What drives the growth of healthcare costs?

In 2012, a person insured with CSS received healthcare services covered by basic insurance averaging 3,396 Swiss francs per year; by 2021, this figure had risen to 3,975 Swiss francs. The increase of 579 francs per person can be attributed to several factors, which we will explore in more detail below. An analysis of where the additional 579 francs were spent reveals that not all areas of the healthcare system contributed equally to this cost growth. While the costs per insured person for inpatient hospital services decreased by 57 francs, spending on care services, laboratory tests, and physiotherapy rose moderately by 60 francs each.

Two categories are primarily responsible for the increase in healthcare costs. First, spending on medications, which rose by almost 150 francs per insured person. Second, outpatient medical services, which accounted for 316 francs per person—over half of the total cost increase. This rise could partly be attributed to the growing trend toward outpatient care, as inpatient costs have declined. However, a closer look reveals that the shift to outpatient care for hospitals was more of a zero-sum game (since basic insurance covers only 45% of inpatient costs). Medical services provided in practices outside of hospitals made the largest individual contribution to cost growth, at 211 francs per insured person.

Let’s shift the perspective from where the additional expenditures went to why they increased so significantly in the first place. It’s important to note that we are only examining the changes in healthcare costs per person here. The causes of cost growth must be clearly distinguished from explanations for the cost level. Age serves as an illustrative example. Older people, on average, have significantly higher healthcare expenses than younger people. The distribution of age groups in the population can explain why the average cost per person was 3,396 francs in 2012, but not why it increased to 3,975 francs per person 10 years later. For age to be a factor in this cost change, either the proportion of older people in the population must have increased (i.e., aging), or the costs for older people must have grown disproportionately. The latter, however, would not be the often-cited aging effect but rather an age-specific inflation.

Did the proportion of older people insured with CSS increase during the observed period? In fact, the opposite was true: the proportion of those over 65 years old at CSS decreased from 17.7% in 2012 to 17.5% in 2021. Consequently, there was no aging among CSS policyholders during these 10 years, and it could not have been a driver of the 579-franc increase. A comparison with Switzerland as a whole shows that the CSS collective evolved slightly differently than the rest of the country. In 2012, 17.0% of the Swiss population was over 65 years old; by 2021, this share had grown to 18.0%. During this period, costs per insured person across Switzerland increased by 884 francs. To determine the effect of aging on Switzerland's cost growth, we use the actual costs from 2021 but adjust the population structure to match the age group proportions from 2012. If no aging had occurred in Switzerland, but everything else in the healthcare system had developed as it did in reality, the costs per insured person would have risen by 759 francs. Only 125 francs (16%) of the total 884-franc increase were therefore attributable to societal aging. Thus, other factors are significantly more relevant to the cost increase.

As mentioned above, age can also have an impact if different age groups experience varying growth rates in per capita costs within their respective groups. Interestingly, it is the younger insured individuals whose healthcare costs increased the fastest between 2012 and 2021. Those over 85 years old saw a relative cost growth of 14%, while for the 66 to 85-year-olds it was 16%. Among the 46 to 65-year-olds and 26 to 45-year-olds, the increase was 18% for each group. However, for those under 25, the relative increase was 27%. Although older individuals contributed a relatively large share of the overall 579-franc increase in absolute terms due to their higher baseline costs, the relative rise among younger individuals is a noteworthy trend.

Were more people dependent on medical services in 2021 compared to 2012? Only slightly: the proportion of insured individuals utilizing services increased from 80% to 82%. Notably, there was a significant rise in the number of younger adults who had at least one interaction with the healthcare system. Overall, nearly all of the cost increase stemmed from higher costs per patient—those who accessed medical services in 2021 received more or more expensive treatments than they did 10 years earlier.

In few other areas has society benefited as significantly from technological progress as in healthcare. However, due to the nature of the data in the Swiss healthcare system, this progress is very difficult to measure. Only in the case of medications is it relatively straightforward to observe which products or services have been newly added to the benefit catalog compared to previous years. By 2021, nearly one-fifth of insured individuals had used a medication that was not yet on the market in 2012. Interestingly, this had no effect on the proportion of insured individuals using medications introduced before 2012, which remained constant at around 75% over the years. When examining the impact of medications on the overall cost increase, two very different patterns emerge. For older medications, there was a significant decline in costs per insured person. If only medications available in 2012 had been used in 2021, costs would have been about 50 francs lower. The picture is entirely different for medications that had been approved in Switzerland for no more than nine years by 2021. These newer drugs alone accounted for nearly 200 francs—over one-third of the total cost increase of 579 francs per insured person. In areas where generic alternatives are typically available, and market mechanisms influence prices, costs tend to decline.

Over the course of 10 years, costs per insured person at CSS have risen by 579 francs annually. Aging plays a minor role in this increase; costs tend to rise most sharply in the groups that were previously the least expensive. At the same time, there does not appear to have been a significant expansion in the number of people relying on medical treatments. However, interactions with the healthcare system have become significantly more expensive compared to 10 years ago. This cost increase seems to have occurred primarily in areas where services can be billed without restrictions through flat rates and where prices are set centrally by government authorities rather than market mechanisms. However, costs are, of course, only part of the story. Unfortunately, we cannot say what society has received in return for these additional 579 francs per person per year. The necessary data, such as outpatient diagnoses, is still unavailable in Switzerland, even for research purposes, as of 2024.