to get the result they desire.

Systems designed to make patients enter into health care spending decisions in a major way just do not work. They often lower utilization, and costs, but at the expense of appropriate management. That is why no system in the world depends on that for cost containment, and why everyone else is so much more successful than the US.

The real decision makers in health care spending are providers. Read the Leonhardt article and note the concern that the doctor has about receiving a letter telling her she is engaging in ineffective management. Those letters, and other similar efforts, have a lot more to do with the decline in Swiss spending compared with Swiss GDP than any of the cost sharing for patients.

Sometimes the easy answer is not the right answer, and you have to look a little further. The effective cost control that everyone else uses, including the Swiss, is at the level of the providers, who are the decision makers in health spending. Leonhardt, who admits at the outset that he is biased in favor of patient cost sharing, like a lot of people finds what fits his bias while missing the key that doesn't fit his preconceptions.

Cost control aimed at providers works everywhere it is tried, including in many health systems in the US. Cost control aimed at patients just causes poor decisions and bad results.

Posted by: PatS2 | October 3, 2009 4:34 PM | Report abuse

Pat,

Massaging data is a pretty serious accusation to level against McKinsey, so I hope you have facts to back it up. As far as I know, the reason they left a lot of countries out is because the data is incomplete or otherwise not comparable. Comparisons based on incomplete data are not valid.

The fact is that cost control aimed at providers alone has NOT always worked. In the US, for example, Maryland's rate setting measure has been able to control the price per service but not the volume of services or overall technological advancement. There's the SGR formula in Medicare plus overall Medicare rate cuts. Neither has yet reined in Medicare spending. It's true that the best US health systems have unique provider incentives and provider cultures, but those are exceptions. US doctors generally responded to the initial quality and performance assessments by saying that their patients were different from everyone else's.

And in fact, I do not read the McKinsey folks as saying that consumer cost sharing ALONE is the solution. They say, and I agree, that a solution needs to be comprehensive and to address both demand and supply sides of the problem. We know from the RAND health insurance experiment, and the initial successes with value-based insurance, that it's possible to use cost sharing for the non-poor to contain utilization to some degree. Now, I do agree that a substantially public system would be a better way to address the supply side of care, but for better and/or for worse that's not on the table.

Posted by: weiwentg | October 3, 2009 7:01 PM | Report abuse

Weiwntg --

Back when I took statistics, they told us that when you found yourself throwing out 2/3's of your data because it failed to meet criteria you knew the project was garbage. That seems to be what McKinsey did based on what you have said. I will admit that "massaging" may not be the answer to their strange result and its deviation from most data from other sources. It may be due to such fastidious cleansing of the data that it became worthless in describing the real general situation.


As the Maryland project, and even more strikingly Medicare projects aiming at the same thing, shows, cutting reimbursements is, as you say, too easy to subvert by substituting volume for price. The controls have to be more directly applied to the issue of appropriate practice standards, not to general price. Payment is the carrot and the stick, but the real policy is the demand for effective practice standards. The model here is Britain's NICE, but the approach has been successfully used through direct policy at places like Kaiser, Group Health Puget Sound, and others, and through cultural norms at places like Mayo and Cleveland Clinic. In fact, close study of almost any of the high performers in the Dartmouth Atlas data shows systems that have worked primarily by decreasing the use of ineffective or cost-ineffective management approaches and favoring effective results. The Swiss analysis of practice patterns of providers and the dread "blue letter" the Swiss doctor talks about not wanting to get are examples of the same policy.

The bonus in systems based on avoiding ineffective care and encouraging effective care directly is that they not only save lots of money -- back to the "blue letter" the Swiss doctor was worried about getting -- but they result in better outcomes.

We need to adopt these types of programs on a widespread basis in the US, regardless of whether we have a program involving a mixed system, a government system, or a system based completely on private insurance like the Swiss. The Swiss secret is not the high out of pocket -- the OECD data makes that clear. It is the high level of regulation of providers, insurers, and hospitals and their patterns of doing business. That is the thing the Swiss share with everyone but the US, and why every nation on the chart, richer or poorer and low out of pocket or high out of pocket, spends so much less than we do.

This is not rocket science. Everyone else has been there and done that. Many US health care systems have too. Trying to find new magic for a unique American solution is not a very smart move when the information about what actually works is right in front of us.

Posted by: PatS2 | October 4, 2009 3:07 AM | Report abuse

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