The Dutch system of providing healthcare has been advocated by President Obama in one of his speeches. Maybe he is not up to date on new developments.
In the early 1990s, the government promoted efficiency through the introduction of market forces. In its role of orchestrator, the government reduced direct controls and increasingly left the running of the health care sector to sickness funds, private and public sector health insurers and care providers, opting for a system of managed competition. This competition applied primarily to the sickness funds that bought health care services on behalf of their members (‘demand control’).
Under the Health Insurance Act of 2006, the sickness insurance funds were abolished and Dutch citizens were required to purchase their health insurance from profit-making private health insurers, which prior to 2006 insured only the wealthiest third of the population. Private health insurers negotiate on behalf of their members with care providers such as hospitals, general practitioners and pharmacies the scale, quality and price of services charged their members. Consequently, the health insurers play a pivotal role in implementing the Health Insurance Act. Insured persons can now ‘vote with their feet’. They may change their health insurer once a year if the premium is too high, or the quality of care, bought on their behalf, is too low. This incentivizes both health care providers and health insurers to be efficient in the delivery (providers) and purchase (insurers) of health care.
Therefore, the Dutch health care system has converted from a centrally controlled, inefficient, and increasingly expensive government run system to a decentralized, private insurance based, competitive system.
Here is more from Health Affairs:
Since 1 January 2006, the Health Insurance Act has obliged each person who legally lives or works in the Netherlands to buy individual private health insurance, with a legally prescribed benefit package, from a private insurance company. Contrary to the previous private insurance scheme, insurers are legally obliged to accept each applicant for a basic insurance contract at a community-rated premium and without exclusion of coverage because of pre-existing conditions. In an international context, the Dutch health system reform is unique: this is the first country that is consistently implementing Alain Enthoven’s model of national health insurance based on managed competition in the private sector.
There are, of course, two major problems here. One is who decides the contents of a basic policy ? Two, how is the pre-existing condition coverage subsidized. Remember, Holland is a small country. I also wonder about the large Muslim population and how many of them are actually self supporting.
Financing. All individuals have to pay an income-related contribution (7.2 percent of the first 31,200 of annual income in 2008) to the tax collector, who transfers these contributions to a Risk Equalization Fund (REF). Employers are legally obliged to compensate their employees for these income-related contributions. These compensations are the same regardless of the chosen insurer and are taxable income for employees. In addition, all adults have to pay a premium directly to the chosen insurer. Each insurer sets its own community-rated premium. For high-risk insured people, insurers receive a high risk-adjusted equalization payment from the REF. For low-risk insured people, insurers have to pay an equalization payment to the REF. According to the Health Insurance Act, the sum of the income-related contributions equals 50 percent of the total insurers’ revenues for the mandatory basic insurance. In 2008 the average premium equals about 1,100 (about US$1,600) per adult (age eighteen and older) per year.
Average premiums are like the average age of a population. It doesn’t tell you much. My youngest daughter was cheap to insure until she reached 18, then her premium quadrupled, I’m sure because of the risk of pregnancy.
About two-thirds of Dutch households receive an income-related subsidy (“care allowance”) from the government, which is at most 1,464 (in 2008; about US$2,200) per household per year.5 Because the allowance is independent of the choice of insurers, consumers are fully price-sensitive at the margin. No premium is required for coverage of children (under age eighteen); government compensates the REF for their health care costs.
People are free to buy voluntary supplementary health 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. For such insurance, insurers may risk-rate premiums and refuse applicants. More than 90 percent of the population buys supplementary health insurance, almost always from the same insurer that provides their basic coverage.
Since 2006 health care is primarily financed through two mandatory universal schemes with different regulatory regimes: a scheme for curative health care services under a regime of managed competition (Health Insurance Act) and a scheme for long-term care services under a regime of price and supply regulation (Exceptional Medical Expenses Act). The rationale for this distinction is based on differences between the types of risks and the feasibility of risk equalization, and between types of care for which the managed competition model is considered to be (in)appropriate. In this paper we focus on the Health Insurance Act.
The universal mandate is something I support as long as the mandate does not force people to buy policies bloated with state and lobbyist devised baggage. It should be high deductible, basic catastrophic coverage which, for the young and healthy, should have a tiny premium, similar to term life insurance for 25 year olds.
Now for the 2006 reforms:
Insurers also have more tools for risk selection at their disposal than they had before 2006. First, they have more tools for managing care, which can also be used to select risks. Second, insurers have more room to define the precise entitlements of their insured groups, which can be used to select favorable risks. Third, insurers are allowed to sell mandatory health insurance together with any other type of non–life insurance (such as supplementary health insurance, sick leave insurance, and car insurance), which prior to 2006 was not allowed. In particular, supplementary health insurance can be an effective tool for risk selection, because insurers are allowed to reject applicants based on their health status. Fourth, insurers are free to give premium rebates to groups for the mandatory basic insurance, which prior to 2006 was not allowed. A group can have any risk composition, and the “organizer” of the group can selectively enroll preferred members only. Although the rebate for the basic insurance is at most 10 percent, insurers can give these groups any rebate on supplementary health insurance or other insurance products.
Groups are inherently selected by the requirements for the group. One reason why we still have employer-based health insurance is that the employed tend to be healthier. Mormons as a group would probably have much lower premiums.
Here is an interesting trend:
Since 2006, several insurers have advertised special supplementary group insurance policies for diabetes patients. These special policies were developed in close cooperation with the national diabetes patient organization. In addition, several insurers are now actively involved in setting up disease management programs for diabetes patients. These activities appear to be the direct effect of the extension of the risk-equalization system with a risk adjuster for type 2 diabetes since January 2006.19 (Type 1 diabetes was already included as a risk adjuster.) In 2007, almost forty patient organizations representing people with various chronic conditions had obtained group contracts with insurers. On the other hand, at least sixteen patient organizations were not able to obtain such a group contract because the risk-equalization payments for these groups were insufficient, according to insurers. Hence, in due course, the ability for patients with specific chronic conditions to negotiate favorable group contracts may provide a good indicator of the quality of the risk-equalization method.
Here is something from the book, The Innovator’s Prescription, which advocates a “solution shop” model for certain diseases. Here is an example where managed care and evidence based medicine can add significant value to a situation where most disease victims have trouble getting any insurance at all.
The Dutch reforms are interesting and seem to be going in the opposite direction from Obama’s agenda. I wonder if he knows ? Maybe he or his allies do know and don’t care. He was willing to lose revenue with a capital gains tax increase. Maybe ideology is driving this regardless of practical economics.
Thomas Sowell has some useful thoughts on this issue.
Tags: economics, health care, Obama
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