4 Countries, 4 Different Approaches to Healthcare
Comparing the US, Swiss, Canadian, and UK healthcare systems
Everyone agrees that the American healthcare system is broken: the US spends more on healthcare as a share of the economy than any other country — nearly twice as much as the average OECD country — yet has poorer health outcomes than most of its peers.
Despite agreeing on the problem, no one agrees on how to fix it. One way for us to figure out what to do is to look at other countries for inspiration. These countries form a natural experiment for us to see the impact of various policies.
In this post, we will examine the US healthcare system and compare it to three very different healthcare system models from three countries: Switzerland, Canada, and the UK. Though they all take unique approaches and have different tradeoffs, they all rank extremely high on the Healthcare Access and Quality (HAQ) Index. The HAQ Index is measured on a scale from 0 (worst) to 100 (best) based on death rates from 32 causes of death that could have been prevented by quality medical care.
US: Private Providers, Private & Public Payers
The US has a highly fragmented healthcare system with mostly private providers and a mixture of public and private payers.
Most insured Americans are covered by private insurance plans through their employers. The rest can purchase their health insurance through the Health Insurance Marketplace that was created by the Affordable Care Act (ACA) in 2014. There are also some government-funded programs — such as Medicare, Medicaid, and Children’s Health Insurance Program (CHIP) — that provide coverage to vulnerable populations. The government also both funds and provides care for Veterans through the Veterans Health Administration and for Native Americans through the Indian Health Service.
Medicare is available for people 65 and older and younger people with disabilities or End Stage Renal Disease. Medicare beneficiaries can choose to receive their coverage through traditional Medicare or through one of the privately-run Medicare Advantage plans, where private commercial insurers contract with Medicare to provide healthcare insurance. Medicaid is available to low-income Americans. States manage and partially fund the Medicaid program so the exact eligibility criteria differs by each state. Finally, CHIP provides coverage to uninsured children who are low-income but above the cutoff for Medicaid eligibility. In some states, CHIP covers pregnant women as well.
The US is one of the very few countries in the OECD that does not have universal health coverage. Universal healthcare simply means that every citizen has a realistic ability to access basic healthcare services. It does not mean that the government pays for and provides healthcare (that is socialized healthcare). The ACA made huge strides towards guaranteeing health coverage to all Americans but, in 2018, 27.5 million people or 8.5% of the population were still left uninsured.
In the past election, there was a lot of talk about Medicare for All. There were a number of different Medicare for All proposals but there were two key types: a single-payer system advocated for by Senators Bernie Sanders and Elizabeth Warren and a public option advocated for by former Mayor Pete Buttigieg and President-elect Joe Biden.
Sanders and Warren’s proposal advocated for a single-payer system, where all private insurance would be replaced with government-funded insurance. Buttigieg and Biden’s proposal, on the other hand, advocated for the public option, where anyone can choose the public Medicare option if they wanted.
The high costs of the US healthcare system has produced some positive outcomes. The US has one of the largest and most well-trained workforces and has especially high quality medical specialists. It also has excellent healthcare facilities and strong research programs at universities and pharmaceutical companies, which has enabled it to become the best in the world in areas like cancer treatments and complicated surgeries. In general, the US excels in high-quality advanced medical procedures and elective surgeries.
However, all of these benefits only accrue to the select few who can afford them. Healthcare costs are so high that 66.5% of all bankruptcies are tied to medical issues. 32% of Americans have medical debt and over half have defaulted on those bills. Despite the high spending, on average, the US still has worse health outcomes than its peer countries; it has the highest rates of chronic disease burden, obesity, and hospitalizations from preventable causes like diabetes and hypertension.
Switzerland: Regulated Private Sector
The Swiss healthcare system relies entirely on the private sector to both provide and pay for healthcare (in contrast to the US, where there are both public and private payers). However, the Swiss government plays a huge role in providing subsidies and regulating the industry. Switzerland is considered to have one of the best healthcare systems in the world and ranks near the top according to their HAQ Index.
Swiss private insurers are required to offer basic health insurance coverage to everyone, regardless of age or preexisting conditions. All residents are also required to get basic health insurance. This mandatory basic insurance covers a broad range of treatments, including most general doctor and specialist services. The basic insurance plans are strictly regulated and insurers are not allowed to make a profit on mandatory health insurance. Each insurer must charge the same rate to all insured people within the same age category and region, regardless of gender or medical history.
The Swiss also have the option to buy supplementary health insurance to cover additional charges, such as dental coverage or a private hospital room. Here, insurers are allowed to reject applicants, charge different premiums based on risk, and make a profit.
Unlike in the US, health insurance is not provided by employers but instead is organized individually, with each person free to choose their own health insurer. Similar to the US healthcare system, the Swiss system requires the insured to contribute to the cost of treatments through deductibles and copayments (called retention in Switzerland). However, in Switzerland, if an insured person’s premiums are higher than 8% of their income, the government provides a cash subsidy to the individual to pay for the difference.
Switzerland’s healthcare costs are much lower than the US’s costs. Some tactics that Switzerland uses to keep their costs down are:
Regulation of prices: The Swiss government regulates the prices of drugs, lab tests, and medical devices. Only drugs that have been judged to be cost-effective can be sold. In the US, governmental bodies (such as the FDA) are not even allowed to directly consider the pricing of treatments, medicines, or devices when deciding to give their approval and thus there is no regulation of prices.
Ceiling for drug prices: The Swiss government sets a maximum allowable price for a drug; pharmacists can charge whatever they want to beneath that ceiling. In the US, there is no ceiling to drug prices and, furthermore, Medicare, the largest buyer of prescription drugs, is legally barred from negotiating drug prices with manufacturers. Thus, Medicare ends up being a “price-taker” that has to accept whatever prices pharmaceutical companies request. Private middlemen, like pharmacy benefit managers, have emerged in this void to handle drug price negotiations.
Alignment of incentives for prescriptions: Pharmacists are reimbursed flat amounts for prescriptions, so they have no financial incentive to dispense more-expensive drugs.
The downside of the Swiss healthcare system is that healthcare costs are rapidly rising. Switzerland’s healthcare costs are the second highest in the world, right behind the US, and so the Swiss are experimenting with different measures to reduce costs as well.
Canada: Private Providers, Public Payer (Single-Payer System)
Unlike the Swiss healthcare system, in the Canadian healthcare system, healthcare is paid for by the government. Thus, for Canadian citizens and permanent residents, all medically necessary hospital and physician services are free at the point of use. The hospitals are still privately run and bill the government according to an agreed upon fee schedule. If single-payer Medicare for All were passed in the US, we would have a similar healthcare system to the Canadian system.
Canada’s healthcare costs are much lower than the US’s or Switzerland’s costs. Some tactics the Canadian system uses are:
Monopoly buying power: With Canada’s single-payer system, they are able to use their monopoly buying power to negotiate lower prices. Canada spends 70% of what the US does on brand name drugs. In the US, Medicare, Medicaid, and Veterans Health Administration are able to use their large buying power to negotiate lower prices (private insurers pay nearly double Medicare rates for all medical services) but, since there are so many different payers, none of them have enough buying power to negotiate extremely low prices (and Medicare can’t negotiate drug prices at all). Furthermore, private insurers in the US have little incentive to negotiate lower prices since the more their costs increase, the more they can charge in premiums, increasing their profit margins.
Negotiated fee schedules: Administrative costs are lower since physicians simply bill the government according to an agreed-upon fee schedule. In the US, 30-40% of hospital costs are due to billing, coding, negotiating payments, etc. A lot of these costs are eliminated in the Canadian system.
Regulation of drug prices: Similar to the Swiss system, the Canadian system only approves drugs that are both clinically effective and cost-effective. In the US, governmental bodies (such as the FDA) are not allowed to directly consider the pricing of treatments, medicines, or devices when deciding to give their approval.
The downside of the Canadian system is that people have less flexibility in choosing an insurance plan that fits their needs and there is less innovation to continually improve the insurance system. Wait times for elective surgeries also tend to be longer in Canada. Due to this, 67% of Canadians have complementary for-profit coverage, mostly through their employer, for non-covered benefits such as vision and dental care, outpatient prescription drugs, rehabilitation services, private hospital rooms. Canada also performs slightly worse on the HAQ Index compared to Switzerland, though it still performs better than the US.
UK: Public Providers-Public Payers (Socialized Healthcare)
Finally, in the UK healthcare system, the government, through the National Health Service (NHS), both pays for healthcare and runs hospitals and employs healthcare workers. This is true socialized medicine. Similar to the Canadian system, all medically necessary hospital, physician services, and drugs prescribed in NHS hospitals are free at the point of use.
The UK’s healthcare costs are even lower than Canada’s and much lower than the US’s. Some tactics that the UK uses to keep costs down are:
Minimal administrative costs: There are minimal administrative costs since the government owns the hospitals and providers. There is very little billing to be done since most providers are paid salaries. Thus, a lot of the administrative costs that we deal with in the US — such as billing, coding, collection, selling debt, etc. — are eliminated. These administrative costs account for 30-40% of hospital costs.
Regulation of prices: Similar to the Swiss and Canadian systems, the UK healthcare system assesses new health technologies for both efficacy and cost-effectiveness. Furthermore, costs of branded pharmaceutical drugs are capped through a voluntary agreement between the UK government and the pharmaceutical industry. The UK spends 40% of what the US spends on branded drugs.
Alignment of incentives: Most providers are salaried or make a majority of their money through a capitation model, where they get a fixed amount of money based on the number and types of patients they treat (a value-based care model). Through this system, the providers don’t have an incentive to provide expensive and unnecessary services like they do in the US.
The main downsides of the UK healthcare system are the long waiting lines for nonessential medical care and low responsiveness. Similar to the Canadian system, there is also less flexibility in choosing the healthcare plans that fit their needs and less innovation to continually improve the healthcare system. Due to this, 11% of English residents buy private supplementary coverage for more rapid access to care, choice of specialists, and better amenities.
Though the UK’s healthcare system may seem radically different than the American system, we actually have a smaller version of the UK healthcare system in America: the Veterans Health Administration (VHA)! The VHA is the largest integrated healthcare system in the US and has been found to provide equal, if not better, care as compared to the private sector. The VHA is also entitled to deep discounts for medicines: they are legally entitled to a 24% discount from manufacturers and can negotiate even deeper discounts.
To summarize, here is the most vital information about each countries’ healthcare system:
Fixing the American healthcare system is not going to be easy. But, by looking at other countries for inspiration, we at least know where we can start.
If you are interested in delving deeper into some of the topics covered in this post, I would highly suggest reading/listening to:
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I love the graphics! They are so helpful
Good job at balancing high-level summaries with details!