Europe has basically two types of healthcare financing systems: the single payer systems, in which healthcare is paid for and organised by the government with money from income taxes (as in Britain and Sweden), and the social insurance or sickness fund systems (as in Germany and France), in which healthcare is financed through mandatory premiums calculated as a percentage of wages. Whatever way European countries have organised their healthcare, they have all seen their costs rise over the past four decades. The European countries provide more equity in healthcare than the United States, but they do so increasingly by shifting the price tag for healthcare to the next generation, by rationing health to the elderly, and by suppressing useful innovations.
As a result, access of patients to costly healthcare services is being restricted everywhere. The only ones who escape this are the privately insured patients. Usually a citizen takes private insurance on top of statutory or official health insurance in order to cover certain medical treatments that are not – or no longer – provided by the official system. Consequently a two-tier healthcare system is developing with, on the one hand, those who can afford to pay twice for healthcare and, on the other hand, those who cannot and are trapped within the official system.
Only three countries in Europe allow (some) citizens to opt out of the official system, take with them the taxes or wage contributions that are paid for them in the official system, and use this same money to buy private insurance on the market. In other words, they allow people to acquire private health insurance without still having to pay premiums or taxes to cover health risks under the official system. These countries provide “free” health care not in the sense of the “free” services provided by the so-called solidarity based systems but in the sense that people are free (at least to a certain extent) to decide how they wish to finance their healthcare.
These three countries are Switzerland – the only country in Europe with a healthcare system based totally on private insurance – and to a certain extent Germany and the Netherlands. The latter two countries have sickness fund systems, but in Germany people earning an income above a certain level are allowed to opt out of the sickness fund, while in the Netherlands they are obliged to.
Private insurance healthcare systems are often criticized because some very high risk individual citizens cannot afford to pay premiums calculated on individual risk. This is exactly the problem in the United States. Switzerland, Germany and the Netherlands have each reduced this inequity in their own way. Though the German, Dutch and Swiss systems are by no means flawless, it is worth taking a closer look at them. One remark must be made before I introduce you to them. Healthcare systems tend to be very complicated. For the sake of clarity the following are simplifications, omitting many exceptions and details which, not being German, Dutch or Swiss, I am not always familiar with either. In general, however, the picture is valid.
Germany has a sickness fund system. People who earn more than a certain income, however, are allowed to leave the sickness funds and buy healthcare insurance on the market. About 10% of the Germans have done so. Germans who are privately insured pay premiums which reflect the health risk of their age-group in five-year cohorts. Unlike the American system of private health insurance it is not the individual risk that is taken into account by the German private insurers, but the risk of one’s age group. This allows people to acquire affordable health insurance. The insurers are not permitted to refuse clients.
When people enroll in private insurance they pay the premium for the five-year cohort they belong to. The premium is never increased as a function of the insured’s age. As they grow older people continue to pay the premium for the age group they were in upon enrollment. The premium can be raised only to reflect general increases in health-care costs that affect all age groups. Consequently it is in the interest of the individual to join as soon as possible, as would be the case in any system based on capitalization. If you start to pay when you are young and your health risk is low, you need to pay less, but you capitalise over a longer period. This makes you an attractive customer for the insurer. Because it is calculated on the average risk of your age group, the private insurance premium is affordable for everyone, even for high risk individuals.
Another example of a functioning and equitable private health insurance system can be found in the Netherlands. The Dutch distinguish between catastrophic health insurance and routine healthcare. There is a compulsory government-regulated, single-payer system for the expensive health risks and a sickness fund system for the other risks. Hence catastrophic health insurance, which would bankrupt most people if they had to provide for it themselves, is financed with income taxes by a government fund. The citizen is placed in the largest possible risk pool, namely the whole nation.
Regarding non-catastrophic health risks, one third of the population is privately insured. Once the Dutch have an income above a certain threshold (which is substantially lower than the German threshold) they have to leave the sickness fund and are supposed to provide for themselves. Either they buy health insurance for the non-catastrophic health risks on the private market, or they take no insurance at all. If they take private insurance this can never becomes too expensive, because the very costly chronic and acute medical risks are covered by the catastrophic health insurance fund.
Switzerland is the only country in Europe with a healthcare system more akin to private than to social insurance. All health insurance is private. Premiums are not linked to income but set on a per head basis, with weightings for age of entry into a fund, regional cost differences and sex. The Health Insurance Law defines the catalogue of benefits to which all Swiss insurance members are entitled; however, individual insurance funds can offer additional benefits over and above this basic package.
The Swiss give government subsidies to high risk individuals, so that everyone, even a high-risk individual, can obtain insurance. The amount of these subsidies differs from canton to canton, as Switzerland allows cantonal governments to decide in this matter, though the federal government also provides premium subsidies.
Switzerland has also introduced a risk-adjustment system: all insurers in the market have to pay a portion of the premiums they collect into a central fund, which is used to compensate insurers with a larger proportion of less healthy, high risk members for the higher financial risks involved in insuring their members.
Co-payments are the linchpin of the Swiss system. Patients pay all their costs of ambulatory care up to the level of a deductible (about 125 euros per year), and 10% of costs above this level. There is, however, an annual maximum to the co-payments which is set at about 400 euros per year. Insurance funds are free to offer their customers higher annual deductibles in return for lower premiums. It is illegal to insure oneself against co-payments. As a consequence they cover about one third of the annual healthcare expenses in Switzerland.
Because one-third of Swiss healthcare is financed through direct patient copayments, Swiss citizens must rely to a large extent on private savings to prepare for future health risks. Hence, people start capitalizing by setting aside money for future needs. As they have to start making rational choices, which they cannot do without becoming informed about healthcare issues, they are forced into patient empowerment.
Laboratories for reform
Switzerland, the Netherlands and Germany have each found different answers to the often heard criticism that a private health insurance system does not allow citizens with a high individual health risk to insure themselves. They have created healthcare systems that are less two-tiered than those in their neighbouring countries, because they allow people to buy private health insurance without having to pay twice. Because their systems rely to a larger extent on capitalisation, they have also created an investment pool of domestic capital. Though the systems have their flaws, in general the few privately insured healthcare systems of Europe seem better equipped for the future than Europe’s many government regulated systems. They are interesting laboratories for healthcare reform. They are consumer driven and they are trying out a variety of interesting ideas, such as medical savings accounts, healthcare vouchers, and bonuses. Private systems allow for experimentation, which is a necessary prerequisite for finding solutions.