Why are health costs and premiums rising?
Basic insurance premiums have been rising steadily since the Federal Health Insurance Act (KVG) was introduced in 1996. This is due to the fact that health costs have also risen and continue to rise. Premiums have to cover the costs and so they rise in line with them. Only a fraction of the premiums covers the administrative costs associated with insurance policies because health insurance companies are not allowed to make any profit in basic health insurance. You can read more about the reasons for the rise in premiums and health costs here.
The rise in basic insurance premiums
Premiums reflect health costs
This graph shows the rise of the:
This amount more than doubled between 2000 and 2022, increasing from CHF 1,935 to CHF 3,907 per policyholder.
The administrative costs are used to manage insurance policies (processing submitted invoices, setting up and making changes to policies, meeting official requirements, paying salaries and rent and so on). They correspond to around 5% of a premium on average.
Premiums reflect health costs, meaning they have risen in line with them (2000: CHF 1,850; 2022: CHF 3,766). They cover the costs of medical treatment (benefit costs) and the administrative costs incurred by health insurers. Health insurance providers are also required by law to build up reserves so that they can respond to unexpectedly high benefit costs. They are used solely for that purpose (they are earmarked).
Why are health costs and premiums rising?
We are seeing pleasing progress thanks to new diagnosis and treatment options and could even save costs in the medium to long term – such as when a disease can be successfully treated thanks to early diagnosis. Treatments are also now available for diseases for which there were previously no treatment options or medication available, such as many types of cancer.
Many of these new medications are extremely expensive, however, because they took a long time to develop and they are very promising. New diagnostic and treatment options often push up costs too as they are increasingly used by the service providers or increasingly in demand among patients, according to the principle that says “if the offer’s there, it’ll be taken”. While this response is understandable, it has a direct impact on premiums.
Thanks to the outstanding medical care available, the population of Switzerland is living longer and longer. So high health costs are being at least partially offset by high benefits. Moreover, as well as getting older, we are staying healthier for longer. Regardless of age, most of a person’s health costs are incurred in the last year of their life.
People need more and more medical treatment as they get older and the population is ageing. The proportion of the population aged over 65 increased by almost 50% between 2001 and 2021 (Federal Statistical Office, age figures for permanent residents by nationality and gender, 1999–2021).
According to a study conducted by the Federal Office of Public Health (FOPH), patients with supplementary insurance undergo medically unnecessary surgery more frequently than those with basic insurance coverage. Various studies looking into knee, spine, hip, prostate and heart surgery have reached the same conclusion. Despite the patients in question paying for supplementary insurance, each of these operations is partially covered by basic insurance, which has a knock-on effect on the premiums paid by all policyholders in Switzerland. It is usually a good idea to seek a second opinion before having any scheduled surgery.
Hospitals aim to make a profit, but many of them are not profitable. This is down to the fact that there are too many hospitals and (as far as the hospitals are concerned) the tariffs are too low. Looking after their bottom line, hospitals have a tendency to offer more medical services as a way of boosting their income.
Switzerland is very well served by hospitals, doctors, nurses, pharmacies, therapists, etc. and medical equipment. But they all need to aim to make a profit and make the most of the medical infrastructure. This often has a detrimental effect on efficiency, which in turn causes costs to rise.
- Standardised funding for outpatient and inpatient health benefits (EFAS): The canton pays 55% and the health insurer 45% of the costs of hospital admission as an inpatient. Outpatient treatment, in contrast, is paid for in full by the health insurance company. This principle creates misguided incentives and is hampering the widely called-for shift towards more outpatient care. Therefore, health insurance companies as well as doctors, hospitals, the pharmaceutical industry and various other organisations are championing standardised funding for inpatient and outpatient services.
- Conflicts of interests for cantons: Cantons sometimes have multiple roles, especially in relation to hospitals, which can result in conflicts of interests. For example, they might be responsible for planning healthcare but also own hospitals, provide some of the funding and approve tariffs. This means they can exert influence that gives them an unfair advantage – when working on hospital planning, setting tariffs and allocating funding to inefficient hospitals, for example. The fact of the matter is that Switzerland has too many hospitals and would manage perfectly with a reduced number of hospitals and careful planning. The same generally applies to the number of doctors. An admission control system could help here, but this hasn’t been applied sufficiently yet.
- Excessive medication prices: Spending on medication has increased drastically in recent years and is now among the highest per capita in the world. Medication prices are much higher in Switzerland than in other countries too. The prices are set by the Federal Office of Public Health and monitored regularly. There is most potential to make savings on generic medications and biosimilars. The pharmaceutical industry, however, has little interest in dropping its prices. As the largest export industry, it has huge political influence due to the jobs and tax income it provides. Not to mention that fact that it is more worthwhile for pharmacies and medical practices to sell more expensive medication due to the higher margins. The health insurance industry association santésuisse is committed to reducing prices and adjusting the sales margins so they are independent of price.
- Outdated outpatient tariffs: The Tarmed healthcare tariff system has been considered to be outdated for many years. All the key players within the healthcare system are agreed on that. Nevertheless, the new outpatient flat rates and the new Tardoc individual tariff system have still not been rolled out because the key players and authorities cannot agree on the structure of a new tariff. The health insurance industry association santésuisse is in favour of the outpatient flat rates in particular because they would ensure uniform costs for identical treatments and eliminate the variation in benefit statements that occasionally occurs under the current system.
- Expanded scope of basic insurance: More and more benefits are being covered by basic insurance. Psychotherapy and podiatry are the most recent additions. This is positive in principle because it will help people receive treatment for widespread issues. But expanding the scope of basic insurance means that all premium payers are now paying the price for treatment that would have previously been paid for privately or covered by voluntary supplementary insurance. Many key aspects of implementing this change were not taken into account despite causing costs to rise as far as health insurance associations are concerned.