Posner (and Becker) on Health Insurance Systems

Richard Posner provides a quite interesting description of the Swiss Health Care System on the Becker-Posner blog (October 4), a system in which “almost all health insurance is bought by the insured. Everyone is required to buy a health insurance policy that provides a specified minimum of benefits (they can buy more expensive policies of they want), but there are subsidies for people for whom the expense would be a hardship; about 30 percent of the population receives a subsidy. (…)
There are many insurance companies, and people can switch freely among them. Copayments or deductibles are larger, and as a result the average out-of-pocket cost of health care is higher in Switzerland then in the United States. But the aggregate cost of health care is much lower in Switzerland – 11 percent of GDP versus our 16 percent – though higher than in any other country besides the United States.” (Posner). But note that the insurance premium is also “out-of-pocket” there.

What both authors fail to mention, however, is that such a system, not relying on the payroll tax for financing, is characterized by a much reduced welfare cost of taxes, and thus does not discourage work in the way a payroll-tax-financed system does. As Larry Summers showed, a mandatory consumption does not generate a welfare cost the same way a tax does.

The Swiss system is the best example of what I suggest a French reformed (and US to be created) systems should look like (my paper "Comment gagner plus").

As noted by Posner “there is general satisfaction among the Swiss with their system, although there is some grumbling over the high cost of medical care”. But, I would add, this is because the Swiss pay their health-care insurance out of their own pocket and can switch for another insurer anytime. They thus pay -- quite logically -- more attention to its cost, while households that don’t even know that they are paying for insurance through the payroll tax don’t bother about the cost of insurance. This is an additional benefit of the Swiss system.