What Avik Roy won't tell you about healthcare in Switzerland and Singapore

Avik Roy so despises the Affordable Care Act that he wants it to swallow Medicare and Medicaid.

According to Roy's latest sketch of a conservative plan to offer universal health insurance, Medicare and Medicaid are the chief culprit in the United States' uniquely expensive healthcare system -- notwithstanding that they pay less per procedure than private insurers and patients, and that most experiments in alternatives to fee-for-service payment are located within them.

In Roy's free-market healthcare vision, Medicare and Medicaid patients would be transitioned onto deregulated health insurance exchanges, where insurers would be free to offer even skimpier insurance than the current exchange bronze plans, designed to cover just 60% of average patient costs. They might also be free to expand the ACA's age-rating, which limits the ratio of older patients' premiums to young patients' to 3-to-1, and be freed from offering the ACA's minimum essential benefits.

To flesh out this vision, Roy touts the virtues of his two favorite national systems: those of Singapore, which features mandatory individual health savings accounts (HSAs), and  Switzerland, in which everyone buys insurance on private exchanges (subsidized for about a third of the population). But as is his wont, Roy fails to mention the feature that enables each of these systems work: strong government influence over pricing.

Take first Roy's sketch of Switzerland's free market system:

Switzerland has a system of universal, subsidized private insurance exchanges that look much like Paul Ryan's Medicare-reform plan and Obamacare's exchanges. Unlike Obamacare, however, the Swiss exchanges actually work. In Switzerland, there are no public options or government insurers like Medicare or Medicaid. Everyone is in the private system. The poor get a premium support subsidy that covers the cost of their premium; as one moves up the income ladder, the size of the subsidy decreases. Wealthy and upper-middle-class Swiss get no subsidy at all.

The Swiss system does indeed deliver far more affordable insurance and healthcare to all its citizens than Americans enjoy - though at a greater cost than in most other wealthy countries.As of 2012, according to a Commonwealth Fund outline, basic health insurance premiums averaged about $3,000-$5,000 per adult, varying by canton. Annual out-of-pocket costs (OOP) were capped at $580 per adult, a bit less than 10% of the $6350 OOP maximum in the ACA. Coinsurance is 10% after a low deductible ($250 per adult in many plans), compared to 30-50% in many ACA silver plans. Most privately insured Americans, including those who get their insurance through their employer, would kill for such coverage at such prices.

How do the Swiss control costs?  Uniform rate schedules (my emphasis):

Apart from some managed care plans, in which physician groups are paid on a capitation basis, ambulatory physicians (including GPs) are paid according to a national fee-for-service scale based on points (TARMED). TARMED offers incentives for less resource-intensive forms of care.The point values can vary among cantons and service groups (physicians, hospitals) and are negotiated annually between the health insurers’ association, santésuisse, and the cantonal medical associations or hospitals, or decided by the cantonal government if the other parties cannot agree.

Hospitals About 70 percent of acute inpatient care is provided by public or publicly subsidized private hospitals. Hospitals receive around half of their funding from insurers. The corresponding base rates (i.e., the amount that is paid in the DRG system for a hospital case with cost-weight 1.0) are negotiated between hospitals and health insurers and must be approved by the cantonal government. The remaining costs of public and subsidized hospitals are covered by the cantons, which provided 44.5 percent of inpatient funding in 2009.

Fees for medical services in Switzerland are uniform, set either by the national government or by all insurers in a given canton collectively, with cantonal government oversight. The insurers providing the mandated basic health insurance are nonprofit, though for-profit arms and entities can offer supplemental insurance. All pricing within the mandatory health insurance system is either set directly or overseen by government. Swiss healthcare is more "government-controlled" than American healthcare, notwithstanding the country's dependence on "free market" (heavily regulated, nonprofit) insurers.

Singapore is Roy's real fave. His overview of its healthcare system is even more selective than his snapshot of Switzerland:

From a fiscal standpoint, Singapore is far better than even Switzerland. Singapore’s public spending on health care as a fraction of GDP is 86 percent lower than America’s. That’s because every Singaporean has a health savings account, which is used to pay for non-catastrophic medical expenses. Singaporeans pay a payroll tax, which is then redirected into the HSA in a manner similar to our Social Security system. But unlike Social Security, the Singaporean HSA is controlled by the individual and supplemented with a government-sponsored catastrophic coverage plan.

Singapore does indeed induce its citizens to pay a high percentage of the country's healthcare costs -- mainly by means of a mandatory HSA that takes 7-9% of every paycheck, depending on age (the Medisave account is one component of a mandatory multipurpose savings account that takes over 30% of wages).  But as I have noted before, those privately-paid bills remain affordable because the government a) subsidizes most of those billed costs, and b) runs healthcare facilities that dominate the market. To borrow further from my prior post:

In Affordable Excellence: The Singapore Health System  (Brookings, 2013, free on Kindle), William Haseltine explains cost control, Singaporean style:

The government's most consequential approach to keeping prices under control: they have developed a quasi free market. within which the healthcare system must function...Public and private hospitals coexist in this market, but most hospital care is intentionally directed toward the public side through the patient incentives and subsidies I have described. With the ability to set the prices of services at the public hospitals, and with the ability to regulate the number of public hospitals and beds they provide, the government shapes the marketplace. It then allows market forces within that marketplace to regulate the private sector, which must not price itself out of the market....

One study comparing healthcare systems among the developed Asian nations described the Singapore government as “micro-managing provision,” ensuring that public hospital charges are kept at acceptable levels, and in turn relieving pressure on Medisave accounts. It went on to say that the government “uses funding (and hospital ownership) in a calculated manner to control service costs and subsidize care, in turn limiting expenditure from insurance accounts and providing incentives for private providers to keep costs down (Location 977-988).

The system seems designed to avoid the kinds of distortions imposed by entrenched private market interests in the U.S.:

Former Health Minister Khaw Boon Wan has said that the public sector should always play the dominant role in providing care services, but there needs to be a private healthcare system to challenge it. In his view, the public sector is necessary to set the ethos for the entire system— which should not only be about maximization of profits, a primary focus of the private sector. It is the public side that tends to set boundaries and standards for ethics within the system.    

 Khaw takes the view that where the private sector does dominate, it will inevitably influence the government and public policy to serve its own interests. If the public healthcare system is too small, it becomes the “tail that tries to wag the dog.” Once a private healthcare system becomes the dominant entrenched player, it is very difficult to unwind it— there are many vested interests and many pockets will be hurt. (Location 998--1007).

In the U.S., government exerts pricing discipline on the healthcare system mainly through Medicare and Medicaid -- which, together with other government programs, account for about half of healthcare spending in the U.S.  But the system is so fragmented, and Medicare pricing itself so physician-dominated, that outsized pricing power rests with the providers, as the New York Times' Elisabeth Rosenthal has so ably documented in a series of exposés (1, 2, 3) on provider price-gouging.

Roy scapegoats Medicare and Medicaid and would fold them into the exchanges, giving us a uniform exchange system something like Switzerland's. But he would eschew Switzerland's government-imposed pricing discipline, which is more encompassing, not less, than that of government in the U.S. Roy would also offload a higher percentage of overall healthcare costs onto individual citizens, as in Singapore.  But he would do so without importing the Sinagporean government's heavy hand in making those costs affordable.

Roy's conservative healthcare vision is a shell game, in which he cherry-picks competitive aspects of other national systems (HSAs, insurance exchanges) and either dismisses or ignores essential elements of those systems that he doesn't like (purchase mandates, community rating, coverage standards). Above all, he steadfastly ignores what all empirical evidence points to as the sine qua non of effective healthcare cost control.  In a one-on-one dialogue, Ezra Klein called him out on this core omission:

KLEIN: Yeah, but let’s say w:hat Singapore does, right? And I’m very interested in the Singaporean system. They set all the prices that hospitals can charge. They set all the prices that doctors can charge. So everything you’re doing, essentially the government has negotiated around the front end. They have an individual mandate, we can call it, to save 20% of your wages. Essentially 20% of your wages are directly garnished into a health savings account...

But in these systems, right, because when you talk about the one-seventh, Singapore is very cheap. Great Britain is very cheap compared to us. Canada is cheap. Sweden’s cheap. France is cheap. Everybody’s cheap. And what all of them do, the thing that they all do, is not health savings accounts, right? That is not the common denominator. The thing every single one of those systems do is the government is a primary negotiator. The government says how much can a drug company charge. The government says how much will a doctor’s visit cost. The government says how much a hip replacement will cost. And the per-unit price of health care in those countries is way, way, way down.

ROY: Right.

Right indeed. But still unacknowledged as Roy bashes away at the ACA.

UPDATE: Austin Frakt has apparently been over these points ad nauseum with Avik Roy and today asserts, "we'll never have an honest intellectual debate":

We’ve gone back and forth on these issues for years, and I’ve never come close feeling like we have had an honest intellectual debate. My guess is that he hasn’t either, though he can correct me if I’m wrong. Yet, I bet we both likely feel that we, ourselves, are engaging honestly with each other and the evidence.

Next, the practical: we don’t need honest intellectual debate. It’s neither necessary nor sufficient for health policy progress.

For all the intellectual disagreement (and dishonesty!) among wonks and pols, we could still make progress. For example, both Avik and I recognize that the ACA is a foundation on which to build additional reforms. And, as I have argued, even if some of those reforms take a rightward direction, liberals should engage conservatives on them, for some things of value could be gained in an exchange. What’s needed is not honest intellectual debate, but good-faith compromise...

I’ll take good-faith compromise over honest intellectual debate any day. The latter will never happen. Unfortunately, I’m only slightly more optimistic that the former will, even if rarely, briefly, and not, among pols and their surrogates, in an election year.

A couple of thoughts about this world-weary stance. First, a ground pre-prepped for de facto compromise has been laid -- in the state exchanges. Successful sabotage by GOP governors and legislatures may cause some of them to fail -- yet the law mandates that each state maintain one. There is, however, a key loophole: starting in 2017, states can apply for waivers by submitting alternative plans that purport to meet the ACA's coverage benchmarks (in 2011, Obama pronounced himself willing to move the waiver start date to 2014, but the GOP was more interested in sabotage).  On the Medicaid front, the Obama administration has shown itself willing to accept a wide range conservative experiment; the same will doubtless prove true for the exchanges if any GOP-run states want to try.  The ACA might be viewed as a multi-state laboratory waiting to happen -- with no need for knock-down-drag-out fights in Congress. Governors willing to deal in good faith can work quietly with HHS -- or hand-in-glove, if a Republican becomes president in 2017.

Second:  facts should eventually overwhelm polarized "debate."  Privatizing Medicaid will cut costs and/or improve care, or it won't.  A state exchange that gives prominent place to HSAs and perhaps rejiggers essential benefits or incorporates catastrophic options into the exchanges will create a viable market, or it won't.  Within a few years, there will be a lot of state experiences to compare. If results are ambiguous, states can continue with diverse systems, as they already do on many fronts.

One last thought. Productive compromise may be possible on issues one side doesn't "own" reform -- e.g., in bipartisan legislation afoot to replace Medicare's Sustainable Growth Rate (SGR) and transition provider payment away from fee-for-service.  Perhaps lobbying will corrupt the process or ideology will rear its head and poison it.  But there's at least a possibility that both sides can commit to a plan that unskews provider incentives to some degree.


Related:
No, 93 million Americans will not lose their health plans under Obamacare
Medicare for all, or Obamacare for seniors? Or both?