Switzerland

Switzerland, a country with a population of approximately 7 million, is of interest in comparative health policy for at least three reasons. First, consumer preferences regarding health care are respected to a degree found only in the United States--with similar consequences in terms of health care expenditure. Second, Switzerland has a very decentralized political system, especially when it comes to matters of health policy. And third, the new Law on Health Insurance (LHI) of 1994, which survived the test of a popular referendum in 1996, has introduced managed competition into the health care sector to an extent that seems to at least parallel the other two well-known examples, Belgium and the Netherlands (Schokkaert 1996; van de Ven and van Vliet 1992).

Overview of Switzerland's Health Care Sector

Political power is very decentralized in Switzerland. The confederation is responsible for social health insurance, which has become mandatory for the entire resident population under the new LHI. However, authority for health policy continues to be vested with the twenty-six cantons (member states) that mainly act as financiers of public hospitals. The cantons also pay contributions toward operating costs and provide investment grants to private hospitals that admit patients with social health insurance. Some public health services are financed (and, in part, provided, especially in the case of nursing homes for the aged) by more than 3,000 communes.

It has become customary to compare countries in terms of the share of their GDP devoted to health care expenditure (HCE). Part A of Table 1 shows that Switzerland occupies an upper-middle position, comparable to Germany's. The contrast to Great Britain, with its National Health Service, is commonly interpreted as evidence of inefficiency. Indeed, there are indications to this effect:

Lower Real Than Nominal Share of HCE in GDP. As evidenced in part B of Table 1, Switzerland's real health share has recently been lower than its nominal counterpart. This means that the health services deflator has had a higher value than the GDP deflator. Thus, providers of health care services may enjoy rents, that is, incomes in excess of what is necessary to make them continue their activity rather than changing their profession or rehiring.

High Average Price of Drugs. Part of the high relative price of HCE can be traced to the fact that drugs command a higher price in Switzerland than in most OECD countries as a result of the prohibition of parallel imports.

High Share of the Hospital Component of HCE. The particularly high relative price of hospital services has a great impact on the HCE deflator, since some 48.5 percent of total HCE is devoted to hospitals, a very high figure in international comparisons (Federal Statistical Office 1997: 43). Given the high degree of retrospective subsidization by most cantons, the incentives for cost containment by hospitals are very weak.

Structural Features on the Supply Side. It has proved impossible for cantonal governments to close a hospital department, let alone an entire hospital. This keeps hospital density at a high 113 patients per 10,000 inhabitants, compared to 41 per 10,000 inhabitants in the United States as of 1995 (OECD 1997). Given that cantons finance investments to the tune of up to 80 percent, a community hosting a hospital may get five Swiss francs for each franc it spends on the modernization or extension of its hospital.

On the other hand, the increasing HCE share in total income may reflect preferences of consumers--an interpretation that should not be dismissed lightly, for at least three reasons: First, research on the determinants of HCE by industrial countries invariably ascribes a decisive role to income (e.g., Gerdtham et al. 1992), regardless of the organization of their health care sector. High elasticity estimates point to health care as a luxury good. Second, industrial countries continue to exhibit an increasing rectangularization of...