Why are health costs rising?

The Swiss are living longer and longer, thanks not least to the outstanding medical care available to them. 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.

Most of a policyholder’s health costs are incurred in the last year of their life. This is true regardless of age, so the statement that increased life expectancy is leading directly to higher health costs must be qualified.

Population growth is another major factor behind the rising costs.

Source: Federal Statistical Office; Credit Suisse Monitor Switzerland “Healthcare System: Growth Market under Cost Pressure”, March 2017

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. However, this is not always the case. New diagnostic and treatment options often push up costs, as they are increasingly used by the service providers or increasingly in demand among patients, even if the benefit has not always been unequivocally established. This creates the risk of the availability and use of medical services ballooning unnecessarily according to the principle that says “if the offer’s there, it’ll be taken”. These growing demands on the healthcare services translate directly into higher costs. In order to finance this expansion, we need a large number of premium payers who do not claim any benefits.

For example, operations to fit hip and knee prostheses have increased significantly in the last few years. Expensive treatments such as chemotherapy or kidney transplants and new, high-priced medicines also contribute to the increase in healthcare costs.

In Switzerland, all citizens have unrestricted and swift access to nearly all healthcare services via their compulsory basic health insurance, irrespective of their state of health and financial situation. The swift access is made possible by a broad supply of professional healthcare services. However, there is a flip side: the vast supply creates increased and uncoordinated demand.

This can be redressed by control measures such as family doctor, pharmacy, HMO or telemedicine models, which often provide a cheaper, initial point of contact for health-related issues than if a policyholder goes to Accident and Emergency or straight to a specialist.

Switzerland is very well served by hospitals, doctors, nurses, pharmacies, therapists, etc. and medical equipment. The number of magnetic resonance (MRI) scanners is one example. This kind of equipment costs between CHF 700,000 and CHF 2.5 million to purchase and further outlay is required to maintain and operate it. With around 22 MRI scanners per million residents, Switzerland ranks third among all OECD member countries. Another example is the Da Vinci robotic surgical system. With four of these machines in Basel Stadt and Basel-Landschaft, the Basel hospital area has the highest number of these robots per capita in the world. At the same time, however, the take-up of this equipment is low by international standards. This means that the resources available are not being used efficiently enough.

Sources: Federal Statistical Office; Credit Suisse Monitor Switzerland “Healthcare System: Growth Market under Cost Pressure”, March 2017; Basler Zeitung, 9 October 2017

The more frequently we visit the doctor, get prescriptions or make use of other healthcare services, the faster the costs rise – and, with them, premiums. Unnecessary treatments must therefore be avoided from the outset. Not only are they expensive, they can also constitute a health risk, one example being unnecessary surgical procedures. Unfortunately, the incentives present in the healthcare system are feeding an increase in supply rather than improving treatment quality. According to a study conducted by the Federal Office of Public Health (FOPH), private patients have surgery which is not medically necessary more often than patients with basic insurance. They are twice as likely to have a knee operation, 1.5 times as likely to have spinal surgery and 1.3 times as likely to receive an artificial hip. One reason behind this additional treatment could be that hospitals and doctors are usually paid more for treating supplementary policyholders and therefore actually perform certain procedures on those kinds of patients more often. It is usually a good idea to seek a second opinion before having any scheduled surgery. Sympany would be happy to advise you.

Service providers and policyholders alike are prone to succumbing to misguided incentives.

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.

Patients only have to pay for a relatively small portion of the medical services they use, in the form of premiums, franchises and excesses. The majority of these costs are, however, financed by the community of policyholders – i.e. all premium payers – and, in the case of inpatient hospital admissions, by the cantons – i.e. through the taxpayers. This can give rise to misguided incentives for policyholders, encouraging them to use more or even unnecessary services.

Policyholders should therefore be empowered to take more responsibility for behaving in a cost-conscious way, e.g. by setting higher franchises and excesses, so that they can also reduce their own insurance premiums.