Kumar Ayush

An analysis of the Bundesgesetz über die Krankenversicherung (KVG), Switzerland's Federal Health Insurance Law, submitted for PP221: Fundamentals of Public Policy at The Takshashila Institution. The full paper can be downloaded here.

The summary below is AI-generated from the submitted work.

KVG's primary goal is universal, affordable healthcare access. Its secondary goal is solidarity. The law mandates health insurance for all residents (Art. 3), charges equal premiums to all adults within a region (Art. 61), and guarantees freedom to switch insurers (Art. 7).

Why it works

Equal premiums create a perverse incentive: insurers benefit by enrolling healthier people and excluding high-risk customers. KVG neutralises this with a risk equalisation framework (Art. 16–18). Insurers with lower-than-average costs pay into a pool; those with higher-than-average costs receive from it. Crucially, the policy is most stringent on basic insurance while permitting supplementary products — leaving insurers a residual profit motive to operate at all.

The policy works because Switzerland has the state capacity to enforce it. The joint institution (GE KVG) must operate the risk equalisation pool, set the schedule of covered basic treatments, enforce universal enrolment, and monitor insurer solvency — all functions that require intensive, sustained data collection.

The policy also works because it aligns with Swiss political values. Solidarity was the top reason cited by Yes voters in the 1994 referendum. When a policy reflects the public's moral intuition about fairness, its durability is not contingent on technocratic enthusiasm alone.

What could be done better

Equal premiums can be burdensome for lower-income residents. KVG delegates premium subsidies to the cantons (Art. 65), producing fragmented frameworks. A uniform federal income cap — capping premiums at a fixed percentage of income — would simplify this. The canton of Vaud already applies a 10% cap; the case for making it federal is strong. A 2024 referendum on this proposal failed, 55% to 45%.

A second improvement addresses the demographic tension between working-age payers and older, costlier claimants. A portion of each person's premium could be held in a demographic reserve by GE KVG, available for withdrawal later in life. This is how the joint institution already works across insurers at a given point in time; extending the logic across time for individuals is the natural complement.

Unintended consequence

Because profit margins on basic insurance are normalised away, insurers compete primarily through supplementary product sales. The result is aggressive cross-selling — reportedly the most common complaint about Swiss health insurance. Enforcement against unwanted sales treats only the symptom; supplementary products serve a genuine social function by creating a financial incentive to develop new healthcare techniques, with the list of basic services evolving as standards rise. Curbing cross-selling risks stifling that innovation.