A drop of solidarity in a sea of inequity

• Abstract
• Characteristics of this policy
• Purpose and process analysis
• Expected outcome
• References

Featured in half-yearly report: G-politik in Industrieländern 5

Abstract

In the last few years the number of Swiss who find it hard to pay their health insurance premiums has been on the constant increase, although a state program of subsidies exists for households with modest incomes. In March 2005 the federal parliament approved a change in the law aimed at extending the support offered to families with children. This is the last act of a long legislative procedure, during which the initial bill was significantly down-sized.

Neue Entwicklungen

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

The reform of the articles of law concerning premium reductions gave rise to a long, labored process. The first reform bill, which provided for the introduction of a maximum limit of incidence for health insurance premiums of 8 percent, was rejected in 2001 (see Report 2/2003 ), the second bill, even more ambitious from a social point of view, was rejected in December 2003 (together with all the second revision of the Health Insurance Act); the third bill (the message in March 2004), separated from the other dossiers regarding the health insurance reform within the scope of the unbundling strategy adopted by the Federal Council (see Report 3/2004), was considerably down-sized in parliament, who removed the indications which, by means of an explicit definition of national social and/or family policy, would have forced on the cantons a real convergence in their respective models for premium reduction. The bill approved in March 2005 is therefore a text of law which has been impoverished in its social charge and desire to realize a greater territorial equity in the sector of compulsory health insurance.

Purpose and process analysis

Current Process Stages

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

Initiators of idea/main actors

• Regierung

• Parlament

• Andere

Stakeholder positions

Since 1996 the Swiss health care system has been based on compulsory individual health insurance whose premiums are fixed independently of income and individual risk. In order to correct the vertical inequity due to community rating the Confederation and cantons have jointly financed a state program of subsidies since 1996; its objective is to reduce the insurance burden for households with modest incomes in a specific way. There are two main problems with this mechanism of premium reduction:

• in recent years the funds made available by the Confederation (two thirds) and cantons (one third) have grown at a lower rate with respect to the evolution of health insurance costs. Therefore subsidies do not manage to compensate the increase recorded in the premiums adequately. As a result, for many families with modest incomes the burden of the compulsory health insurance premiums has increased in spite of state help. Over the years this burden has become economically unsustainable even for many of the middle-class Swiss citizens. In 1991 the Federal Council delineated a clear political commitment: to maintain the incidence of the premium below the threshold of 8 percent of families' taxable income. Today this commitment has been disregarded in several cantons and for a large part of households with modest and average incomes.
• Out of respect for federalism the subsidies are administered and distributed by the competent cantonal instances according to modalities and procedures which differ greatly from canton to canton. As a result, the burden of the compulsory health insurance premium for a given kind of household varies greatly depending on the canton of residence, which determines a violation of the principles of territorial equity and social citizenship. To illustrate this situation we can quote the case of a family of four persons - two parents and two minor children - with a gross income of 45,000 Euro. In 2002 for health insurance this kind of family paid 1.5 percent of their after-tax income if resident in Canton Valais, whereas the burden rose to about 14 percent of the after-tax income for a similar family residing in Canton Geneva (see Figure 1).

In order to find a remedy for this situation, in spring 2004 the Federal Council put forward a draft bill [see reference 1] which, at least on paper, should have introduced a national social target with the intent of making the cantonal systems for reducing premiums more similar to each other. The report 3/2004 entitled "Improving territorial equity in a Federal State" was dedicated to the analysis of this draft bill.

The cantons were vehemently hostile to the draft bill in the consultation phase. It is important to remember that in the present years a revision of the respective duties and relative expense burdens of the Confederation and cantons is in process (with the title "new financial equalization system"). From 2008 at the earliest the present distribution key of the financing of health insurance subsidies (3.6 billion, which has increased by 1.5 percent from year to year and shared to the extent of two thirds as the Confederation's contribution  and one third the cantons') will be replaced by a system which defines the Confederation's financial commitment with no regard for the share of population with modest incomes. In the future the budget of the Confederation for the program of premium reductions will total "25 percent of the compulsory health insurance expenditure for 30 percent of the population". Then the commitment to bridge possible gaps in the financing of the program will be entirely up to the cantons.

According to the estimates of the cantons putting the draft bill of the Federal Council into effect would have meant:

• an increase in the financial burden falling on the cantons estimated at about 7.2 percent a year (against the present adjustment of 1.5 percent),   
• a drastic increase in the number of subsidy beneficiaries,     
• a significant adjustment of the present cantonal legal bases, in order to match the requirements of the proposed federal system,     
• the reduction in the autonomy of the cantons, which, by virtue of the sharing out of the duties prescribed by the federal Constitution, continue to consider social policies to be in their own field of competence.      

Secondly the model proposed by the Federal Council (see Figure 2) would have introduced a mechanism which (a posteriori, by virtue of the premium reduction paid by the State to households with modest incomes) up to a certain income threshold would mimic a system of income-dependent health insurance premiums, thus pushing Switzerland in a direction opposite to the liberal ideologies and also to the wish expressed by the population in a recent popular referendum (on this issue see report 2/2003)

Figure 1: Average net premium as a percentage of after-tax income, across the 26 Cantons (2002)

Actors and positions

Regierung
Federal Council	sehr unterstützend		stark dagegen
Parlament
Council of the States	sehr unterstützend		stark dagegen
National Council	sehr unterstützend		stark dagegen
Andere
Swiss Conference of Cantonal Directors of Public Health	sehr unterstützend		stark dagegen
current    previous

Influences in policy making and legislation

In order to avoid the negative consequences which the definition of a national target for social policies would have entailed, at the end of the summer 2004 the cantons (by means of the Swiss Conference of Cantonal Directors of Public Health) launched an alternative proposal [see reference 2]. The cantons' bill substantially took up again an idea put forward in June 2004 by a State Councilor in the Canton of Schaffhausen.

The present situation (based on individual income-independent premiums) is especially hard on families. Today a family of 4 persons (two parents and two children) pays for its compulsory health insurance 4 times the community rating premium (two full premiums for the parents and two reduced premiums if the children are less than 18 years old or less than 25 and are still being educated). In fact, the community rating system provides for all adults of a certain collectivity to pay the same premium, although the average consumption of health services increases with age. As a result, young adults are called upon to pay a solidarity contribution in favor of the older generations. In 2003 the solidarity contribution, which the adult population below 55 years of age paid, reached the total sum of Fr. 4.5 billion.  This information comes from the data of the Fund for risk compensation, from which it can be seen for example that the health services consumed on average in 2003 by a couple of thirty-year-olds corresponded to:

• 62 percent of the health services consumed on average by the adult population,     
• 32 percent of the average consumption of a seventy-year-old couple and
• 14 percent of the average consumption of a ninety-year-old couple   [see reference 3, p. 127].

Taking the economic situation of many young families into consideration this solidarity contribution in favor of the older generations represents an excessive burden for those who also have children to support, according to the cantons. In some cantons half of the families with children benefit nowadays from the state subsidy for premium reductions. In 2003 two thirds of those with a right to a premium reduction were less than 40 years old and 2 beneficiaries out of 5 were less than 25 years old.

Taking the above into consideration the cantons have suggested including the children's insurance cover in that of the parents, thus exempting children under the age of 18 from premium payment and asking young people under 25, who are still being educated, to pay only half the adult premium. The financing of health services to children and young people should have been assumed by the collectivity of the insured by means of the compensation fund of risks among health insurers. This change in the system would have enabled fiscal funds used till now for the reductions in premiums for children to be set free, thus increasing the resources available to realize the social policy in favor of adults with modest incomes.

Moreover, the cantons' proposal would have had the merit:

• of considerable administrative simplicity,  
• of avoiding an extra burden on cantonal public finances, with the intention of making the premium reduction more effective.    

Taking this approach would have produced a clear separation between objectives of social policy (achieved by means of the instrument of premium reduction) and objectives of family policy (achieved by means of the exemptions of children from paying the premium). However, the cantons' proposal would also have entailed some politically undesirable effects, in particular:  

• a one-shot increase in adult premiums (estimated at about 10 percent of the average 2005 premium). But it must be mentioned that all families with at least one child would have realized a net saving - since the premium increase sustained by the parents would have been more than compensated for by the premium exemption for children - whereas an increase in the burden would have been recorded for single persons and couples without children;   
• although, from a purely technical point of view, the exemption of children from paying the premium would not represent a subsidy in the strict sense, the measure proposed would have had the defect of producing a widespread redistribution, in the sense that the children of well-off families would also have benefited from the exemption.  

Since neither the cantons' proposal nor the Federal Council's bill seemed to enjoy the necessary political support in Parliament, in September 2004 a third approach took shape within the Committee for Social Security and Health of the Council of States.

The new variant, a sort of compromise between the Federal Council's proposal and the cantons' proposal, was worked out by a Christian Democrat Senator. While maintaining that the imposition on the cantons of a uniform model of premium reduction at national level (through setting a national social target) was excessive, at the same time judging a solution with uncertain redistribution effects as inopportune (that of exempting all children from paying the premium), an attempt was made to "square the circle" by imposing a simple objective of uniform family policy at national level on the cantons. The draft bill put to the attention of the Committee for Social Security and Health of the Council of States suggested, in fact, exempting children (and young people under 25 still being educated) from low-income (4 times the minimum state pension) families from paying the premium, and reducing the premium to 50 percent for children from average-income (between 4 and 6 times the minimum state pension) families.

Though having a more circumscribed range of action compared to the message of the Federal Council (a uniform solution at national level for the reduction of children's premiums, full autonomy of the cantons concerning the premium reduction of adults), at the same time the third variant would have been more binding on the cantons, since it would have explicitly defined the limits of income and the amounts of subsidy which, by law, would have had to be respected in each canton (it is important to remember that the proposal of the Federal Council left the cantons the choice to establish individually the threshold of income beyond which they could suspend the right to subsidies and the freedom to modulate the bands of income for which they could make binding a certain maximum incidence (see report 3/2004

For this reason not even this third proposal obtained the committee's support in its original formulation. The Committee for Social Security and Health of the Council of States considered a further downsizing of the bill to be reasonable. In particular, the text of law has been made less binding for the cantons. In substance the members of parliament have decided not to state the exact limits of income which establish the right to subsidies for children, so as to leave full autonomy in the matter to the cantons. The text of law proposed as a parliamentary vote thus formulates a generic objective of family policy aimed at families with low and average incomes.

The cantons will be obliged to grant these households a premium reduction equal to at least 50 percent of the base premium. Each canton will be free to establish (a) the threshold of income beyond which low and average incomes lie, (b) with reference to which income definition the right to children's subsidies will be anchored (cantonal or federal taxable income, after-tax income) (c) the exact amount of the subsidy paid (50, 60 or 70% percent of the premium).

On 15 December 2004 the Council of the States and on 10 March 2005 the National Council approved the draft bill, which will enter into force on 1 January 2006 and will oblige the cantons to adapt their own cantonal laws within one year (by 1 January 2007).

In spite of having met the ambitious time table set by the Federal Council, the federal parliament produced a rather modest reform. The only certain piece of data, the only good piece of news is an extraordinary increase in the federal contributions of 200 million, to which the cantons should add their contribution of 100 million.

With respect to vertical and territorial equity the new legislation will introduce "a drop of solidarity in a sea of injustice" - that of a country which, though it is considered one of the richest in the world, in future will continue to have the health system with the lowest financing equity among all the western European States [see reference 4].

Figure 2: Premium reduction model proposed by the Federal Council

Legislative outcome

Enactment

Actors and influence

Regierung
Federal Council	sehr groß		kein
Parlament
Council of the States	sehr groß		kein
National Council	sehr groß		kein
Andere
Swiss Conference of Cantonal Directors of Public Health	sehr groß		kein
current    previous

Positions and Influences at a glance

Adoption and implementation

The implementation of the new norm will fall to the cantons. Although there is the intention to create a group for intercantonal co-ordination, the draft bill offers the cantons sufficient degrees of freedom to adopt differentiated solutions, reflecting the political sensitivity and financial resources present in each canton.

Monitoring and evaluation

The law attributes the Confederation the task of monitoring the achievement of the family policy objectives and imposes the obligation on the cantons to deliver the Confederation with all the data necessary for this purpose. Since the obligations imposed by the law are absolutely flexible (as they depend on the definitions of threshold values which distinguish low and average incomes, and which are left to cantonal autonomy), the Confederation will probably limit itself to taking note of the differences which exist between the cantons in the implementation of the law (as, on the other hand, is already the case with the target of social policy).

Expected outcome

Overall the outcome of the legislative process is to be considered somewhat modest, both from the point of view of social and family policy as well as from that of territorial equity. The new norm does not significantly strengthen the equity in the finance of the Swiss health system and does not even solve the problem of territorial equity.

Moreover, one cannot exclude a priori that putting the new law into practice might determine the following undesirable effects:

1. In some cantons the premium reduction for children from low-income families is already more than 50 percent. If in future the situation of cantonal finances were not such as to allow an increase in the budget available, the obligation to extend the aid to average-income families might be realized by means of setting the subsidies lower for low incomes, thus ensuring only the minimum legal level of 50 percent. In other words, a redistribution of resources could be produced from low incomes in favor of the middle class.   
2. The present law gives the sickness funds the chance to offer young people still being educated a "discounted" premium. The choice to operate this discount lies with the insurers and therefore constitutes a strategic marketing decision aimed at attracting this particular clientele. In the last 5 years a progressive reduction in these discounts has been seen (the average premium for this category of persons has gone from 64 percent of the base premium in 1999 to 78 percent of the base premium in 2005).  When the obligation for cantons to cover 50 percent of the children's premiums in low and average-income families is in force, the incentives for the insurers to make themselves a profile with young clients by offering them a discount will be further reduced. A upwards adjustment of premiums for the under-25s would have the effect of "consuming" a good part of the supplementary financial resources (300 million) injected into the system of premium reduction, all to the advantage of the health insurers.

Impact of this policy

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

The history of this reform is rich in its teachings: in an era distinguished by a structural crisis in public finances and continuous growth in health costs it is difficult to promote ex-post vertical equity and territorial equity in the financing of the health system, that is supporting a social health insurance based on community rating with sufficient fiscal resources to maintain the system of transfers aimed at modest-income families effective through time. In this perspective federalism is a further element of difficulty.

The Swiss lesson therefore contains useful indications for those countries which, like Germany, are evaluating the opportunity to reorganize their own health insurance system in this direction.

References

Sources of Information

Schweizerischer Bundesrat, Botschaft zur Änderung des Bundesgesetzes über die Krankenversicherung (Prämienverbilligung) und zum Bundesbeschluss über die Bundesbeiträge in der Krankenversicherung
http://www.admin.ch/ch/d/ff/2004/4327.pdf

Dürr, M., Für die Abschaffung der Kinderprämien. Entlastung der Familien - administrative Vereinfachung, Neue Zürcher Zeitung (28.10.2004), p. 15

Swiss Federal Office of Public Health (2005), Statistik der obligatorischen Krankenversicherung 2003, http://www.bag.admin.ch/kv/statistik/d/2005/KV_2003_DE_v030205.pdf

Amtliches Bulletin, Ständerat - Wortprotokolle der Wintersession 2004. http://www.parlament.ch/ab/frameset/d/s/4706/116943/d_s_4706_116943_116968.htmDisplayTextOid=116969

Amtliches Bulletin, Nationalrat - Wortprotokolle der Frühjahrssession 2005. http://www.parlament.ch/ab/frameset/d/n/4707/119514/d%5Fn%5F4707%5F119514%5F119515.htm

Wagstaff, A. et al (1999), Equity in the finance of health care: some further international comparisons, Journal of Health Economics 18, 263-290.

Reform formerly reported in

Improving territorial equity in a Federal State Process Stages: Gesetzgebung

Author/s and/or contributors to this survey

Luca Crivelli (proof reading by Iva Bolgiani and Mary Ries)

Empfohlene Zitierweise für diesen Online-Artikel:

Luca Crivelli (proof reading by Iva Bolgiani and Mary Ries). "A drop of solidarity in a sea of inequity". Health Policy Monitor, April 2005. Available at http://www.hpm.org/survey/ch/a5/4