The Swiss spend 12% of GDP for healthcare as compared to our slightly less than 18%. So, they pay 2/3 of our cost, not half. Also, they have 83 insurance companies in a country of seven million people. The six largest insurers account for about 80% of the business. I don’t think insurer administrative costs are a big issue in the scheme of things. I do think though that there is more that our insurers could do to standardize payment rules, especially for different policies offered by the same company, and to move toward uniform documentation requirements as well. The elimination of medical underwriting and a probable reduction in broker commissions will also shrink administrative costs.

Separately, I forgot to mention that the pharmacy benefit managers (PBM’s) are also large direct buyers of generic drugs which they fill for patients via mail order. The three largest PBM’s in order are Express-Scripts, CVS-Caremark, and OptumRx, a division of UnitedHealth Group. Overall, I’m told that generic drugs are roughly 10% cheaper in the U.S. than in other countries.

Barry, if you add together what we could save on drugs and devices and the incidental 1% here and 5% there, and throw in the administrative expense caused by the fragmentation of payers and payer rules, you just may be able to get to Swiss percentages of GDP. It’s not like they can do this for half our price, and we shouldn’t expect that either.
As to non-profits, well, I am not sure what that means any longer, other than not paying taxes.

Margalit –

I flat out disagree with this except in one area – brand name drugs. I support the use of more restrictive formularies and/or reference pricing to reduce brand name drug costs in the U.S. If we were successful in doing this, I think drug prices would rise somewhat in other countries as drug makers argue that they need to recapture some of the lost profits from the U.S. market in order to sustain research and innovation. Interestingly, generic drug prices are actually cheaper in the U.S. than anywhere else because of our large population and the buying power of direct purchasers including Walgreen, CVS and Wal-Mart. Brand name drugs, by contrast, are distributed through three large wholesalers – Amerisource Bergen, Cardinal Health and McKesson.

Medical devices are also a very profitable business and their cost comes through in hospital based surgical care where most devices are used. I don’t know how much European systems pay for these vs. the U.S. and U.S. hospitals pay wildly different prices depending on their volume and influence (academic medical centers).

The biggest price differences between the U.S. and European healthcare systems is centered on hospital based care even though 85% of U.S. hospitals are non-profit. I suspect but can’t prove definitively that the cost of operating U.S. academic medical centers and community hospitals is significantly higher than comparable hospitals in Europe and Canada. The reasons include everything from higher compensation for doctors and senior management to fewer patients per nurse to more private rooms and amenities to more total employees per licensed bed.

While I would also like to see us move away from fee for service in favor of capitation and bundled payments and pay for value instead of volume, I note that the Swiss system also operates with a fee for service model, at least for the most part. I think there is also more fraud in the U.S. public programs as well as more defensive medicine.

Finally, on the insurance side, 40% of commercially insured people already get their insurance from a non-profit insurer, mainly the Blues and Kaiser. Their profit margins are in the 1% range. The for profit insurers, which have been growing as a result of industry consolidation in recent years, have profit margins typically in the 5% range before taxes. There is not a lot of profit extraction going on here. Moreover, at least in theory, we could give them an anti-trust exemption so they could negotiate with hospitals and other providers regionally and all pay a given provider the same price for the same service. This is the way the Swiss do it.

This MRI is not going to bankrupt us. We are being driven into insolvency by corporations extracting profit from the system, which is not the case in those European countries, and the uniquely American solution, i.e. clamp down hard on people (including doctors), lie to them, vilify them and use divisive rhetoric in order to maintain acceptable levels of profit extraction, is not acceptable to me. And I would venture a guess that once the smoke clears, this will not be acceptable to most people.

I strongly agree with you on both points a and b.

I’ve also said many times that lots of patients think more care is alwlays better care and more expensive care is always better care when much of the time, it isn’t. They also often think that doctors who don’t order every possible diagnostic test, especially imaging tests, aren’t sufficiently thorough. Then they wonder why insurance costs so much and their employer can’t afford to give them much of a raise.

Doctors also order plenty of tests for defensive medicine reasons alone. They wouldn’t order them for a family member or if they were paying the bill out of their own pocket.

As you know, the Swiss system has no public option even for the elderly. People are required to buy their own insurance but 45% of the population qualifies for a subsidy. As a result, about 35% of healthcare costs are covered by insurance premiums individuals pay themselves, another 35% comes from the taxpayer funded subsidies plus a portion of hospital operating costs and 30% is paid for out-of-pocket. In the U.S. the out-of-pocket number is 12%-13%.

No insurance plan anywhere covers everything. They all have lists of covered and non-covered services. Mr. Zeltner probably meant services that doctors deem appropriate are paid for assuming they are on the list of covered services. Drug prices are considerably lower in Switzerland than in the U.S. but that can only happen as a result of either the use of restrictive formularies or reference pricing. The latter could account for significant out-of-pocket costs for more expensive drugs within a therapeutic class than happen to be more appropriate or effective for a particular patient.

While I’m not quite sure what to make of it, when I was in Switzerland as a tourist for almost two weeks in 2011, I could count the number of obese people I saw the entire time on probably one hand. There are only about seven million people in the country and the incidence of poverty is also likely considerably lower than in the U.S. but most of them looked very healthy. Prices for most other goods and services are higher than in the U.S. but their healthcare costs are about 12% of GDP vs. our 18% or a bit less.

I think the cost per unit of hospital based care is far higher in the U.S. than anywhere else even at Medicare rates and drug prices are higher as well. Doctors in the U.S. make more money than their counterparts in other countries as well. Our litigation system drives more defensive medicine than elsewhere especially with respect to diagnostic testing that is not painful or invasive. Attitudes toward death and dying are different in the U.S. in a way that makes end of life care more intensive and expensive. I think the easiest issue to tackle, at least in theory, is drug prices though industry lobbying would be an impediment. Tort reform would be much harder because trial lawyers are a key constituency for Democrats. End of life attitudes are more of a cultural issue but seem to be slowly moving toward a preference for more conservative treatment and more of a willingness to execute a living will or advance directive.

I think our system will always be more expensive than others but I’m willing to give Obamacare a chance and I think some of the new value based insurance design products have the potential to mitigate cost growth assuming they gain traction with both employers and individuals buying coverage on the exchanges. Doctors also have a key role to play in identifying the most cost-effective high quality hospitals and specialists and steering patients to them. There is a lot of work to do here; that’s for sure.

Margalit, along with Barry I am confused by your comments. Are you saying that a) no patient ever insists on care despite it being unneeded care? and b) that everything a doctor prescribes is necessary care?
I would have to answer those questions a) plenty of patients want all the care they can get whether needed or not and b) plenty of docs prescribe unneeded care (see defensive medicine, influence by pharma, and just plain ignorance)
Your views are not clear to me from the way your comments are worded. Thanks.

Barry, I suggested no such thing, but yes, if “a doctor recommends it, we should pay for it no questions asked.”
Just to remind you, in another Health Affairs article I know you read, Thomas Zeltner (the ex-boss of Swiss health care) said: “First, whatever a doctor prescribes, the health insurance plan deems appropriate and therefore covered.”.
As you know I am a fan of that particular system, which seems to thrive by providing its citizens as much choice as possible, and its mostly independent doctors as much freedom as they need to practice medicine. And it’s still much more affordable and equitable than what we have here.
I just find it hardly plausible that the problems we have with our health care system are due to some inherent deficiency in the morals of our nation, but I can see how shifting the conversation in this direction is conducive to diverting scrutiny from the affairs of certain unsavory parties. That whole thing about offense being the best defense….