Nuggets of Wisdom

Sunday, March 29, 2015

Libertarian Healthcare System: Switzerland

One of the most frequently-made arguments in favor of socialized medicine is that it saves money, relative to the American system. And it is true that Europeans et al. spend less per-capita, and as a percentage of GDP, than we do.

But the pro-socialism argument has a glaring weakness: it ignores the two most significant examples of market-oriented universal coverage in the developed world, Switzerland and Singapore, where state health spending is far lower than it is in other industrialized nations. Neither Switzerland nor Singapore could be described as libertarian utopias--both systems contain aspects that conservatives wouldn't like--but they provide powerful examples of how market-oriented health care systems are more cost-efficient than socialized ones.

I've described Switzerland as having the world's best health-care system. In Switzerland, there are no government-run insurance plans, no "public options." Instead, the Swiss get subsidies, much like "premium support" proposals for Medicare reform or the PPACA exchanges, from which Swiss citizens buy health care from private insurers. The subsidies are scaled up or down based on income: poorer people get large subsidies; middle-income earners get small subsidies; upper-income earners get nothing.

The OECD puts Switzerland high on the league tables in terms of government health spending, but that is due to a statistical anomaly. Switzerland has an individual mandate; the OECD defines state health expenditures to include insurance premiums that the government requires individuals to pay, even if that spending is on private insurance. That is a debatable approach from the OECD, because the spending goes directly to the insurers, without the government as a redistributor. If you adjust for this anomaly, Swiss state health spending is $1,281 per person (which accounts for the taxpayer-financed premium support subsidies). I've listed both figures in the chart.

The premium support system allows the Swiss to shop for their own insurance plans, which gives them the opportunity to shop for value--something that almost no Americans do. As a result, about half of the Swiss have consumer-driven health plans, combining high-deductible insurance with health savings accounts for routine expenditures....

How could something like this come about in the United States? One could imagine a scenario in which Medicare was converted into the premium-support model, such as one of the Paul Ryan plans, with far more aggressive means-testing such that upper-income seniors would no longer be eligible for the program. In addition, the tax exclusion for employer-sponsored health insurance is phased out. The resultant savings could be used to offer subsidized private insurance to lower-income individuals, as a replacement for Medicaid. Obamacare's exchanges, though seriously flawed in their implementation, have some similarities to this approach. As these programs converge, we could have something that starts to look a lot like Switzerland...

My message to conservatives is: wake up. America's health care system has many qualities, but it is far more socialized than you think, and we can learn from the experience of other countries to make it better. My message to liberals is: if universal coverage is your goal, the possibility for bipartisan compromise exists, if you're open to considering market-oriented approaches like those in Switzerland...Let's put our heads together.

- "The Myth of the Free-Market American Health Care System", Megan McArdle (The Atlantic).