Switzerland or Singapore?


I don’t often disagree with Eamonn but I must confess to having slight reservations about his recent post on the Swiss healthcare system.

It’s not that Switzerland has a bad healthcare system. In fact, on international comparisons the Swiss systems rates very highly. Moreover, from a market perspective there is lots to like in the Swiss system. Premiums reflect the genuine price of insurance and are typically paid by individuals, avoiding the distortions that employer or government provision causes. Reduced premiums are available if you accept a higher excess, which helps control costs. The system is mostly privately operated and patients have a great deal of choice, which encourages competition and drives up standards.

However, there is a problem with Swiss healthcare: it is very expensive. Indeed, only the US and Norway spend more per head on healthcare. Of course, to a certain extent that reflects the preferences of the Swiss people – and there is no correct percentage of GDP that a country should spend on healthcare.

But for all that, I don’t think the Swiss model is a good one for the UK, largely because it has the same fundamental flaw as practically every health ‘system’ in the world. Put simply, the role of insurance goes far beyond what makes economic sense.

Over-reliance on third-party payment (and it doesn’t matter whether we’re talking about governments or private insurers here) drives up costs because doctors and the patients both have an incentive to maximize the amount of treatment given, regardless of cost. The patient has already paid his premium and wants to get his money’s worth. The doctor knows this and wants to bill as much as possible. And then there are the hefty administrative costs. In truth, it only makes sense to insure against big-ticket risks, things you can’t plan or save for. It makes no sense at all for garden-variety health problems.

We might have got away with the cost inflation that insurance encourages in the past, it’s quickly going to get much more difficult, given changing demographics and advancing medical science. The biggest challenge for healthcare reformers now is controlling costs – and the most effective way to do that is to rely far less on insurance and far more on direct payment. That would have the added benefit of giving people an incentive to take better care of themselves, something else that is going to be crucial as the relative burden of ‘lifestyle diseases’ rises.

Bearing this in mind, we’d be unwise to devote too much time and energy trying to bring the Swiss healthcare system to the UK. We would probably be better off looking at innovations in ‘consumer-directed healthcare’ in the US and at the compulsory savings scheme that operates in Singapore, and seeing how their lessons could be translated into British context. But that’s probably a subject for another blog.