Health Insurance in the Netherlands

Por Edwin van Gameren

After discussions in class and elsewhere, and observing the contributions to this blog by Raymundo Campos about Seguro Popular and by Isidro Soloaga about incentive-compatible contracts, I imagine it might be interesting to give a brief review of the organization of the health insurance in the Netherlands. The health insurance reform in 2006 implemented a mandatory universal health insurance that is carried out by privately organized competing insurers. Later, as a follow-up, I intend to pay more attention at health care providers and describe some of the experiences since the health insurance reform.

The situation until 2006

Health insurance in the Netherlands is organized as a three-layer-schedule. The first layer is a tax-financed universal insurance that covers expensive and exceptional long-term care (Home care and nursing homes focused at the elderly, institutional care for the mentally or physically handicapped and for chronic psychiatric patients. Also hospitalization for more than one year is covered by this insurance (see Mot’s “Dutch system of long-term care” for further detail). These services with often high and predictable expenditures were taken apart from the other layers in 1968. The second layer is the basic health insurance plan covering a wide range of curative care including physicians, hospitals, emergency care, and prescription drugs. In practice universal access to the services has been achieved, but with a financing scheme very different than for the first layer; the Health Insurance Act of 2006, extensively discussed below, mainly concerns this layer. The third layer consists of supplementary health insurance for services that are neither covered by the basic insurance nor by the long-term care insurance. Universality is not guaranteed here, people are free to purchase additional coverage in accordance with their needs and preferences.

In June 2005 the Dutch Parliament reached an agreement for a new Health Insurance Act, and in January 2006 it was put into effect, changing the organizational and financial structure of the second layer of the health insurance system. The change of the basic health insurance followed a decades-long discussion about a substantial reform of the system introduced in 1941 and largely unchanged since. Before 2006, the second layer consisted of two separate parts. A mandatory health insurance plan existed only for low and middle-income people, guaranteeing basic health insurance for about two-thirds of the population. People with an annual income below the threshold (€ 33000 in 2005) were eligible to enroll in a not-for-profit sickness fund. The sickness funds were financed through income-related contributions, effectively payroll taxes directly paid by the employers (already in the 19^th century several sickness funds were founded to pool health risks of their members. Under the German occupation a more general legal arrangement was enacted). Care was delivered in-kind, the sickness fund directly paid the providers, and the insured hardly ever saw an invoice. Those with higher incomes had no access to this insurance plan and typically bought a private insurance plan on their own account. They were subject to risk-rated premiums and exclusion restrictions. Since the mid-1980s several compensation schemes had been designed to maintain the insurability of people with higher risks but dependent on the private sector. The compensation schemes introduced social aspects to the private health insurance sector. Co-insurance and deductibles were virtually absent for the clients of sickness funds, but were important in the private insurance contracts. It is important to not that both made use of the same care providers. For a more extensive presentation of the system that functioned until 2006, and a discussion of the problems and adjustments during the last decades, see Schut & Van de Ven’s “Rationing and competition in the Dutch health-care system” and Van de Ven & Schut’s “Universal Mandatory Health Insurance In The Netherlands: A Model For The United States?”.

Introduction of the new Health Insurance Act was finally possible due to a growing dissatisfaction in the population with the on-going practices in the health care sector. Over the years, health care demand had increased and costs had risen much faster than the national income. In order to control the health expenditure growth, several modifications had been implemented on the supply-side, boiling down to price controls and maximum budgets. The restrictions resulted in rationing of care, sometimes causing waiting lists for essential services, and failed to promote efficiency and innovation, while at the same time access to (basic) insurance was increasingly at risk (see the paper by Schut & Van de Ven, above).

The Health Insurance Act of 2006

Under the new Health Insurance Act, everyone who legally resides in the Netherlands is obliged to buy the legally determined basic health insurance package from an insurance company. The distinction between sickness funds and private insurers is abolished and both are now entitled to offer the basic health insurance coverage to every consumer.

On their part, the insurers have the obligation to accept each applicant at the same community-rated premium, regardless of pre-existing conditions. All adults directly pay a premium to the insurance company of their choice. Premiums are not charged for children under age 18. Each insurer sets its own premium, thereby competing to attract customers. Insurers are allowed to charge a lower premium for consumers who buy an insurance that only covers care with preferred providers, instead of a plan that covers services from all providers. Different premiums are also allowed for plans with in-kind services or with reimbursement. In addition, a 10% discount on the standard premium is allowed for people who form a group and buy a collective contract. Collective contracts are bought by employers, labor unions, sports organizations, patients’ organizations, and others, on behalf of their members. Any group can be formed, but discounts can be based only on group membership, not on health risks of the group members. Within an insurance company, each client with the same plan is charged the same premium. Differences in premiums based on age, gender, or health characteristics are not allowed.

Through a “risk equalization fund” the insurers are compensated for taking on clients with predictably high risks (e.g. elderly or people with pre-existing conditions) for whom the premium would not suffice to cover the expected costs. The risk equalization fund is filled up with income-related contributions that are paid –as a kind of payroll tax– by employers, on behalf of their employees, to the tax office ( see how this works in “Risk adjustment under the Health Insurance Act in the Netherlands”, by the Ministry of Health, Welfare and Sport). The Act determines that the individual premiums and the payroll taxes each finance 50% of the total costs of the basic health insurance scheme. Because of the risk equalization, a collective contract with, for example, a patients’ organization can be attractive for insurers because they are compensated for the predictable higher expenses while the size of the group enables efficiency gains for the insurer.

For households with a low labor income or living on benefits (such as retirement pensions, unemployment insurance, disability benefits, or social benefits) the introduction of the individual premium implied a direct augmentation of their expenses. Therefore an income-related health care allowance from the government is made available to compensate the health insurance premium. The subsidy being independent of the actually paid premium, everyone has an incentive to select an insurer who offers the desired services at the lowest price.

The basic health insurance further includes a mandatory deductible. Both the premium paid to the insurer and the deductible are meant to increase the cost-awareness of the people. In (general or pay-roll) tax-financed systems, the costs of the health care are often invisible for consumers, as was the case in the Netherlands for the people insured through a sickness fund.

Insurance contracts are for one year, and every year at January 1st citizens are free to leave their insurer and arrange their basic health insurance with another insurance company; insurers are obliged to announce their premiums for the next year before November 15th. In order to permit consumers to make an informed choice, information about the prices, service levels and consumer satisfaction of the various insurance companies is collected and published on several government-supported and independent websites such as http://www.zorgkiezer.nl/, http://www.kiesbeter.nl/, and http://www.independer.nl/.

Edwin van Gameren es Doctor en Economía por la Vrije Universiteit Amsterdam (Holanda). Actualmente labora como profesor – investigador en El Colegio de México.