Reinforcing cost awareness by co-payment increases

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

Abstract

The Swiss mandatory health insurance contemplates a dual participation of the insured in costs for treatment: by means of a deductible which can be optionally increased above the minimum value prescribed by law; and by means of a percentage co-payment for the amount exceeding the deductible, up to a maximum participation fixed by the State. The federal government proposes doubling the participation share in the costs and deregulating the system of optional deductibles.

Purpose of health policy or idea

Within the ambit of mandatory health insurance the insured participate in the costs of the services given them with an annual lump-sum, called deductible, at present fixed at Fr. 300.- (200 Euro), and with a percentage co-payment equal to 10% of the expenses which exceed the deductible, but not above a maximum amount, which was Fr. 700.- (450 Euro) in 2003. Furthermore, the insured can obtain a reduction in their health insurance premium through the choice of a higher optional deductible. At present the system of optional deductibles is regulated by the State in two dimensions:  

• the definition of the choice set is up to the Federal Council. The sickness funds which decide to give their own insured the choice of an optional deductible must offer 4 levels of optional deductible for adults (equal to Fr. 400.-, Fr. 600.-, Fr. 1200.- and Fr. 1500.-) and 3 levels for insured persons under 18 (Fr. 150.-, Fr. 300.- and Fr. 375.-);
• the maximum value of the percentage premium discount which the insurer can grant corresponding to each level of deductible is prescribed by law.

The proposal put to discussion at the end of March 2004 contemplates two changes basically:

1. an increase in the co-payment, from 10% to 20%, but keeping the maximum ceiling of co-payment unchanged at Fr. 700 (this measure means a change in the Health Insurance Act and requires parliamentary approval);
2. a partial deregulation of the system of the optional deductibles, which should allow the insurers more freedom of action in defining the optional levels of deductibles offered to their members. This second change regards only the Ordinance of application and is therefore in the sphere of competence delegated to the Federal Council.

Main points

Main objectives

To increase the awareness of the insured with regard to the cost of health care services covered by the mandatory health insurance and to shift part of this cost from the insurance collective to the single insured person.

Type of incentives

financial

Groups affected

Insured, Health Insurers, Cantons

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

Political and economic background

In Switzerland the financing of the health system is particularly regressive. Overall only one third of the financing is collected in an income­-dependent way (this concerns public financing, which in 2001 amounted to 26.8% of global health expenses and social insurance contributions (6.4%).) The remaining two thirds of the financing, which do not depend on the citizens' ability to pay, include, in particular, mandatory health insurance premiums (26.5%), premiums for private complementary insurance (10.2%), co-payment of services insured (5.3%) and out-of-pocket expenses (23.9%).

The part of expenses financed by patients at the time of they made use of the services is also considerable. If we limit ourselves to services covered by mandatory health insurance, the share charged to the insured amounted to 14.6% of the total in 2002 (of which about 60% as deductible and 40% as co-payment of the bills covered by sickness funds). When the out-of-pocket health expenses are added, the share charged to the patient reaches the threshold of 30% of global health expenses and corresponds to an annual pro capita amount of 1195 Euro.

Vicious circle: Moral hazard and premium increases

In spite of this significant co-payment, the Swiss health system suffers from a problem of moral hazard and the expense for unnecessary medical services prescribed by physicians or inappropriate services requested by the patients is considerable. As a result of the continual premium increases registered in the last few years (7-8% a year) a paradoxical situation is created; a lot of patients try to get back the amount spent for the premium by increasing what they consume in medical and pharmaceutical services, and in this way end up contributing to the further rise in premiums in the following year, thus setting up a vicious circle.

Will higher co-payments curb consumption?

In order to put a brake on this growing inclination to consume, the Federal Council proposes making the insured's co-payment more onerous, going from 10% to 20%. The objective of this intervention should be to encourage patients to consume in a responsible way; in order to prevent it from changing into an excessive worsening to the detriment of the chronically ill, the maximum co-payment is kept at the present level of Fr. 700.-.

In other words the measure causes a burden of greater financing for the insured, who during the year spend between Fr. 300 (the amount of the deductible, entirely charged to the patient) and Fr. 7300 (the amount made up of the maximum co-payment of Fr. 700, equal to 10% of Fr. 7300 less the deductible of Fr. 300). With the new rule the maximum level of co-payment is, in fact, already reached with an annual bill of Fr. 3800.-

Optional deductibles

The proposal to deregulate the system of optional deductibles deserves a special mention. The deductible is an instrument which allows the risks of the insurance company to be transferred back to the insured; in fact, the latter is committed to cover expenses up to the amount of the deductible out of his/her own pocket, and the insurer therefore is brought in only when the damage is more than the deductible.

The effects linked to the choice of a higher deductible are of two kinds, one positive and the other negative: (1) a greater sense of responsibility of the insured is induced (reduction in the moral hazard) and (2) a situation of adverse selection is caused. The option, offered by the change in the Ordinance, to extend the present maximum deductible from Fr. 1500 (970 Euro) to Fr. 2500 (1615 Euro) will, in fact, be considered an advantage, especially by good risks and will end up bringing about a reduction in insurance solidarity (between good and bad risks); this solidarity is aimed at by the system of risk-independent premiums. In 2002 only 4 adult citizens out of 10 were still insured with the minimum deductible, whereas 14% had chosen one of the highest deductibles (Fr. 1200 or Fr. 1500).

The difference in average consumption of health services is significant between the classes of deductible; the insured with an ordinary deductible obtained services for an average amount of Fr. 3406 (2200 Euro) in 2001, while people with a maximum deductible spent only Fr. 796 (515 Euro) a head on average.

Deregulation likely to increase transaction costs

There is a second critical aspect. For years there has been great inequality in the premium requested by the different sickness funds in the same canton (though for the same insurance cover). The premium differences between the funds is maintained over a period of time, without causing huge flows of patients from the more expensive insurers to the cheaper ones. In other words, the change to another fund seems to be sensed by citizens as a rather high transaction cost (effective or only psychological). Deregulation of the deductibles will increase the information cost, since the offers proposed by the single funds in relation to levels of an optional deductible will no longer be standardized and will thus turn out to be less open to comparison. In fact, the proposal of the Federal Council intends to simplify the present ordinance, by limiting itself to a specification of a maximum deductible ceiling (Fr. 2500 for adults and Fr. 600 for minors) instead of prescribing the whole choice set, as was the case up to now.

In future the health insurers will be able to offer as many levels of optional deductible between the ordinary deductible and the maximum level, as they think reasonable, with the only constraint that the amounts will have to correspond to a multiple of Fr. 100 for adults and a multiple of Fr. 25 for children. Moreover, they will be given the opportunity to select a different choice set in each canton. Greater freedom will also be given to the insurers regarding the amount of premium reduction granted to the insured with an optional deductible.

Purpose and process analysis

Current Process Stages

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

Origins of health policy idea

Two studies mentioned in the text accompanying the draft bill 1D supported the proposal [Werblow, A. and S. Felder (2002), Schmid (2003)]. The study of Werblow and Felder shows, by means of an econometric analysis, that in spite of the adverse selection effect encountered in Switzerland (healthier patients opt more frequently for a higher deductible), the system of deductibles has at the same time brought about a reduction in the moral hazard. Once the effects of adverse selection have been corrected, a higher deductible continues to be associated with: (1) a lower probability of registering a positive request for health care services and (2) a lower consumption of health care services, when the expenses are positive.

Schmid's study proposes a series of simulations on the re-distributive effects caused by various systems of co-payment (income-dependent, differentiated for the kind of service, linked to change of doctor within the same episode of illness).

The proposal to modify the system of deductibles is inserted into a sequence of adjustments in the ordinance which were decided on in the last few years by the Federal Council.

At the time of coming into force in1996, the ordinance of application (OAMal) contained a maximum percentage of reduction in premiums, which was not differentiated between adults and children nor between cantons, for each of the 4 levels of optional deductible of the choice set. A given insurer was to apply the same premium discount in all the cantons. Since the level of premiums varies considerably from canton to canton (the average premium in Canton Geneva, equal to Fr. 398 in 2004, is more than double that in Appenzell Innerrhoden), in the cantons with high premiums the percentage discount granted for optional deductibles turned out to be higher in terms of the absolute value, than the differential of deductible. As a result, the choice of a higher deductible brought with it an economic advantage in any case, regardless of the risk profile. Although higher optional deductibles are chosen more in cantons with higher average premiums (like Vaud, Ticino, Geneva, Jura and Basle City), even in these cantons 30-40% of the citizens stay insured with the ordinary deductible, which shows how difficult it is for many citizens to evaluate correctly (in a rational way) what the most favorable insurance coverage is.

After increasing the minimum deductible from Fr. 150 to Fr. 230 in 1998, the Federal Council again increased the minimum deductible from Fr. 230 to Fr. 300 from the beginning of 2004. Furthermore, as of 2004 the obligation for sickness funds to offer the same percentage discount in all cantons was abrogated, a differentiation in the maximum discounts (in terms of percentage) between children and adults was introduced and a noticeable reduction in the maximum discounts for adults was carried out.

Finally the Federal Council also decided to put a constraint on the absolute value of the discount together with the maximum percentage discounts; from 2003 the absolute value has to be lower than 80% of the deductible differential. These measures have caused a lesser economic benefit than the optional deductibles, especially for people who are sick with a high probability of making use of services during the year for an amount that is higher than the deductible.

The proposal put to discussion in March 2004, which, as we saw earlier, gives more freedom to the sickness funds in their choice of the levels of deductible, also deregulates the aspect of the discounts in premiums.

The indication of maximum thresholds of percentage discounts for every level of deductible has been eliminated, in favor of a more generic maximum discount (the discount for optional deductibles can correspond to 50% at the most of the base premium). In any case the constraint on the maximum discount in absolute terms remains in force (at the most 80% of the deductible differential). Moreover, the insurers are now given the chance to differentiate the premium discount, not only among the cantons but also among regions in the same canton.

Approach of idea

The approach of the idea is described as:
renewed:

Stakeholder positions

Cantons: Although the Cantons are in favor of giving the insured more responsibility and evaluate in a positive way the effects expected of the measure in terms of containing health expenditure, they have declared their worries about the social consequences linked to this increase in co-payment. Especially in the case of poorer citizens, who receive State assistance or complementary pension/invalidity benefits, it is the Canton which covers health costs charged to them. The increase in co-payment, therefore, will not fail to have financial repercussions (even if to a limited extent) also for cantonal treasuries. (www.gdk-cds.ch/de/aktual-d.html)

Santesuisse: The general association of sickness funds (santesuisse) has expressed its approval for the increase in the maximum deductible and the increase in co-payment, two measures which should enable the individual responsibility of the insured to be augmented, should allow the insurers more room for maneuver in developing innovative insurance solutions and should help to contain future increases in premiums. The sickness insurers suggest that the Federal Council also increase the maximum limit for co-payment (from the present Fr. 700 to Fr. 900) and put the contract duration for those who choose optional deductibles up to three years. On the other hand, they do not approve the deregulation of the deductible levels, preferring the State to be the one who also defines the choice set of optional deductibles in the future, in equal measure for all insured. (www.santesuisse.ch/datasheets/files/200404191311300.pdf )

Influences in policy making and legislation

The proposal to increase co-payment from 10% to 20% had already been the subject of parliamentary debate within the second revision of the Health Insurance Act. In that instance the proposal was made to make co-payment more onerous only for the insured who would not have opted for particular forms of insurance with budgetary responsibility, leaving the co-payment unchanged for those who are members of a system of managed care.

During the parliamentary debate the proposal was rejected by the lower house (National Council), before reaching the final vote. In the bill, rejected by Parliament in December 2003, the Federal Council would have been given the power only to decide on the future increase in co-payment up to 20% but only for services not provided within the forms of insurance with budgetary responsibility.

The Federal Council therefore worked on that initial idea, changing it into the proposal for a generalized increase in co-payment. Moreover, in the new text of law the Federal Council's power to reduce or suppress co-payment for particular services is extended. If at present it is possible to reduce co-payment only for long-term treatments or for the treatment of serious diseases, with the new text of law the Federal Council will be granted the power generically to reduce the share in co-payment. In future, for example, the share could be reduced for generic drugs or for services provided within the forms of insurance with budgetary responsibility (which will be the subject of the second legislative act, expected for the beginning of summer 2004).

Adoption and implementation

The changes to the ordinance (deregulation of the deductibles) should come into force on 1.1.2005, while the doubling of the co-payment percentage (if approved by Parliament and a referendum is not launched ) is forecast for 1.1.2006.

Expected outcome

The deregulation of the system of optional deductibles could further increase the problems encountered by the insured in making a comparison between the offers of the single sickness insurers and in deciding whether to change sickness fund. A further reduction in insurance solidarity between good and bad risks is expected; it is to be hoped it will at least be accompanied by an increase in individual responsibility on the part of those who opt for very high deductibles.

Impact of this policy

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

It causes an increase in the financial burden for the sick who make use of services between Fr. 300 and Fr. 7300 (shift of the cost burden). This implies a decrease in equity, to the advantage of a presumed increase in the efficiency of the system (elimination of unnecessary use).

There is the risk that middle class people (especially families) who do not benefit from state subsidies and for whom the health insurance premiums imply an onerous financial burden (in terms of incidence) decide to opt for high optional deductibles and then refrain from making use of health care services (for example by delaying contacting the doctor in the case of illness), even if the intervention of a doctor would be necessary or at least appropriate.

References

Sources of Information

Federal Department of Home Affairs (2004), Teilrevision der Krankenversicherung - in die Vernehmlassung gegebener Gesetzentwurf, Projekt 1D: Kostenbeteiligung

Schmid, H. (2003), Schlussbericht der Arbeitsgruppe "Kostenbeteiligung" zum Projekt "Grundlagen 3. KVG-Teilrevision", Gutachtem im Auftrag des EDI.

Federal Office of Statistics (2003), Kosten des Gesundheitswesens, Detaillierte Ergebnisse 2001, Bern. http://www.statistik.admin.ch/stat_ch/ber14/gewe/dtfr14b.htm

Federal Office of Public Health (2004), Statistik der obligatorischen Krankenversicherung 2002, Bern. http://www.bag.admin.ch/kv/statistik/d/2004/KV_2002.pdf

Federal Office of Social Insurance (2003), Die Franchisen 1997-2001. Eine Längsschnittanalyse über die Entwicklung der wählbaren Jahresfranchisen. http://www.bag.admin.ch/kv/statistik/d/Franchisen97_01_D.pdf

Werblow, A. and S. Felder (2002), Der Einfluss von freiwilligen Selbstbehalten in der gesetzlichen Krankenversicherung: Evidenz aus der Schweiz, Working paper ISMHE, University of Magdeburg

Author/s and/or contributors to this survey

Luca Crivelli (proof reading by Iva Bolgiani, Gianfranco Domenighetti, Massimo Filippini and Mary Ries)

Empfohlene Zitierweise für diesen Online-Artikel:

Luca Crivelli (proof reading by Iva Bolgiani, Gianfranco Domenighetti, Massimo Filippini and Mary Ries). "Reinforcing cost awareness by co-payment increases". Health Policy Monitor, 20.04.2004. Available at http://www.hpm.org/survey/ch/a3/2