Improving equity of a per-capita-based funding

• Abstract
• Purpose of health policy or idea
• Characteristics of this policy
• Political and economic background
• Purpose and process analysis
• Expected outcome
• References

Abstract

Compulsorily insured persons are subsidized by public funding if they spend more than 4 to 12% of income to cover health insurance premiums as a so called social target. Families are partly released of children?s premiums. The policy aims is to improve equity of the per-capita-based funding and to standardize regulations in the Confederation. But it still it confirms the subsidiary role of the state and relies on individual responsibility of the insured.

Purpose of health policy or idea

In Switzerland each person pays a premium to cover compulsory health insurance. Contributions are not related to individual income of the insured. To reduce the social impact of per-capita-payments the cantons subsidize premiums for children, young adults and persons with low income through tax-financed allocations.

Nevertheless the premiums for families and low-income-groups are quite high. Furthermore the level of financial support varies within Switzerland since each canton autonomously determines the system of premium subsidy.

Government and Parliament intend to address this inequity of the financing system. The policy is part of the second revision of federal Health Insurance Act. The aim is to improve equity of the per-capita funding system. It is also intended to standardize the regulations for premium subsidy within Confederation.

The draft of revision includes the following proposals.

An income-related "differentiated social target"

This model suggests that compulsorily insured persons do not spend more than four to twelve percent of income to cover their health insurance premiums (two to ten percent for families with children). The percentage is determined on the basis of at least four income-categories. In the lowest income-category payment of premiums may not exceed four percent of income and twelve percent in the highest income-category respectively. The policy hence proposes a progressive decrease of premium subsidy with increasing income.

An income-independent waiver of premiums for children

With intend to especially support families it is suggested that premiums for children are subsidized through tax financing by the cantons; a second child pays only half of the premium, other children are released completely. Until now the subsidy is independent of income.

To cover the increase of public funding the federation announced to provide additionally CHF200 million (€127 million) to the current budget of CHF2.4 billion (€1.5 billion).

The policy provides public support for a small group of persons with very low income and families with several children. Thus it confirms the subsidiary role of the state and relies on individual responsibility of the insured.

Main points

Main objectives

• The so called differentiated social target determines that payment of health insurance premiums may not exceed a certain percentage of income (four to twelve percent / two to ten percent for families) according to income-categories.
• Families receive subsidy in form of halved premium for the second child and release of premiums for other children.

Type of incentives

financial

Groups affected

compulsory health insured, persons with low income, families with children

Innovationsgrad	traditionell		innovativ
Kontroversität	unumstritten		kontrovers
Strukturelle Wirkung	marginal		fundamental
Medienpräsenz	sehr gering		sehr hoch
Übertragbarkeit	sehr systemabhängig		systemneutral

The overall impact on status quo is probably marginal because the policy adjusts pre-existing regulations (traditional approach) for a specific but small group of the population.

There is consensus about the general need to improve equity of health care funding in Switzerland and to especially address families with children. The ongoing debate is dealing with sophisticated economic issues. This may also explain the low media coverage.

The policy is related to a per-capita-based funding system and thus its transferability is limited. But it may have a relevant impetus for Germany since a commission of the German Ministry of Health and Social Affairs (Rürup-Kommission) as well as others proposed to replace the income-related health insurance system by a per-capita-based funding.

Political and economic background

In 2001 a scientific report (Impact analysis of Health Insurance Act) was published by the Swiss Federal Office for Social Security. Its purpose was to evaluate if three goals defined in the revised Health Insurance Act of 1996 had been reached in practice; stronger solidarity between policyholders, excellent medical care for all Swiss residents and cost-containment.

Concerning solidarity the experts supported the system of tax-financed premium subsidy. However they demanded to further reduce the charges for families and people with low income. They also recommended harmonizing subsidy regulations of the cantons. According to Dafflon (2002) it lies within the responsibility of the Confederation to establish equity of financing and distribution.

Political and economical background

Premiums are identical within each insurance company but differ from company to company, from canton to canton and even within regions of one canton. Premiums are paid completely by the insured; there are no employer-contributions. In average adults pay €184 (CHF288), young adults €136 (CHF213) and children €47 (CHF74) for a monthly premium (2003). Premium of e.g. an adult ranges from CHF175 (€122) in Appenzell to CHF375 (€239) in Geneva.

In 2001 a single adult spent on average 3.8 percent of total gross income for health care premiums.

Since revision of the Health Insurance Act 1996 persons with low income, young adults and families with children may claim a tax-financed subsidy of premiums.

Both the cantons and the Confederation contribute to public funding of premiums (CHF 1.82 billion and CHF 852 million respectively, year 2001). But the cantons autonomously determine the specific regulations for premium subsidies.

This results in 26 different arrangements:

There are various approaches to calculate the income of the insured (gross, net and taxable respectively).

The eligibility to premium subsidy depends either on an exceeded percentage of income paid for premiums (14 cantons) or it is differentiated by income categories (12 cantons).

Some cantons give their financial support automatically (5 cantons) others only provide subsidy if the insured person applies for it (21 cantons).

Some cantons pass the subsidies on to the health insurers (14 cantons) others pay it directly to the insured (12 cantons).

The premiums for children also vary from canton to canton. Subsidies differ in levels as well as in number of children supported.

To summarize there are two concerns addressed by this policy:

1. inequity of per-capita-funding and
2. heterogeneous regulations of premium subsidy.

To achieve these goals it is intended to adjust the system of per-capita premiums instead of changing the funding system fundamentally (see Survey "No fundamental change in financing health care in Switzerland").

Complies with

An expert report (Impact analysis of Health Insurance Act) demands to reduce health insurance charges for families and people with low income. It further recommends harmonizing subsidy regulations of the cantons

Purpose and process analysis

Current Process Stages

	Idee	Pilotprojekt	Strategiepapier	Gesetzgebung	Umsetzung	Evaluation	Veränderung/Richtungswechsel
Implemented in this survey?

Origins of health policy idea

The social target initially stood for a general upper limit of premium-charges (8 percent of income). A first attempt to transform it into law failed in 2001.

In summer 2002 Government assigned a group of federal and cantonal institutions as a consequence of the expert report mentioned above (See 4.).

The group's purpose was to provide various suggestions to reduce premium-charges for families and people with low income.

The Government adopted the idea of the differentiated social target. Since this proposal did not intend to change the funding system of per-capita-premiums it also served as an indirect answer to the Health Initiative of the Social Democratic Party (see Survey "No fundamental change in financing health care in Switzerland").

In September 2002 the National Council (lower chamber of Parliament) supplemented the proposal to provide waiver of premiums for children.

Although there are various examples in the cantons how to perform premium-reduction (See 4.) none of these exactly corresponds the actual federal proposal.

Stakeholder positions

The health policy is mainly supported by Government and Parliament. The association of health insurance fund (santésuisse) welcomes the proposal. Santésuisse states that this policy (re)-establishes a adequate relation of funding by per-capita premiums and taxes.

The cantons in contrast refuse to accept all parts of the actual draft. They argue that the existing arrangements in the cantons perform well. They state that a federal regulation of premium-reduction would reduce the cantons' autonomy in relevant parts and lead to a not welcomed additional power of the central administration. Additionally they criticize the "double subsidy" for families in form of lower percentages of social target on the one hand and waiver for children on the other hand. Expecting additional costs they demand a financial contribution of the federation exceeding the announced one.

Influences in policy making and legislation

Already in the early nineties Government had formulated a social target for premium charges. In 2001 a first attempt to transform it into law initiated by the Council of States (upper chamber of Parliament) failed; the cantonal ministers of finance had resisted successfully because they expected increasing costs by public funding of premiums.

The social target had defined an upper limit (eight percent of income) not to be exceeded for premium-payment. It correlated charges by premiums with the individual economic situation of the insured. In other words public subsidy increased linearly with decrease of income.

In summer 2002 a group of federal and cantonal institutions proposed a modified social target distinguishing income-categories. Government adopted this idea as did the National Council in September 2002 and the Council of States in spring 2003. The proposal of waiver of premiums for children was refused by the Council of States (September 2003) but passed the National Council (December 2003).

The failure of the Health Initiative in May 2003 further encouraged the health policy.

Nevertheless there is still debate on several issues.

One essential concern of the cantons is the federal contribution to public funding of premiums and its annual adjustment. This is related to the following remaining questions.

What kind of individual income will be relevant for the claim of premium reduction? The options are gross income, net income or taxable income (the latter according to federal or cantonal law).

Will the Confederation or the cantons perform income-classification and therewith determine the level of premium subsidy?

Will all persons benefit from premium-waiver for children or only those who are already entitled to premium-reduction?

The latest plans are that the federal contribution to public funding of premiums will be an additional CHF200 million (€128 million) per year (instead of initially announced CHF300 million (€190 million)). Cantons will be obliged to provide a minimum of premium subsidies since they may not refuse the federal contribution to more than 50 percent. The cantons will receive federal contribution according to a complex system which among others takes into account the individual economic situation of the canton.

The calculation of individual income will be complex and based on the federal taxable income adjusted by cantonal taxable assets. The cantons will perform the classification of incomes and define upper income limits for those to benefit.

The described health policy is a part of the second revision of the Health Insurance Act. The revision deals with several issues like financing of hospital care, reimbursement, abandonment of compulsory contracting, managed-care-models etc. The revision is expected to be passed not later than 2005. Prior to this it may need to face a referendum in 2004 if a petition is signed by 50,000 people.

Legislative outcome

major changes

Adoption and implementation

The leading goal for a successful implementation would be to reach those who may benefit from the policy and to be aware of those who may abuse it. The insured as well as all authorities involved need easily accessible information and support. This requires a well-functioning cooperation and coordination of federal and local authorities, health insurers and civil support groups.

Monitoring and evaluation

Until now there is no specific review mechanism foreseen to follow up the policy's performance.

The federal and cantonal administrations as well as health insurers routinely provide annual analysis of health insurance premiums. Based on that relevant items for an evaluation from a public viewpoint could be: Costs, number of insured benefiting and level of premium subsidy respectively in correlation to income, family situation and residence.

Expected outcome

In Switzerland there is consensus about the general need to improve equity of health care funding and to especially address families with children.

There are basically two aims intended by the described health policy. First to improve premium subsidy for persons with low income and especially for families. Secondly to implement a regulation that is standardized in the Confederation.

As measured by the aim of standardization the policy will lead to a clear step forward. But the definite level of premium subsidy for the insured will still depend on place of residence. This issue of inequity needs further improvement.

As discussed by Crivelli and Filippini (2003) this policy implies a relevant shift of power from the cantons towards the Confederation i.e. centralization; The general framework for premium subsidies will be set on the federal level and the Confederation will additionally receive more competences to provide or refuse its financial contributions. This change of institutional powers is not as transparent as necessary; a renewed definition of competences would require a revision of the constitution.

The proposed system is rather complex since it combines federal and cantonal regulations. The cantons will either need to rearrange their performance of premium subsidies or replace it completely. Altogether this may results in a relevant decrease of transparency and timely processing for the insured.

The differentiated social target determines a progressive decrease of premium subsidy with increasing income.

What are the consequences?

Premium subsidies more focused

There are less people who will benefit of premium subsidies compared to a uniform social target. But the individual subsidy will increase. People with very low income and especially families with low income (see below) will probably benefit from the policy. But the cantons may want to avoid the need to increase their budget for premium subsidies because of the tense economic situation. Thus if a canton defines the income categories at a very low level the greatest part of the population will not benefit from the policy. Especially people with medium to high income will still face high premium charges.

Beneficiaries: Families with children

The policy definitely supports families with children. They are released from premiums and additionally receive premium subsidy at lower income limits. The cantons will definitely have to face additional costs for the waiver for children even if they can avoid increase of income-related premium subsidies (as explained above).

Contradictory effects?

There is a relevant contradiction in the proposal. If children are released from premiums the percentage of income spent for contributions decreases subsequently. The subsidy of one system thus results in reduction of subsidy of the other system. Families with low income would be at a disadvantage compared to wealthy families without premium-subsidy. It needs to be clarified if this is an intended or unexpected effect.

To summarize the policy provides public support for a small group of persons with very low income and families with several children. Thus it confirms the subsidiary role of the state and relies on individual responsibility of the insured. The policy also implies a step towards centralization of administrative powers.

Impact of this policy

Qualität	kaum Einfluss		starker Einfluss
Gerechtigkeit	System weniger gerecht		System gerechter
Kosteneffizienz	sehr gering		sehr hoch

The policy is a small but relevant step towards more equity. Though only a small group of the Swiss population will benefit it is a clear approach to generally address inequity of funding and reduce differences within the Confederation.

Quality issues are not affected.

Until now there is no reliable estimate on costs of this policy. Although it is expected that this policy leads to an increase of public costs the concrete financial consequences especially for the cantons remain unclear.

References

Sources of Information

The Federal Assembly/the Swiss Parliament (2000). Krankenversicherungsgesetz. Teilrevision (Spitalfinanzierung). Botschaft vom 18. September 2000 betreffend die Teilrevision des Bundesgesetzes über die Krankenversicherung. (BBl 2001 741). http://www.parlament.ch/afs/toc/d/gesch/d_mainFrameSet.htm

Federal Office for Social Security (2001). Wirkungsanalyse Krankenversicherungsgesetz. Synthesebericht. Beiträge zur Sozialen Sicherheit. Forschungsbericht. ISBN: 3-905340-42-9. Bern: Federal Office for Social Security. http://www.bsv.admin.ch/. To order at http://www.admin.ch/edmz/drucksa/zivil/318.010.16.01d.htm
"The report summarizes the results of some relevant studies carried out by external experts between 1997 and 2001, in order to establish whether the objectives defined in the Law on Sickness Insurance of 1996 have been reached, and whether the theoretical bases of the law have proved effective in practice. The KVG, and with it the compulsory health insurance system, has three main aims: stronger solidarity between policyholders, excellent medical care for all Swiss residents, and a cost-damping effect. Expert opinions on the impact the law has had on the various players were the basis for the assessment.
With reference to the theoretical background, the synthesis report takes up the studies of the major individual measures implemented by the law, and summarizes their results. Finally, it outlines the most important recommendations voiced by experts for the areas of Managed Care, hospital financing, compulsory reimbursement of approved providers' services by insurers, risk compensation, reduced premiums, benefits, quality assurance, informing policyholders, and hospital planning."

Dafflon, B (2002). Die Dezentralisierung der Sozialpolitik: Eine unmögliche Mission? Der Fall der Karnkenversicherung in der Schweiz. ARL-Arbeitskreis "Räumliche Aspekte des föderativen Systems" Hannover, 16-18 Oktober 2002

Federal Office for Social Security (2002). Bundesrat beschliesst Reformen der Krankenversicherung im Rahmen der laufenden 2. KVG-Teilrevision. Medienmitteilung vom 21. August 2002. http://www.bsv.admin.ch/aktuell/presse/2002/d/02082101.htm

Federal Department of Finances (2003). Konferenz der Kantonsregierungen. "Bereit / gewillt / in der Lage". Medienkonferenz vom 12. Mai 2003. http://www.efd.admin.ch/d/ext/2003/05/nfa-kdk.pdf. http://www.efd.admin.ch/d/service/index/?stw=106

The Federal Authorities of the Swiss Confederation (2003). Botschaft über den Bundesbeschluss über die Bundesbeiträge in der Krankenversicherung vom 28. Mai 2003 (03.042). http://www.admin.ch/ch/index.en.html. http://www.admin.ch/ch/d/ff/2003/4349.pdf

Bathasar, A. (2003). Wie viel kostet das Sozialziel die Kantone?
Schwieriger Weg zur gerechten Prämienverbilligung. Neue Zürcher Zeitung vom 2.6.03. http://www.interface-politikstudien.ch

Schweizerische Santitätsdirektion (2003). Schlussrunde in der KVG-Revision Unterlagen für Interventionen gegenüber den Vertreterinnen und Vertretern Ihres Kantons im Bundesparlament Bern, 27. August 2003. (U/Ze.: 43.225/Arg/MJ). http://www.sdk-cds.ch/

Bundesamt für Statistik (2003). Einkommen und Lebensqualität der Bevölkerung. Einkommens- und Verbrauchserhebung 2001.(EVE 2001). http://www.statistik.admin.ch/stat_ch/ber20/erc/download/eve01_d.pdf

Crivelli, L., Filippini, M. (2003). Il federalismo nel settore sanitario.

Author/s and/or contributors to this survey

Annette Zentner, Reinhard Busse, Susanne Weinbrenner, proof reading by Luca Crivelli (USI)

Empfohlene Zitierweise für diesen Online-Artikel:

Annette Zentner, Reinhard Busse, Susanne Weinbrenner, proof reading by Luca Crivelli (USI). "Improving equity of a per-capita-based funding". Health Policy Monitor, November 2003. Available at http://www.hpm.org/survey/ch/a2/1