Foreign Health AffairsAmerica, a nation prone to love at first sight with seductive health–care fixes, is now falling for the systems of the Netherlands and Switzerland. Their representatives recently displayed their dowry in D.C., and U.S. Health and Human Services Secretary Michael Leavitt personally checked out the potential brides earlier this month.
Regina E. Herzlinger
Wall Street Journal
November 19, 2007
Beware: The last time we fell in love, it was with managed care, as exemplified by California's Kaiser Permanente. But the Kaiser model proved difficult to replicate outside of California, even for Kaiser itself. The version of managed care we got was of the "Just Say No" variety: "No" to enrollee requests and provider referrals. It has made a mess of our health–care system.
Though media accounts lump the systems of Switzerland and the Netherlands together, they are profoundly different. There are things to be learned from each, though neither presents a complete model the U.S. should emulate.
The Swiss and Dutch systems share one terrific feature—universal coverage. Americans increasingly want this. Both achieve universal coverage using private sector insurers, at far lower cost than the U.S.—12% of GDP for Switzerland and 10% for the Dutch, versus a staggering 15% for the U.S. in 2003. They also have far better health outcomes than the U.S., even when Switzerland is compared to socio-demographically similar U.S. states such as Connecticut and Massachusetts. The sick in both countries can afford to buy health insurance, and also pay the same price. Yet private insurers compete in the market because they are paid more for sick enrollees through various risk-adjustment systems.
But the devil is in the details.
The Swiss are required to buy health insurance themselves, using their own money—they account for 65% of health care expenditures. If individuals cannot afford it, most Cantons transfer funds to them. There are neither employer nor government health-insurance programs for the poor or elderly. The Swiss government accounts for only a quarter of the health-care spending versus nearly 50% for the U.S.
The Swiss system is consumer–driven because consumers themselves pay for their purchases. The Dutch government, in contrast, funds consumers to purchase their own health insurance to a much greater extent—five million people in the country are on some sort of government dole. Thus, when the Dutch buy their insurance, they may think they are using other people's money.
The results? The Swiss have lower health–care inflation—2.8% versus 4.1% for the Dutch and the U.S. from 1996—2003—and substantially more in the way of health–care resources. And Switzerland tops the world in most measures of user satisfaction.
The 93 private insurance companies that compete in Switzerland dwarf the 41 in the Netherlands. Swiss providers also compete because, in addition to paying for their health insurance, the Swiss pay for nearly 32% of their health–care services out of their own pockets, as compared with only 8% for the Dutch. Yet even with its limitations, Dutch health–care inflation fell from the time when Dutch employers bought health care, and waiting lists have reportedly tumbled.
Nevertheless, the Swiss system is hardly perfect. On the demand side, the government limits insurance competition with requirements for extensive minimum benefit packages and considerable micromanagement of prices. Imagine a car market in which the government designs the vehicles and stringently oversees distributors' prices. Pretty soon all the cars would come with features we do not necessarily want—heated seats—at a price we do not want to pay.
Even worse is the Swiss government's micromanagement of medical care suppliers. Unwisely adopting the U.S. government's Medicare payment system, it not only dictates medical care prices but also specifies the bundles of care for which it will pay. This kind of micromanagement discourages innovation. For example, when Duke Medical Center lowered the costs of treating congestive heart patients by 40% in only one year with innovations that improved health status, it lost nearly all the savings it created. The U.S. government pays only for activities like hospital stays and doctor visits. Perversely, medical innovators who improve health and reduce hospital visits, lose money.
So before we latch on to the Dutch or Swiss models, let's be careful. Yes, the consumer–driven health care of these two nations is clearly the better model for implementing universal coverage. But their governments' micromanagement of the prices of insurers and providers should be avoided, not emulated. Instead, government should help lower–income people, enforce transparency, prosecute fraud and abuse—but otherwise get out of the way.
Regina Herzlinger is professor of business administration at Harvard Business School and a senior fellow at the Manhattan Institute. She is the author of "Who Killed Health Care?" (New York: McGraw-Hill, 2007).