Health insurance premiums could increase by around 10 percent on average in 2023. A key factor here is the use of cash reserves in the last bonus round. According to industry estimates, this backlog alone amounts to 5 to 6 percent.
Minister of Health Alain Berset (right) found that the health insurance funds had excessive reserves.
Imagine that politics ordered rain. The rain comes and politicians react with an outcry: “Everything is wet, we need a drying program immediately.” This is roughly how the situation presents itself with regard to the premium shock for health insurance companies for 2023. According to information from the industry, the premiums should actually rise by around 10 percent on average if they are to correctly reflect the costs in the basic health insurance companies. Health Minister Alain Berset will announce the official figures next Tuesday. It is quite conceivable that, for marketing reasons, the average will be 8 to 9 percent rather than 10 percent, but an unusually high increase is to be expected.
The irony of the story: Politicians had programmed a premium increase for 2023 by artificially dampening the premiums beforehand. The lead department, Berset, and the Federal Council had considered the reserves of the health insurance companies to be too high and wanted to cushion increases in premiums by using the reserves. The registers followed the request. This is one of various reasons why the average monthly premium in Switzerland for 2022 was around the same as in 2020 at around CHF 315.
Reserves have fallen sharply
The federal government prescribes minimum reserves for the health insurance funds in compulsory health insurance. According to data from the Federal Office of Public Health, at the end of 2020 the reserves for the entire industry were about twice as high as the minimum. That sounds comfortable. Overall, the industry’s reserves amounted to a good 12 billion Swiss francs. But measured against the annual expenditure, it appears far less spectacular: the reserves were about as high as the industry’s expenditure for four months.
In 2021, health insurance costs are likely to have exceeded the premium volume, but the good year on the stock market helped. On balance, according to industry estimates, the reserves at the end of 2021 may have been similar to the year before. Things are looking very different in 2022: the costs have continued to rise significantly, but the premium volume has practically not increased, and at the moment it looks like a lousy investment year. Based on the capital losses up to the middle of this year, the industry association Santésuisse estimates that the industry’s reserves will fall by around a third to around CHF 8 billion by the end of this year. According to the estimate, about half of the expected decline of CHF 4 billion is due to capital losses and half to the structural problem that the costs are significantly higher than the premiums.
2 billion to catch up?
If one excludes the naturally volatile capital markets, according to estimates for 2023, the insurance companies will have to “catch up” around CHF 2 billion in premiums in order to bring the premium volume close to the cost volume. In other words: This is how many reserves the health insurers actually used – planned or unplanned – for the premium year 2022. But the use of reserves is a drug: withdrawal threatens an outcry. And like other drugs, reserves cannot be consumed indefinitely.
If reserves are used in one year, the mere elimination of this drug will lead to an increase in premiums in the following year, even without any increase in costs. The industry estimates the premium volume in basic health insurance at just under CHF 35 billion for the current year. Measured against the aforementioned CHF 2 billion in reserve deployment, not using reserves again for 2023 alone would result in an average premium increase of around 6 percent. Or maybe it would be around 5 percent if you counted on a halfway acceptable investment year for 2023 and therefore with investment income of several hundred million francs. Together with the “proper” increase in costs, the end result would be a premium increase for 2023 of around 9 to 10 percent.
Since 1997, the year after the Health Insurance Act came into force, the costs and premiums per insured person have risen by an average of around 3 to 4 percent per year. According to a rough estimate by Santésuisse, it could be a little more for the current year. And because there is also the withdrawal of the drug called reserve use, the menu is set for a premium shock for 2023.
The National Council decided this week that this premium shock should be cushioned – with a new drug called “one-off” expansion of premium reduction. In 2023, the federal government is to distribute an additional CHF 1 billion in premium reductions to households. This would correspond to around 3 percent of the total premium volume; Measured by the premium volume of the beneficiary households, it would be far more.
But the same applies to this drug as to the use of health insurance reserves: It only provides short-term relief – at the price of a shock that will come later. The loss of this relief would simply trigger a corresponding increase in costs for the affected households at the beginning of 2024. But by then the elections for the federal parliament in autumn 2023 will be over. And those in favor of the relief may speculate that the impending abolition of the special premium reduction will then trigger calls for an extension of the cushioning. Such calls would fit into the picture that politics is currently giving.
The cost drivers
In principle, the chronic increase in healthcare costs has three main drivers: technical and medical progress (more and more expensive treatments), the aging of the population and the increase in prosperity (as prosperity increases, the demand for healthcare services increases disproportionately). According to Santésuisse, the demographic effect alone typically leads to an increase in costs of around 0.5 percent per year in Switzerland. The other two factors are not easy to separate. Estimates in the international research literature suggest that the trend towards more expensive treatments, including drugs, plays a particularly important role.
The question is whether the more expensive treatment methods are worth the money. In principle, the legal approval criteria for drugs are effectiveness, usefulness and cost-effectiveness. Whether these are fulfilled at least in the majority of cases should be examined systematically. the international research literature at least suggests that an increase in healthcare expenditure tends to increase life expectancy. But the matter does not appear to be completely conclusive.
Experts often assume that 10 to 20 percent of healthcare expenditure is unnecessary. In view of the strong false incentives in the system, this would not come as a surprise: neither patients nor doctors and hospitals generally have strong incentives to save. However, the prevailing framework conditions and thus the de facto misguided incentives are politically desirable.