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UWA Business School
According to Professor Peter Zweifel, consumers in both Australia and Switzerland now have less choice in their healthcare than in the past. The main reason, he says, is that the line between public and private health insurance has become increasingly blurred.

The University of Zurich Economics professor visited The University of Western Australia Business School in August and September. While in Perth, he took the opportunity to immerse himself in Australian politics, even attending a public lecture by the Western Australian Premier Colin Barnett.

It was an enlightening experience. ‘I learnt quite a bit about the workings of politics,' said Professor Zweifel. ‘COAG is an informal meeting of Australian chiefs of government, but not provided for in the constitution. They've begun to issue binding commitments now, and it's similar in Switzerland. We have 26 cantons that have started forming councils in education, health, and other areas - deciding things that should be subjected to popular referendum. So it sounded somewhat familiar, having less public scrutiny.'

In 1996, Switzerland made social (public) health insurance compulsory, despite 99 per cent of the population already being insured. In contrast to Australia's Medicare system, the service continues to be provided through competing not-for-profit sickness funds. Both these funds and for-profit sickness funds can offer supplementary (private) health insurance.

Each adult over the age of 25 in the same sickness fund and living in the same canton must be charged the same premium for social insurance. This removes variation in premiums that would be caused by age, gender, and other factors. Aside from this, the similarities with Australia are striking.

‘If I understand it correctly, Australia has a two-tier system,' said Professor Zweifel. ‘You have a public system with Medicare, and if you have a higher income you are taxed extra unless you have private health insurance. However, the co-pay for a serious hospital stay can be so much that you go back to the public sector.'

With such hurdles to utilising private healthcare, it may seem sensible for consumers to choose the lowest form of private health insurance simply to avoid tax penalties.

In the case of Switzerland since 1996, explained Professor Zweifel, ‘You can go conventional and choose your deductibles, or choose to have a no-claims bonus, or use managed care, where you don't have your choice of doctor and you instead insert yourself in a network of physicians. At the time, it was pretty much copied from the United States.'

Despite these options, Professor Zweifel argued that Swiss sickness funds could be more active on behalf of their costumers. ‘For example, they [sickness funds] have agreed to have a uniform nationwide fee schedule. That sounds great but how much transparency do you really need? It's a buzzword that sounds nice,' he said.

‘You as a single consumer may say I would really like that surgeon, and I would like my sickness fund to agree to a higher fee for that service. I draw the parallel with a department store purchasing officer who buys on behalf of customers. Do you think a purchasing officer in a department store treats all suppliers equally? No. They use sanctions and rewards to ensure the quality of the product. But private health insurers are just sitting back, going "Yeah, yeah, yeah, we consent to this," for an easier life.'

One of the reasons behind this system is to avoid poorer citizens being prevented from receiving quality healthcare. The introduction of compulsory insurance was accompanied by the introduction of a subsidy system, and it thus functions as a form of income redistribution. ‘There is heavy redistribution and people know that,' said the economics expert.

This prompted Professor Zweifel to investigate public attitudes towards income redistribution. He created an experiment that presented participants with a series of scenarios in which they were asked to choose between the status quo and an alternative situation. These alternatives included the extent of income redistribution, the amount of their own income that would be used to finance that redistribution and different types of beneficiaries, such as people in ill health, the working poor, and the elderly.

How did attitudes compare to Switzerland's current levels of redistribution? ‘We estimated that with the status quo 25 per cent of GDP is needed to finance current levels of income redistribution,' said Professor Zweifel. ‘We thought that might be a little bit too much in general, although people might be more willing to pay for public health programmes. At least, that's the conventional wisdom.

‘From the repeated choices of participants, we were able to filter out where willingness to pay will be at a maximum; that would be the optimum state. We estimated this maximum to be at 21 per cent of GDP. At the current 25 per cent of GDP we are over the top of the hill, past citizens' maximum willingness to pay for income redistribution.'

In Switzerland, it appears that the level of income redistribution has overtaken the willingness of people to finance it. In Australia, suggested Professor Zweifel, the situation could be similar. ‘People come here [Australia] from free will,' he said. ‘They are not the kind who feel that social programmes are to their benefit. When it comes to health, this might be somewhat different.'

‘When it comes to willingness to pay for your own health, you have to be careful', warned Professor Zweifel. ‘In the United States, there's talk of reaching the "flat of the curve medicine". On expectation, more medicine does not do much good after a certain point. Your own inputs - education, preventative health behaviours - could be as or more important than medical interventions. But then, people may also be interested in having more control over their health status and reducing its variability.

‘We have been using OECD data and so far we see indirect evidence. People used to die at all ages. Then it became more and more like a rectangle; you maintain control of your health until you drop dead,' he said. Professor Zweifel now hopes to test the theory surrounding "flat of the curve medicine" by using the Household, Income and Labour Dynamics in Australia (HILDA) Survey database, which will allow him to study the impact of medical intervention at an individual level.

If Professor Zweifel is correct, it seems that we're going to have to re-assess our attitudes towards public health and income redistribution. If we are not prepared to sacrifice so much of our income, and if greater medical interventions only produce marginal health benefits, then will we be prepared to reduce public health spending and deny people access to the very newest medical technology? Can we live with that?

Media Reference

Heather Merritt
Director, External Relations
UWA Business School
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Verity Chia
Communications Officer
UWA Business School
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