Lessons from the Dutch 2.0

As we have discussed in a prior review, Dutch passed health reform in 2005 the making major changes to the insurance market in that country. Pre-reform, the Dutch system was a mix of public and private systems. The public system covered the elderly, disabled, and those of low financial means. The private system was available to those with the means to purchase it, provided that those individuals were not excluded due to pre-existing conditions.

Implemented in 2006, the Dutch reforms were an attempt to consolidate and restructure the insurance market: citizens were obligated to buy insurance, insurers were obligated to accept all comers, and the government defined the basic benefits to be covered. This concept, known as managed-competition, was championed by healthcare economist Alan Einthoven.

The Dutch reforms now cover all but 1 percent to the population. Even so, 92 percent of Dutch citizens see it fit to purchase supplemental insurance. Low wage earners receive a premium credit in order to help them purchase insurance. All workers can deduct health expenses from their income taxes. Enrollees that did not use any health services in the course of a year were entitled to a cash rebate; this was replaced with a more traditional deductible in 2009.

The Dutch reforms essentially have been recreated in the United States with the Patient Protection and Affordable Care Act: individual mandates, guaranteed acceptance, premium subsidies, etc.

The authors of this report compare the theory of managed competition to the realities seen in the Netherlands. The first lesson is that the Dutch reforms achieved nearly universal health care while health care expenditures remained flat (9.8 percent of GDP).

The second lesson is that the insurance market is surprisingly more concentrated after the reforms than before.  Four insurance companies control 88 percent of the marketplace. The authors is a formula known as the Herfindahl-Hirshman Index to calculate the degree of market concentration. The Herfindahl-Hirshman Index (used also by the US Department of Justice and Federal Trade Commission) increased from 1,346 in 2005 to 2,111 in 2010. Higher indexes indicate higher market concentration. In the Netherlands, the authors describe the current state of the Dutch health insurance marketplace as an oligopoly.

The third lesson is that there is less information for health consumers to differentiate between insurers. Standardized benefits have apparently reduced price variation of insurance products.  In the Netherlands, premiums vary by only 17 percent. In the United States, premiums may range for a similarly situated enrollee by over 500 percent. This price variation obviously allows for consumers to differentiate between products, if only on one dimension.

Commentary

The Dutch health care system is probably the closest international comparison to the health reforms recently passed in the United States. This analysis points to several potential problems in the new health reform law. While promises of increased access to care are  valuable policy objectives, serious risk of market consolidation might decrease choices for purchasers of care. A potential solution to to this issue might be statutory limitation in the amount of market share allowed by individual health insurers, say 20 percent.

The other major issue with managed competition is that the purchasers of care appear to not have enough information to determine which insurers is best for them. Limited cost differentials between insurance plans are a natural result of a standardized benefits package. However, the US reforms are not as restrictive as the Dutch reforms in terms of deductibles and other cost-sharing provisions. Thus, price variation should remain in effect.

Ryan Lynch and Eline Altenburg-van den Broek. The Drawbacks of Dutch-Style Health Care Rules: Lessons for Americans. The Heritage Foundation. July 22, 2010. Backgrounder #2435.

by

Cedric K. Dark, MD, MPH