|Implemented in this survey?|
The Committee for Social Security and Health of the Council of States has put a bill of law to discussion which is intended to improve the formula on the base of which risk adjustment among health insurers is carried out. There are two main innovations: taking morbidity indicators, in addition to age and sex, into consideration and the passage from a retrospective calculation model to a prospective one.
At an international level, health insurance experts agree that, for a health insurance system based on community rating and managed by a large number of private companies to function well, it is
fundamental that this system has a well-performing risk adjustment mechanism at its disposal. In 1993 by means of an urgent federal decree Switzerland also decided to adopt a mechanism through which
it could redress the balance of risk distribution present in the portfolios of the various health insurers.
The majority of the Swiss health economists agree that the present formula is not sufficiently precise to effectively inhibit cream skimming strategies. The context in which health insurance is managed in Switzerland no doubt encourages the spread of this kind of strategy: faced with a unitary package of services and a community rating premium each insured person has to choose the deductible (the amount of risk which is not passed on to the insurer in exchange for a reduction in the amount of the premium) and is free to give up (partly or wholly) his/her independence in the choice of doctor, by joining a system of managed care, again in exchange for a discount on the basic premium (see references  and ). Both these decisions represent signals sent to the insurer regarding the perception the individual has of his/her own risk of falling sick. In addition to this, besides compulsory insurance, the sickness funds offer integrative insurance products governed by private law, in whose ambit they have the power to apply individual premiums and gather information about the health of their clients.
Since the reform procedure indicated by the Federal Council provides for a strengthening of the role attributed to the market and more precisely to competition among health insurers (see the bill for deregulation of contracting relations with the service providers), it is right to expect the chance for the insurers to be able to operate cream skimming of the risks to increase (see references  and ). For this reason, by means of a draft bill, the Council of States suggests improving the risk adjustment mechanism with the aim of encouraging the creation of basic conditions able to promote fair competition among the sickness funds.
In order to develop effective cream skimming strategies a sickness fund must sustain higher administrative costs. Faced with these costs, however, the insurer can guarantee an economic advantage due to the fact that the health services reimbursed to a group of good risks are decidedly lower than the average and therefore less than the amount cashed from premiums too. In recent years the techniques used to skim risks have become more and more subtle and difficult to control. Since it is difficult to prevent cream skimming by means of decree laws or regulations the Council of States' proposal (see reference ) is to discourage these practices by reducing the return of investment, i.e. by obliging the sickness funds which have secured good risks to pay a suitable solidarity contribution to the risk adjustment fund and by offering those left with the bad risks the right to withdraw a solidarity contribution from the fund.
Further improvement of the risk adjustment formula
Health insurers, Insured, Service providers
|Medienpräsenz||sehr gering||sehr hoch|
|Implemented in this survey?|
The "old" legislation on health and accident insurance (LAMI)
Within the scope of old law on health and accident insurance, passed in 1911, health insurance premiums were differentiated by classes of age and sex. Since at federal level health insurance was not compulsory, in order to encourage good risks (especially the young) to join early the person's legal age was not considered in the calculation but his/her age at the time of joining a certain sickness fund. This practice granted young people a bonus for early membership, in exchange for participation in the health insurance, which they would enjoy for the rest of their lives. In short by joining a fund at the age of 20 the person could acquire the right to pay the premium reserved for 20-year-olds for all his/her life but on one condition: never to change the health insurer!
At the end of the 80s, almost 70 years after the law's introduction, 99% of the Swiss population was covered against the risk of falling sick (some cantons had meantime sanctioned compulsory insurance at cantonal level). As a result, since most citizens had joined the health insurance scheme at a young age, the differentiation of premiums based on age degenerated into a sort of community rating, thus implying for the young insured the payment of large contributions of solidarity with the older generations.
In those years new, rather aggressive insurance companies appeared on the Swiss market; they began to offer very favorable terms of cover for the young and rather expensive for the elderly. The price strategy of the new companies was made possible by the fact that the elderly, by changing fund, would have lost the bonus for joining early and would have ended up paying a premium on a par with their actual age, while the young (good risks) by changing fund would have ended up by getting out of the intergenerational solidarity requested in the "historical" sickness funds, thus characterized by an elderly clientele which was redeeming its "early joining bonus".
Thus began a progressive ebb of young people from the historical sickness funds towards the new insurance companies; these movements of the insured altered the composition of the portfolios of the various sickness funds, threatening to make the whole system collapse. To prevent the de-solidarization in progress from breaking the pact between generations, in 1993 the Federal Council decided to institute a risk adjustment fund based on the age and sex of the insured. The aim of this fund, introduced by an urgent federal decree, was essentially to put a brake on the process of separation of the population into groups of mainly young people insured with the new sickness funds and mainly elderly people with the historical sickness funds.
The solution of the Federal Health Insurance Act (FHIA)
In 1996, when the Health Insurance Act came into force, the differentiation of premiums based on age and sex was abolished and substituted by a community rating premium, i.e. the same for all adult insured with a sickness fund, resident in a particular region. The package of services insured was made uniform by law and so the free transfer of the insured was set up (sanctioned also by the obligation for the funds to insure anyone at all). At first the legislator thought that it would be necessary to maintain risk adjustment for a limited period of time in order to allow the composition of the portfolios to re-balance autonomously thanks to competition and the new rules of the game; this composition was extremely disproportionate due to the above-mentioned mechanism. For this reason the institution of the risk adjustment fund was regulated in the provisional dispositions of the FHIA, in article 105, and limited in time to 10 years.
In Switzerland in the last 10 years there has been a progressive concentration of health insurance on the market, characterized by processes of merger and acquisition. In 1995 the sickness funds active in Switzerland were still 166, 10 years later in 2004 there were only 92 (-45 percent).
At the same time a decrease in the number of companies which withdraw a contribution from the risk adjustment fund can be observed. These went from 100 in 1995 to 23 in 2003, while the companies which pay contributions to the fund remained more or less at the same level (67 in 1995, 70 in 2003). These figures would seem to justify the hypothesis that the companies destined to disappear or be absorbed are those characterized by an unfavorable composition of their portfolio of insured persons. Since 1996 the volume of risk adjustment is in constant growth, with an average annual progression of approximately 10 percent. In 2004 1.1 billion francs were redistributed among the sickness funds, a sum which is equal to 6.75 percent of the net services borne by the health insurers. The volume compensated for corresponds to 64 percent of the cost differences which exist among the single health insurers. Although many experts had emphasized not only the need to make risk adjustment definite but also to refine its operating mechanisms, in 2004 the Federal Council proposed that parliament merely prolong the risk adjustment fund in its present form for a further five years; this decision was ratified by parliament at the end of 2004 (see reference ).
This is how the risk equalization fund mechanism works at present in Switzerland (see reference ). The insured are subdivided into 30 groups (15 classes of age, excluding children, for both sexes). An independent institution calculates the total average cost (of all the inhabitants) in each of the 26 cantons and the average cost recorded in the 30 groups. Theoretically the adjustment mechanism allows for each insurer to pay into the risk equalization fund, respectively withdraw from the fund, the difference between the costs of the group to which each of its clients belongs and the average costs of the population. In fact the balance between amounts due and credits is actually transferred. For an insurer with a portfolio of customers which is well distributed regarding age and sex, in exactly the same way as the total population in each canton, the balance between the amounts due and credits would equal zero. The qualities of this formula are its simplicity and the correspondence between payments and withdrawals.
Most experts active in the academic field recognize that the present formula is not good enough to prevent cream skimming strategies (see reference ). In fact within each class of age the difference between the average cost and the individual cost of each subject is very high (in other words a strong variance is recorded in the individual costs of the members of the various classes). As a result the fact that an individual belongs to one of the 30 groups does not constitute a good estimator of his/her individual costs. Let's try to illustrate the situation with a numeric example. In 2003 the insured belonging to the male sex aged between 36 and 40 caused an average monthly cost of 103 francs, the male insured between 86 and 90 an average monthly cost of 798 francs, while the male population on the whole causes an average cost of 170 francs (see reference ).
Simplifying a little (in fact in the example we don't consider the differences between the 26 cantons) the present risk adjustment mechanism means paying 67 francs (170-63) a month for each man between 36 and 40 years of age into the fund, while 628 francs (798-170) a month is withdrawn for each man between 86 and 90. Now let's suppose that a man of 38 with a chronic illness, obliged to consume health services costing 800 francs a month, is insured with the same sickness fund as a man of 88, still in excellent health, whose monthly costs amount to "only" 200 francs. Thanks to community rating both pay the same premium, let's say 300 francs a month. Without risk adjustment the balance of the two policies would be: (a) a 500-franc monthly deficit for the young man and (b) a 100-franc monthly surplus for the elderly. Thus in this example the risk adjustment mechanism ends up exasperating the balance of the two policies, since the insurer has to pay the equalization fund a further 67 francs for the young man (therefore the final deficit will amount to 567 francs), whereas for the elderly man the insurer would cash in the 798 francs adjustment in any case, thus bringing the positive balance of the policy to +898 francs.
This numerical example well illustrates the problems caused by an adjustment mechanism which is not able to operate a suitable matching between costs (or risks) and transfers / payments to the equalization fund.
In recent years the health insurers have refined their own cream skimming strategies. Since the law obliges the sickness funds to accept any insured within the ambit of compulsory insurance, the skimming has to be carried out subtly and in a hidden way; targeted marketing campaigns, sponsoring of sports events, policy sales via internet, combining compulsory insurance with supplementary cover which is interesting for those in good health (e.g. cover for fitness activities), worsening the information desk - which is used in particular by sick clients, delays in reimbursement of the services, even to the extent of the payment of proper provisions to the so-called terminators, (insurance brokers whose mandate is to persuade especially expensive insured of the (inexistent) advantages they could have if they transfer to a competitor sickness fund.
The approach of the idea is described as:
In recent years some institutions and private research centers have begun to study the way to further refine the risk adjustment mechanism, especially with reference to the progress reached in
this sector in other nations, above all in Holland. The most significant contributions brought to the discussion in these years are: (1) the works of Konstantin Beck (see references  and ), (2) a research project realized in the ambit of the
national program of research No. 45 (Future Problems of the Welfare State) under the supervision of Prof. Alberto Holly (see reference ) and (3) the research of Stefan Spycher (see references ,  and ), among which a report of evaluation commissioned by the Federal Office of Public Health stands out; this was in the ambit of
the project of the third revision of the Federal Health Insurance Act. The principal merit of these studies is that of using data already available today on the morbidity and on the clinical history
of the insured (e.g. the occurrence of hospital stays in the previous year, ICD-10 code of hospital diagnosis, the presence of a chronic disease inferred from the prescription of particular
pharmaceuticals), in order to be able to foresee in a more accurate way the risk factors and therefore the expected costs for the various categories of inured. The most evolved models of compensation
are based on the risks and no longer on the effective costs, by resorting to statistical forecasting models. In this way the prospective models do not relax the incentive of health insurers to
strictly control the appropriateness and the level of expenditure: then where real cost instead of expected cost is compensated, it is right to assume a relaxed attention of the health insurer with
regard to all possible savings.
A certain consensus exists among the political parties as to this being an opportune moment to improve the risk adjustment mechanism. In fact it is a reform which should increase the fairness of the system (avoiding the painful consequences for sick individuals due to risk selection) and at the same time contribute to strengthening the regulatory function played in the Swiss health system by competition among health insurers. The cantons (see reference ) would also like to see risk adjustment functioning better, although they recognize that the task of regulating health insurance constitutionally falls on the Confederation. Among the health insurers no consensus reigns, reflecting the present situation characterized by sickness funds specialized in cream skimming strategies and therefore with a particularly favorable portfolio on the one hand, and by less aggressive sickness funds who are obliged to insure a higher than average percentage of bad risks. At the moment the real enemy of a reform of risk adjustment seems to be the Federal Council, which - through the Minister of Home Affairs - has induced parliament to prolong the present formula for five more years and on several occasions has sided against every proposal to strengthen risk adjustment further. The hostility which the head of the Department of Home Affairs, which the Federal Office of Public Health belongs to, has shown towards the bill may be interpreted in the following way: a functioning mechanism of risk adjustment could in fact stop the concentration process in progress on the health insurance market; in other words the federal government would like to see a further reduction in the number of sickness funds to ten large funds, better able to manage the tasks which will in future be given to the health insurers.
|Canton||sehr unterstützend||stark dagegen|
|Federal Council||sehr unterstützend||stark dagegen|
|Committee for Social Security and Health of the Council of States||sehr unterstützend||stark dagegen|
|Health insurers with a particularly favorable portfolio||sehr unterstützend||stark dagegen|
|health insurers with a lot of bad risks||sehr unterstützend||stark dagegen|
The Committee for Social Security and Health of the Council of States suggests inserting two new variables, referring to health status, into the formula for risk adjustment: (1) the occurrence of a hospital stay in the previous year, since there is evidence that on average people show higher medical expenditure even in the year following the hospitalization and (2) the belonging to a group of chronically ill, on the base of a prescription of a certain active principle (ATC Class). The committee proposes passing from the retrospective model - today the compensation takes place on the base of the average effective costs of the current year- to a prospective model. Substantially, instead of the present 30 classes 60 ordinary classes would be created (15 classes of age, 2 sexes, people with and without hospital stays the previous year) for whom the average costs would be forecast on the base of the previous year's data, and 13 extraordinary classes, where an attempt would be made to group together some kinds of chronically ill. The draft bill would be particularly detailed and technical and this is a rather unusual fact for Switzerland. As a rule the laws contain only general principles, relegating the technical details to an application ordinance whose formulation falls on the relevant federal office (in this case the Federal Office of Public Health). There are some who interpret the decision to draw up an unusually detailed text of law as a tangible sign of the committee's lack of trust in the Federal Office, which till now has seemed reticent in the face of the proposal to further refine the risk adjustment mechanism.
|Federal Council||sehr groß||kein|
|Committee for Social Security and Health of the Council of States||sehr groß||kein|
|Health insurers with a particularly favorable portfolio||sehr groß||kein|
|health insurers with a lot of bad risks||sehr groß||kein|
The consultation process should finish by the end of October 2005, as the committee intends submitting the final text of law to the Council of States during the winter session of the federal chambers. If the parliamentary procedure should go ahead without delays, part of the reform could come into force on 1 January 2008. Since in order to identify chronically ill patients some changes are necessary to the present survey methods of pharmaceutical prescriptions, the 13 extraordinary classes might not even come into force before 2010. The only unknown factor on the decision times is linked to the possibility that the reform of risk adjustment may be voted on together with the much more controversial reform of hospital financing. In this case the decisional times might turn out to be much longer.
The cantons recommend realizing a simulation of the risk adjustment mechanism according to the new formula in order to evaluate its impact and consequences better.
The reform of risk adjustment represents a first important step towards a fairer competition in the field of health insurance and constitutes a premise to realize the other reforms on the
However, in order to make the market function in this sector two extra measures are necessary:
|Qualität||kaum Einfluss||starker Einfluss|
|Gerechtigkeit||System weniger gerecht||System gerechter|
|Kosteneffizienz||sehr gering||sehr hoch|
Luca Crivelli (proof reading by Iva Bolgiani and Mary Ries)