Critical Condition

Thank You for Bringing Up Switzerland, Professor Krugman

Paul Krugman expresses dismay that the country may be moving more towards a Swiss system for delivering medical services rather than a Canadian or British one. With the apparent demise of the so-called “public option,” the path to government monopoly provision of health insurance (for which the “public option” was a Trojan horse) is blocked.

He is wrong: In Switzerland, the government does not order its residents out of private insurance once they turn 65; they can buy health insurance directly (rather than accepting what their employers choose for them); and they can control more of their health dollars directly than Americans do (rather than laundering them through premiums), as I’ve written before. None of these are really features of the proposals discussed this summer.

But Switzerland’s system of compulsory private health insurance is also suffering significantly rising costs, according to a <a href="http://www.john-goodman-blog.com/taking-another-look-at-swiss-health-care/-4691″>new analysis, which also shows significant variation in health outcomes in different cantons. (Recall that one goal of the proposed U.S. government take-over is to reduce the costs and increase quality in McAllen, Tex. so that its residents’ health status is similar to those in Rochester, Minn.)

Another analysis, written in English by Swiss health economists, reports that the number of health insurers has decreased from 145 in 1996, when the current system was legislated, to 85 in 2005. However, this is an overcount because many health-insurance holding companies have a number of operating subsidiaries. They conclude that the biggest ten health insurers account for 80% of enrollment (p. 9).

Although Professor Krugman may not appreciate it, this reduction in competition is a result of forbidding health insurers from pricing risk (critically described as “cherry picking”), which results in health insurers gaming the system by seeking to enrol healthy beneficiaries and shun sick ones. Although the government attempts to mitigate this through fiscal transfers to adjust for relative risks of enrolled populations, the Swiss authors report that the insurers are able to compete by selecting patients with lower risks (p. 15).

To the degree that the U.S. is moving towards a Swiss health-care system, as Professor Krugman believes, nobody should anticipate that this “reform” will increase competition or reduce costs.

— John R. Graham is director of Health Care Studies at the Pacific Research Institute.