The Dutch Health Care System
by Maggie Mahar
This post was written by Maggie Mahar and Niko Karvounis
In a recent issue of Healtyh Affairs, Wynand van de Ven and Frederik T. Schut, two professors at Erasmus University in Rotterdam, authored an excellent profile of the Dutch health care system, which includes some appealing features that might serve as a model for the United States. [Click these links for earlier pieces on Germany and China.]
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—it 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
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 2006. 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.