When Health Insurance Works: A Look Inside Switzerland’s Healthcare System

[Part of a series on the Swiss economy and society.]

The enigmatic independence of Switzerland is perhaps best demonstrated in the fact that its healthcare system manages to satisfy both free marketers and the statist-socialists in the country. It is a giant social safety net woven by individual responsibility and self-made wealth. Health insurance is almost entirely consumer-based, though there are strict cantonal regulations and some governing federal laws. Coverage is not created, provided or managed by the federal or by cantonal governments, but is sold and managed by private-sector insurance companies to individuals. It is not provided by employers, except in the case of large multinationals and then only partially. There are no free state-provided health services. There is no Medicare. Subsidies are provided in extreme cases (poverty, the infirm) with strict conditions, including the recipient having to pay back those subsidies eventually.

Once voluntary, insurance coverage is now, since 1996, compulsory. Public sector care such as hospitals or the administration of public assistance is paid for by taxes.

A Consumer-Driven Private Insurance Model

To begin with, everyone buys basic and supplementary insurance for himself, the first being mandatory. One purchases it from a choice of just over eighty private insurers that offer competing canton-by-canton plans through which individuals are free to select the insurer they want and may choose any doctor they wish — to ask a doctor if he is “on” a particular plan will be greeted by a confused stare. In addition, with the basic insurance, fees for services are regulated by the state and insurers cannot legally earn profit on those basic benefit packages.

Otherwise, the system of premiums and deductibles is familiar territory to Americans learning about this system. Individuals (not entire families, but each individual family member) pay a premium that varies between cantons and will soon average about $450 a month; on the high-end, this will average about $2500 a month, with children under the age of 18 paying less. The annual deductibles run about these rates, as well. The most someone is allowed to pay for insurance in Switzerland is 8 % of income; anything in excess of that amount may be deducted from taxes.

The basic package is generous by most countries’ standards. The insurance covers the costs of medical treatment and hospitalization, but the insured person has to pay part of the cost of treatment. This is done via an annual deductible also ranging canton-to-canton. Furthermore, a copayment of about $15 a day is required for hospital stays. There are many out-of-pocket costs, but the care is superb. Doctors and hospitals are the very best on the continent. There are no waiting lists, either.

Private insurers make money by selling supplementary insurance policies (private hospital rooms, alternative therapies, those wonderful, alpine-air, Thomas Mann Magic Mountain type retreats; drug rehabilitation, dental), which are risk-adjusted. These are highly prized by Swiss consumers — about 70% of those insured have the supplementary plans.

The Role of State-Mandated Social Benefits 

On the state side of things, each of the country’s twenty-six cantons has its own constitution and is responsible for licensing providers, coordinating hospital services, and subsidizing institutions and individual premiums. The federal government plays the role of regulating the financing of the system—that is, requiring that insurance be compulsory; ensuring the quality (and safety) of pharmaceuticals and medical devices; overseeing public health initiatives and promoting research and training. The federal government also regulates a “General Social Insurance” (detailed below) that provides healthcare to those who cannot pay for it themselves. This state involvement in the health care sector is financed through tax revenues.

To be sure, things are getting pricier — rates are going up across cantons, effective throughout 2018. Critics of the system — the Swiss themselves who are quick to point out Singapore and Taiwan as providing the overall best and least expensive services. Still, taxes are quite low and the system works. Some 99.5% of the population is insured, and in a 2014 referendum vote for single-payer nationwide insurance, the proposal was swiftly rejected.

How the Swiss Control Costs 

Key to the functioning of the Swiss health care system, however, are the cultural and social factors that are at the basis of its foundation, rather than the system being imposed “from the top down” by political whim or trend. Self-reliance is actively encouraged. Abuse of the system and the welfare-dependency of immigrants/asylum seekers are almost non-existent. Corruption (hospitals, insurers, “big pharma”) appears to be relatively minor. All of this is critical to the efficiency of the system. Going point-by-point:

First, Switzerland is not a welfare society. The “poor” in Switzerland are not an urban poor. It is not a country of food stamps or people living on the streets or under bridges. It has one of the lowest child poverty rates in the world. About 3% of citizens (7% factoring in immigration/asylum seekers) lives below that country’s official poverty level, double what the level was through the 1990s; of Swiss citizens, these tend to be single mothers or unemployed parents. Based on canton-by-canton law, those individuals receive, as single adults, about $900 a month and about $2200 maximum for a family in welfare subsidies. However, this amount is for what is called “life dignity” and covers only food, transportation, “hygiene” and communications. It is not to cover rent, rooms, or basic health insurance.

Yes, the state will pay for close to 100% of health costs in the event that an individual has no support network whatsoever or means of employment — but only in such extreme cases and only up until the point the individual finds means of work (more on this below). Cantons, not the federal government, decide the distribution of such subsidies.

These subsidies, in turn, come out of the tax-based Swiss General Social Insurance fund, mentioned above, a kind of “Bismarckian” insurance system designed to cover risks like disability and accident and, in some circumstances, to provide benefits through health care services. It covers, in particular, spending for rehabilitation in case of disability and the health care costs in case of professional and non-professional accidents of employed persons.

Secondly, individual responsibility and family responsibility are “national” priorities: State assistance is required to be paid back once the individual or family is back on its feet. Furthermore, a Civil Obligations Code requires that families take care of those members who cannot take care of themselves (parents, children, grandparents and grandchildren) and authorities can request family members to cover all or a part of social welfare payments and health care payments. Again, responsibility is critical here: keep in mind that Switzerland became the first country in the world to vote at the national level on the issue of universal basic income and shot the idea down by 77% of voters in a referendum of February 2016.

Third, Switzerland discourages dependency. The federal government takes care of asylum seekers across the board (shelter, basic health services), but only temporarily and for usually up to three months. Swiss migration law allows only for the immigration of highly skilled labor.

Authority remains strict: refugees arriving at a Swiss reception center have to hand over to the state any assets worth more than $1000, according to latest figures, and up to a maximum of about $15,000 — to help cover their costs, exempting very personal items (wedding rings). If refugees leave voluntarily within seven months, they can get the money back. If they find work during the time of their temporary protection status, as they are allowed to do so, and win the right to stay and work in Switzerland, these individuals have to surrender 10% of their pay for up to ten years until they repay $15,000 in costs.

Fourth, Switzerland is mainly a self-governing society of rich bankers, rich engineers and rich farmers with high educational standards within a largely homogenous society. The country ranked No.1 on the 2017 Global Competitiveness Index. Additionally, wages are generally high in Switzerland and having low-income individuals performing services is almost non-existent because of the significant costs of even the most unskilled labor. To be sure, in Switzerland, it would be very difficult to get people to buy their own health insurance when a population is working for a modest minimum wage.

Fifth, health care fraud in Switzerland is relatively low. In general, Switzerland is not a country where public-private corruption is rife, despite all the hoopla about secrecy. As of July 2016, private sector bribery was codified in the Swiss Criminal Code and Switzerland is one of the least corrupt countries in the world, ranking fifth in the Transparency International Rankings for 2016. The pharmaceutical ‘lobby’ in the country defends the high prices of drugs on the basis of long research cycles and as the leader of the country’s ongoing export wealth. High prices seem to be the extent of controversy.

In all, the system works with a great degree of efficiency, perhaps best summarized by Swiss doctor Thomas Zeltner, M.D., the former Swiss secretary of health between January 1991 and December 2009. As Zeltner stated in an interview with an American health journal a couple of years back: “We [Swiss]will not let people suffer and die when they need health care. The Swiss believe that, in return, individuals owe it to society to make provision ahead of time for their health care when they fall seriously ill. At that point, they may not have enough money to pay for it. So, we consider the health insurance mandate to be a form of socially responsible civic conduct. In Switzerland, “individual freedom” does not mean that you should be free to live irresponsibly and freeload from others, as you would put it.”