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Going Dutch for Health Reform Ideas

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Every now and then HealthBeat takes a look at health care systems in other countries So far we’ve tackled Germany and China. Next on our list was the Netherlands, but it turns out Health Affairs beat us to the punch. In May, Wynand van de Ven and Frederik T. Schut, two professors at Erasmus University in Rotterdam, authored an excellent profile of the Dutch health care.

Why should we care how they deliver health care in a tiny country most of us will never visit? Few European health care systems have garnered the kind of attention from Americans that the Dutch system has received — especially from folks not known for their Euro-philia, including the Bush Administration. In the fall, the White House sent a delegation to the Netherlands to learn more about the Dutch system.  The Wall Street Journal also has praised the Dutch system for accomplishing “what many in the U.S. hunger to achieve: health insurance for everyone, coupled with a tighter lid on costs.”

What could make conservatives entertain the possibility that we might learn from Europeans? Under the Health Insurance Act of 2006, the Dutch have created a system of universal coverage delivered entirely through private insurers. In this, the Dutch plan is very much like the plan Dr. Ezekiel Emanuel proposes for the U.S.  in his new book Healthcare, Guaranteed. (We wrote about Emanuel’s plan here and here), calling it a “fresh” proposal for reform.)

Consumers Have Choices

For those Americans uncomfortable with the idea of “Big Government” delivering their health care, the Dutch model is appealing. And Americans are bound to like the idea that consumers have many choices. According to the Commonwealth Fund, there are 14 private insurance companies in the Netherlands and several related subsidiaries. This means that individuals can shop for insurance—a process made all the easier by a Dutch government web site “where consumers can compare all insurers with respect to price, services, consumer satisfaction, and supplemental insurance, and compare hospitals on different sets of performance indicators.” Thus, much to the delight of consumer-minded health care reformers, the Netherlands has essentially institutionalized comparison shopping.

Individuals also have the option of paying extra to beef up their benefits package. Van de Ven and Schut note that the Dutch can buy “supplementary insurance for benefits that are not included in the mandatory basic insurance, such as dental care for adults, physiotherapy, eyeglasses, alternative medicine, and cosmetic surgery.” More than 90 percent of the Dutch population takes advantage of this option –which suggests that the supplementary insurance is not too expensive for the vast majority of the population. Van de Ven and Schut tell us that “most people [purchase their supplementary insurance] from the same insurer that provides their basic coverage.”

Insurers Must Take All Applicants: Individuals Must Buy Insurance

But it would be wrong to say that the Dutch health care system is some sort of conservative utopia where the invisible hand of the market reigns. Just as in Dr. Emanuel’s plan, insurers operate under many regulations and restrictions. Most importantly, “they are legally obliged to accept each applicant for basic insurance” and they cannot charge someone more because of pre-existing conditions.

In the U.S., by contrast, if you don’t have employer-based coverage and must buy your own coverage, insurers can charge you more based on your medical history and risk profile. And in most states, if they consider you too risky, they can simply refuse to sell you insurance altogether.

Because Dutch insurers must take all applicants, the government “obliges each person who legally lives or works in [the Netherlands] to buy individual private health insurance.” If the government didn’t insist that everyone buy insurance, many people would wait until they were sick before they applied — safe in the knowledge that the insurer would have to take them and cannot hike the premium. (This why any system that won’t let insurers discriminate against the sick must include a “mandate.”) The government also lays out what must be included in the basic benefit package: physicians’ services, hospital care, medications, physiotherapy and dental treatment for children.

Under the Health Care Act of 2006, the Dutch are now paying about €1,100 (roughly US $1,600) per adult for basic coverage. (There is no premium for children under 18.) Every adult also has a deductible of €150 per year which excludes GP services and maternity care. Depending on their income, Dutch citizens may receive a subsidy from the government to help cover their premium. Today, about two-thirds of Dutch households receive such a subsidy, with the poorest receiving as much as €1,464 (in 2008; about US$2,200) per household per year.

Because insurers cannot charge sick customers higher premiums, the government pays companies that wind up with a large number of “high-risk individuals” a risk equalization fee from the aptly named Risk Equalization Fund (REF). (Again, this is very similar to Emanuel’s plan which also compensates insurers who end up with a disproportionate share of sick or elderly customers.) Dutch citizens fund the REF by paying a 7.2 percent tax on the first €31,200 of their annual income. But employers are legally obliged to compensate their employees for these income-related contributions.

Will It Work?

Universal coverage, non-discriminatory premiums, and a focus on affordability all  adds up to an extremely equitable system. Little wonder, then that many in the U.S. have shown interest in the Dutch model.

But make no mistake, the Dutch system is still, as van de Ven and Schut point out, very much “a work in progress.” One big question mark: how do you enforce the mandate that everyone buy insurance? The authors note that “although all Dutch citizens are legally obliged to buy basic health insurance coverage, in 2006 about 1.5 percent failed to do so.” The penalty for not having insurance is “130 percent of the premium over the period of not being insured, with a maximum of five years.” To enforce this penalty, the Dutch government compares insurance files with civil registration files to see who is missing. Then, “after identification, the uninsured will receive a warning notice. If they persist in being uninsured, a last-resort option is that some public authority will enroll them as insured with some insurer.”

Emanuel’s plan avoids this problem by simply giving every U.S. citizen a voucher that entitles them to insurance. No one has to buy insurance. (The voucher is funded by a VAT tax on all purchases.)

Another potential worry is that some people with insurance won’t pay their bills. In a system where insurers can’t refuse anyone coverage, they also can’t refuse deadbeats with a history of defaulting on their premiums. If I don’t pay my health care premium, my insurer can cancel my contract and bar me from enrollment in their plans for the next five years; but the next insurer I apply to can’t turn me away for my behavior. By law, it has to accept me—which means folks can systematically take insurance companies for a ride, if they’re so inclined.

According to van de Ven and Schut, “about 1.5 percent of the insured have not paid any premium in the past six months.” There is some concern that, as folks realize that they can get a free ride, more will do so. But right now, this is not a major problem.

More troubling is the possibility that, as the Dutch system grants private insurers more freedom to compete, (which it plans to do), insurers will have enough wiggle room to begin cherry-picking the healthiest patients — just as they do in the U.S.

You might think this is not possible in a system where insurers must offer insurance to everyone. But there are loopholes. Although Dutch insurers can’t reject risky individuals or charge them more for basic insurance, when it comes to supplementary insurance they can turn away customers, or boost premiums based on the applicant’s medical history.

That means that, while everyone may have basic insurance, the supplementary insurance market can break down along lines of healthy/unhealthy, as insurers offer discounts to less expensive (i.e. healthier) policy holders. (Dutch citizens are allowed to organize themselves into groups and negotiate for lower prices. The discounts that insurers can offer healthy groups are relatively open-ended).

The Health Insurance Act also gives private insurers more freedom to negotiate contracts with health care providers. Today the government still regulates most prices, but over time, it plans to ease up and allow a more open market where insurers have more power to negotiate with service providers.

The hope is that in a more open market, insurers will have the freedom to make “smart purchases” by choosing doctors who provide high-quality, cost-effective, and affordable care. Then they’ll turn around and offer a similarly good deal to policyholders — a win/win situation for everyone.

But it’s not yet clear that private insurers will actually do this. An open insurance market is uncharted territory in the Netherlands, so no one knows just how ‘smart’ insurers will be in their purchases. In theory, competition will keep them honest, because ‘dumb’ purchases — contracts with poor providers who are too expensive — will translate into a bad deal for consumers. As a result, individuals will jump ship to competitors.

Yet individuals don’t always know whether they are receiving high-quality care. They know whether they like their physician — and whether she keeps them waiting. But, how do you know if your doctor has failed to notice symptoms that suggest you are a candidate for a major heart attack?

Meanwhile the system is designed to lead to mergers; ultimately, observers say, a handful of players will control the market. At that point, they may feel less pressure to make sure that they are delivering high quality care. Rather than competing on quality, they may begin to compete on price.

Already, competition between insurers has led to a “premium war,” with insurance companies reducing their premiums to attract customers. The result in 2006 was a total loss of €563 million (2 percent of revenues). In other words, competition is leading to losses — which affects the capacity of an insurer to survive.  Meanwhile, individuals looking for a better deal keep switching plans: in 2006, an all-time high of 18 percent of the Dutch population switched insurers.

This may sound like competition is working—and in a way, it is. But the early stages of competition in a new market have a way of thinning the herd — and as insurers see their profits and customer base erode, their number will decrease. Already, insurers have begun to merge with their competitors to survive. As a result, about 90 percent of the Dutch population is insured by six large insurers, while the other 10 percent is insured by seven smaller, regional insurers.

As the Dutch insurer market consolidates, the incentive structure for insurers will change: the fewer competitors a company has, the less pressure it feels to make smart choices that benefit its customers. As Niek Klazinga, professor of social medicine at the University of Amsterdam, told the Wall Street Journal in the fall, “if eventually you have only three or five insurers, you might wonder how many market incentives will remain.”

The question must be asked: at what point does the market become so consolidated that the logic of the Dutch system — competition forces smart insurance purchases which translate into quality coverage for citizens — breaks down? No one really knows.

As health care reform continues to be a hot-button issue in the American political conversations, it will be worth keeping an eye on the Netherlands as a point of reference.

Niko Karvounis tracks the health care system for the Century Foundation. Maggie Mahar is an award winning journalist and author. A frequent contributor to THCB, she is the author the increasingly influential HealthBeat blog, one of our favorite health care reads and where this piece first appeared.

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MaureenMichael J CritelliSteven GeanopulosJay SchusterRein Recent comment authors
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Maureen
Guest

Two concerns: (1) The focus of all this medical care talk is cost. What we should be focused on is the quality of the care that the money buys. Let’s re-invent the LTC facility, for instance – why find money to pay for a demeaning experience that is characterized by dependency, lack of transparency, lack of control and waiting – lots of it??? Ask any caregiver – why throw good money after bad. (2) If we’re going to talk about cost, there are some things to consider when making comparisons. (a)Comparing what works in a population of five and a… Read more »

Michael J Critelli
Guest

“You make many good points. I have one question for you, or anyone else reading the blog: is it true that in the Netherlands, if you sign on to a particular insurance plan, you are assigned to a physician in a community? If so, people in the Netherlands may be willing to accept restrictions on their ability to choose physicians that we in the U.S. would be reluctant to accept. I also agree with the comments about the difficulty of consumers exercising informed choices among plans today. We need far better data than we currently have relative to performance and… Read more »

Steven Geanopulos
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If we had the European lifestyle with regards to their culture of food and physical activity, The USA as the richest nation in the world, would have no problem creating a wholly unique healthcare system that covers all, as a model for the rest of the world to emulate. The US is the only nation in the world with a food drawing from our government that represents the various lobbying interests of each group represented in that drawing and not what is required for the expression of human health for the individual. No self respecting French person or European for… Read more »

Jay Schuster
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Jay Schuster

In principle, a universal health care plan for a nation is a sound investment in its future. As indicated the major sticking points are cost and care options. Being a health care provider and having lived in Europe for eight years (I am also married to a European) I can tell you I’ve seen the good, the bad and the ugly of a national health care plan. The ability to provide a “perfect system”, one that provides all encompassing health services, easy access, and affordable cost might be the “bridge too far”. The European model while not perfect does provide… Read more »

Rein
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Rein

As someone who has suffered under the Dutch medical system, and now with a new baby… it is not pleasant, easy, and fairly often ineffective, and sometimes does more harm than good. The system works economically perhaps, but the healthcare side is where the systems flaws come through. Many of the Dutch with the financial ability to do so seek care elsewhere as there is no duplicate private system available if you find yourself being failed by the public system. If America is looking for models of economic efficiency perhaps the Dutch system can server some use, but if you… Read more »

tcoyote
Guest
tcoyote

Peter, we’re actually closer to being on the same page than you think. The collusion you speak of between corporations, lobbyists and politicians must end for us to have an equitable, humane and affordable health system. In our present political culture, a single payor health system inevitably means what is euphemistically called “regulatory capture” in the economic literature- legislation written to protect provider and manufacturer economic interests. I’m not a big deregulator. I think the Wall Street Journal editorial folks are smoking the really expensive stuff I cannot afford any more. The feasibility of any single payor health system turns… Read more »

Tom
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Tom

People talk, talk and only talk..with millions of models…Dutch, Swiss, French, etc. Private insurance for every single healthcare service is the core reason for the exorbitant cost today. Private insurance can not be the solution. Why? The cost is simply not affordable. Our median household income was $48,200 in 2006, whereas our per capita healthcare expense is over $7,000 today (means around $28,000 for a family of 4). Are we all fools to still think of insurance. It means, there are only 2 options: A) Govt must provide basic healthcare (just like k-12 education) through taxation. OR B) Individuals must… Read more »

Peter
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Peter

tcoyote, yes there is the “$2.5 trillion mass” but it is not the result of “our present political system’s involvement” but because of our present political system’s collusion with lobby and corporate money. The reality yes, but it will continue to be the reality until individual voters realize the corporate money system is not working for them. See what we have in airline travel after all these years of deregulation – is anybody happy with the result? And if you believe the “Dutch” System will work then you have to believe that insurers will be required to rein in costs… Read more »

tcoyote
Guest
tcoyote

Frankly, a lot of the wide-eyed “other countries have solved this, why can’t we?” stuff is really irritating. For one thing, Matthew is right- there is a ton of “Enthoven pollution”. Alain’s heavily regulatory approach worked in social democracies, particularly small, culturally homogeneous ones, and most of his fans are overseas. The idea originated here in the US as: “Let’s just completely rewrite our tax code, build a brand new all powerful regulator to “manage” the market, and grow Kaiser!” Alain’s idea never had a chance here, and there are actually some echoes of it in Wyden’s bill (even though… Read more »

Matthew Holt
Guest

Worth pointing out 3 things a) the Dutch system is not derived from Emmauel & Fuch’s model (which by the way was Fuchs’ idea first!) but from Fuch’s Stanford colleague Alain Enthoven. It’s absolutely the same as his consumer choice health model circa 1978 b) early anecdotal indications from the Dutch system suggest that insurers have responded to the incentives by decreasing wating lists for elective procedures (by buying cheaper surgery on the margin from Spain and France) and also by improving Disease management approaches c)moving to a Duthc system from a mostly state provided insurance system is MUCH easier… Read more »

Ian Furst
Guest

I think any model in the US has to assume that capitalist free-market principals will prevail. In other words, legislation to force insurance companies to sell basic insurance or HCP’s to treat people without compensation will not stick. The onus to carry basic insurance will have to fall to either the government thru taxaton or the citizen thru legislation. In the current economic climate the latter seems far more likely.
waittimes.blogspot.com

Jim
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Jim

In principle, it is a universal healthcare managed and controlled by the Govt for basic coverage. It will be much cheaper and efficient if it is a single payer. As suggested, let the Govt provide vouchers for everyone for basic coverage and of course people and employers will pay the Govt in the form taxes. This will cost much less than what we spend today on healthcare. For supplemental, let the private insurance market fight it out. Country’s productivity will not suffer much if people lack supplemental coverage. Bottomline is Govt must control/manage basic healthcare in the interest of nation’s… Read more »