Cash or in-kind transfers against financial problems?

Since 1996, every person in Switzerland has required to purchase basic health insurance coverage. At the same time, premiums are not income-based, which can place a substantial financial burden on lower-income households. To ensure solidarity across different income groups, the cantons must offer premium subsidies to those in modest economic circumstances. Today, the cantons and the federal government collectively invest around five billion francs in these subsidies each year, and the premiums of more than one in four insured individuals are at least partially paid for by the state.

As with any needs-based support program, the question arises as to how these transfers should reach their beneficiaries. Some cantons opted to deposit the amount directly into recipients' bank accounts at the start of the year. Under these "cash transfers", recipients pay their full premiums themselves, just like everyone else. Other cantons, however, send the funds directly to the health insurers, who then reduce the recipients’ monthly bills by the corresponding amount. The goal of these so-called "in-kind transfers" is to ensure that the assistance is actually used for health insurance premiums. So far there has been scant scientific evidence worldwide about whether cash or in-kind transfers are more effective at preventing financial problems.

Nevertheless, in 2012 the Swiss Parliament decided that premium subsides could only be provided as in-kind transfers. As a result, all cantons still using cash transfers had to switch over by January 1, 2014. For other cantons, nothing changed, allowing them to serve as a “control group”—much like in a clinical trial. For us as researchers, this reform was a stroke of luck: it created a “natural experiment” to study the causal impact of how the transfers are given. By comparing unpaid bills in cantons that underwent the reform with those that did not, both before and after the policy change, we could isolate the effect of the payment method itself from broader regional differences. This would have been impossible with a simple above-mentioned comparison of cantons, which risked drawing the wrong conclusions.

Measuring payment difficulties before and after the reform posed no real data hurdles. The harder part was distinguishing between recipients and non-recipients of premium subsidies. One main reason for the global lack of evidence on cash vs. in-kind transfers is the difficulty of linking necessary data sources. In the case of cash transfers, one needs both payment difficulty data—usually held by private companies—and information about who receives subsidies, which is kept by government authorities. Before 2014, cantons using cash transfers did not inform insurers which customers were receiving help, since those customers got full-price bills and then were reimbursed separately. In Switzerland, it’s also nearly impossible to merge administrative datasets for research purposes. To overcome this, we estimated the likelihood that any given customer in any canton in any year would receive a subsidy. By combining multiple machine learning algorithms, we could predict who likely received premium support.

Armed with these predictions, we analyzed how the move toward a standardized in-kind transfer system in 2014 affected payment difficulties. We compared the trajectory of financial problems among subsidy recipients in the “reform cantons” to those in the “control cantons” before and after the change. Between 2012 and 2019, we looked at 22 million premium bills from over 600,000 individuals to see whether any were met with payment reminders or even debt collection proceedings. The results were striking: the reform significantly reduced the risk of both. In-kind transfers cut the likelihood of receiving a reminder notice by 20% and slashed the chance of a debt collection proceeding by more than 12%. These improvements help not only the affected households but also taxpayers. After all, cantons must eventually cover 85% of unpaid premiums, so fewer defaults mean lower costs for the public purse.

We showed that in-kind transfers more effectively prevent financial troubles related to the subsidized service. But did households simply shift their financial difficulties elsewhere? To check this, we also examined bills for cost-sharing on medical services—unsubsidized and less predictable expenses. We found no change in payment behavior there, before or after the reform. This makes us confident that in-kind transfers lead to healthier overall household finances than cash transfers do. It’s important, then, not only to debate how much government assistance should be provided, but also how that support is delivered. By changing the payment method, Switzerland was able to ease financial strain for recipients without costing taxpayers a single extra franc. In this case, Parliament made the right call in 2012, even without strong evidence at the time. Still, this should not distract from the larger point: without actively promoting research and consistently integrating its findings into health policy decisions, substantial welfare gains for everyone may remain unrealized.