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How The Swiss Do It

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I have been in trouble with some doctors over what I wrote about American healthcare. While some supported me, they refused to do that in public. This is not to suggest for a moment that there is a medical mafia intimidating doctors in India; but the workings are the same. So let me get away this time from the US and turn to a less controversial country — Switzerland.

In the US, many people take private insurance. Old people are covered by a free government service. The rest pay their medical costs themselves, just like us Indians, except that medical costs in the US are many times ours. True, the Americans are richer than us; but even amongst them there are poor, unemployed and sick people. They often find medical care expensive, and if they have no money, go without it.

The Swiss have no free medical care. But there, the government forces everyone to buy a medical policy with a private insurance company. That would raise two problems in a country like India. First, an insurance company would not be so idiotic as to insure people for chronic illnesses they are known to have. The Swiss government forces them to be stupid; they cannot refuse to insure anyone, and they cannot vary the premium on the basis of the ailment. They find an easy way out. They offer a barebones insurance which is cheap; they make no profit on the plan, but they also do not make a loss. The premium on the basic policy varies with the client's age. If anyone wants anything beyond basic healthcare, or if he has known and expensive ailments, he has to pay a higher insurance premium. Most policies require the insured person to pay part of the cost.

There are some poor or sick Swiss; if they were to obey the government, they would have to mortgage their grandmother to pay their insurance premia. The Swiss government gives them subsidies; if the insurance premium exceeds 8 per cent of their income, it finances the rest. Over a third of Swiss citizens get a subsidy. The insurance companies also try to sell people more complicated and expensive policies. The Swiss complain about the difficulty of understanding the variations; but many nevertheless buy something beyond the basic policy.

If the Swiss government were to fund all costs beyond what its citizens could bear, it would be issuing an open invitation to the drug companies and laboratories to gouge their customers. It prevents that: it controls the prices of drugs and tests, though not too strictly. It does not control the costs of medical services, but their providers have to make their prices public.

All governments like to give goodies to their citizens; but few can spare money for a deserving cause. So they find someone else to pay. In the case of medical insurance, they find employers, whom they force to insure their workers and their families. The American government does this on a large scale. But employer-financed insurance is inherently discriminatory: it discriminates against the unemployed, and in favour of those whose employers fund or subsidize insurance. The Americans rely a good deal on employer-financed insurance. It would work very badly in India, for few have jobs with employers whom the government could force to insure employees. The Swiss do not use employers in their insurance system.

So in the Swiss system, a person can go to any healthcare provider; he is not tied to a doctor or a hospital. His doctor can prescribe any treatment for him; he does not have to think about the cost. And there are no queues. Because the entire system works on commercial principles and makes a profit, there is no shortage of any services; a patient does not have to wait long for an operation, for example. He gets all generic drugs at 10 per cent of the cost; he has to pay 20 per cent of the cost if his doctor prescribes a branded drug. The state pays the rest.

But if the system works on profit, there must be some cost minimization somewhere. It is the insurance companies that do it. They hold annual negotiations on charges with associations of medical care providers. They may write to a doctor saying they have noticed that he is prescribing too many expensive treatments; they may also argue with him if they think his own fees are extravagant. So doctors can come under pressure in the Swiss system. But it happens to only a few.

The Swiss system has attracted much attention and admiration from people who are looking for alternatives to the American system. It may not suit every country; it would not work with a government like ours. But it is a model worth studying.

The author is Consultant Editor of Businessworld.

ashok dot desai at gmail dot com

(This story was published in Businessworld Issue Dated 19-10-2009)

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