Thursday, March 25, 2010

Moving Forward on Health Care

America has taken the plunge into (near) Universal Health Care. There is no turning back now. We have just passed a system that shares many key ingredients with Switzerland's current system, such as the reliance on private insurers, so it may be possible to glean some insights into where we're heading by looking at the Swiss system.

Switzerland has the least paternalistic health care system in Europe. It is the only country in Europe with a health care system that is based totally on private insurance.

Health insurance was made mandatory only in 1995. Premiums are not risk-related or linked to income, but are set on a per-capita basis with weightings for age of entry into a fund, regional cost differences, and sex. The government subsidizes poor individuals by paying a percentage of their premiums. These subsidies account for approximately one-third of health care funding by the Swiss Confederation.

Switzerland has also introduced a risk-adjustment system. All insurers in the market are required to pay a portion of the premiums or contributions they collect into a central fund. The relative financial risk of each insurer is then calculated, and insurers with a larger proportion of less healthy, high-risk members receive an amount from the fund that compensates for the higher financial risks involved in insuring their members. This type of risk-adjustment prevents a situation in which all low-risk people would flock to insurance companies that can keep their premiums low because of their minimal risks, while other insurers who have the majority of high-risk members would have to ask exorbitant premiums.

Switzerland solves the high-risk problem by spreading the costs among insurance companies. It reminds me of how NFL franchises share their profits, how large market teams like the Cowboys will in a sense subsidize the lower performing teams like the Jaguars or the Bills.

The law recently passed by Congress will subsidize insurers who take on high-risk subscribers. However, this will not begin until 2014; until then, high-risk people will be able to get on the Medicare expansion or by taxpayer funded high-risk pools, many of which are already administered by state governments.

Among European nations, Switzerland currently spends the largest portion of its GDP on health care, about 11% of their GDP. In comparison, America spends about 16% of its GDP on health care, whereas Sweden spends about 9%. The country with one of the most advanced and efficient health care systems is Japan, who spends about 8% of their GDP on health care.

Other countries pay much less than we do for much more egalitarian health systems. However, all is not perfect sunshine and rainbows on the other side of the Atlantic. The downsides of waste, inefficiency, lowered quality standards, and lack of vibrant research into new treatments definitely exist in countries with highly managed health care schemes.

An examination of several European countries discovered the limitations of universal coverage.

Some Lessons

For Members of Congress and state legislators, there are some valuable lessons from the European experience that should be less surprising.

If you insist on government management of the health care system, do not expect freedom from waste, inefficiency, or inequity in the delivery of care (look at France).

If you want to promise citizens a national or state program of universal insurance coverage, don't expect that you will be able to deliver universal access to high-quality health care. You won't and you can't (look at Britain).

If you want to fix prices for medical services, prescription drugs, or other medical devices, don't expect demand for these goods and services to be met or investment in research and development to continue apace. It won't (look anywhere).

If you insist, with a straight face, that in a government-run health care system, all of your fellow citizens will be treated equally -- regardless of their class, station in life, or disease condition -- you are not merely enthusiastic or well intentioned. You are lying.
America is home to the majority of medical innovations over the last half-centry, in part due to the profit motive that exists in our health care system. Our system can be prohibitively expensive for some of our unluckier citizens, and I can understand the movement to help them out. However, such an endeavor must be taken on very carefully, as Medicare was our first attempt into subsidizing care for the poor, and while it worked temporarily, it is now on the verge of failure.

We must strive to avoid mistakes of the past and learn from others, while forging our own path that retains our critical research and development streams.

Our current system is broken, but not entirely. I only hope the government does not break the good parts while trying to fix the bad.


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