International Health Care Systems

WSJ on the Dutch Health Care System

Yesterday, the Wall Street Journal (“…Model For U.S. Health-Care System“) investigated recent reforms in the health care system in the Netherlands.

New System in Town

The new system has the following major characteristics:

  • All individuals must be insured
  • All individuals purchase health insurance on the private market
  • Individuals can choose to get their health insurance through their employer–if the option is available–but the employer does not have to offer health insurance. If the employer does not offer health insurance or if an individual is unemployed, then they must purchase health insurance on the private market.
  • Health insurers are free to charge each individual any price they please for health insurance. Of course, market forces limit the price that the insurers can charge the consumers before they switch to another plan. After the reform was implemented, however, there was significant consolidation in the health insurance market and now there are only four or five large plans. This may reduce the amount of price competition in the market.
  • The cost of health care is more transparent to consumers since they see the price they are charged for health care. In most national social health insurance programs, individuals do not know the value of health care they receive since the amount of money they pay into the system is proportional to their income and thus unrelated to actuarially fair value of health insurance.
  • Health insurance is subsidized by the state. “Insurers get risk-equalization payments for patients with about 30 major diseases.” Thus, people who are sicker receive a larger state subsidy than healthy individuals.

Old System

The old system was described as follows:

“The country had four different coverage schemes. The wealthiest third of the population was required to get health insurance without government assistance. Some in this group received help from employers in paying premiums, while others paid the whole bill themselves. The bulk of the Dutch population was covered under a compulsory state-run health-insurance scheme financed by deductions from wages. Civil servants and older people were insured under two separate plans within this state-run scheme. The government closely regulated hospital budgets and doctors’ fees, but provided few incentives to cut costs. When hospitals lost money on a particular kind of care, they rationed it. Many patients ended up on waiting lists. People in line for heart transplants were particularly affected. In the mid-1990s, fewer than three Dutch people per million received such transplants. By comparison, a study of 12 European countries showed that only Greece had a lower rate of such operations. In the U.S., there were about nine heart transplants per million people.”

The Healthcare Economist’s Take

Overall, I think this is a good compromise between equality/social justice and allowing the free market to make health care more efficient. Sicker people get more money from the government–which may anger individuals such as Megan McArdle–but there is not centralized pricing or rationing of the health care system. Also, the risk equalization payment does not have to be perfect. If the actuarially fair additional insurance premium for someone with diabetes is $600/year, and the government pays only $500, the extra $100 will have to be covered by the individual. When a centralized government pays a risk equalization premium directly to an insurer, a lower risk equalization amount will lead insurers to try to drop patient with some conditions and with a higher risk equalization premium will lead insurers to do their best to attract these patients. This problem will not occur when the consumer pays the insurance company directly.

The libertarian in me worries about compelling people to buy insurance. Maybe individuals would prefer to spend this money on food for their kids or electricity for their home. Mandating coverage does make some sense if everyone can in essence get free health care at the emergency room, and taxpayers or consumers would have to foot this bill anyway. More of a problem is what type of health insurance is mandated. Can individuals buy bare bones plans to spend more money on other goods? If so, then mandated health insurance has no teeth. If there is a high minimum level of health insurance, who decides this? Will this level be too high for some people? This is always an issue when you restrict individual sovereignty.

Another problem stated in the article is that “insurers can currently negotiate prices for only 10% of the services hospitals offer.” This figure is set to rise in the future, but the free market is not really free yet. Also, I wonder what will happen when an insurer decides not cover a certain illness that either may not be included in the risk equalization payment or is deemed to be not cost-effective. Can the patient pay out-of-pocket? Another issue is how the insurance companies will influence the doctor-patient relationship. Will doctors make medical recommendations based on what is best for the patient or what will save the insurance company the most money? Still, the proposals seems like a step in the right direction, but deserves more thorough investigation.


  1. There may be a way to scratch your libertarian itch and still provide for universal health coverage. The plan, Universal Healthcare Vouchers is something out of the Chicago School, although neither of its authors are alumni.

    To date, the plan has attracted attention among policy wonks but has made virtually no headway in the public dialogue. Under this plan (read more about it on our Website), everyone receives a healthcare voucher from the Federal government redeemable for a standard health plan that meets government-established minimum requirements (FEHBP at a minimum). Health plans can be offered by insurance companies, HMO’s or other health organizations, thus keeping delivery in the private sector, but overseen by a public entity. No one can be refused entry to a health plan for any reason. The voucher plan also calls for a proactive government role in encouraging quality improvement and cost containment.

    Employers would no longer have a role in health care. Means testing would be a thing of the past. Individuals would be free to purchase additional coverage, to an already rich set of benefits, but would receive no tax incentives to do so. Anyone not signed up to on of a number of competing plans a plan would be enrolled on one by the government. The proposal provides for state funded universal coverage delivered by a more competitive private sector administered in the public interest.

  2. Good write-up.

    I think the part about the gov’t subsidizing sicker people is risky for those people.

    Certainly if you’re part of a vocal block your subsidy will be adequate because you’ll be vocal about it. What if you have an orphan health issue? Washington will decided X is what your subsidy should be. The market will have treatments that are X + a hundred thousand, and your insurer won’t cover it. Not that it doesn’t happen now, but I don’t see that this fixes that.

    How forward thinking are they about new treatments? I’ve read accounts of women in Israel and Australia who have difficulty getting Taxol or Herceptin for breast cancer treatments, and Dutch women who travel to the US for re constructive services.

    I am all for improving the individual market for health coverage. If you have ever been to a Dr. for anything getting individual coverage comes with exclusions and limitations, and is terrifically expensive. Making the entire country part of the risk pool might help with that.

    Remember that the Dutch allow euthanasia. They are far more practical about life and money than we are. I question whether the standard of treatment in the Netherlands meets American expectations. Before you tout their system as a good solution I’d like to know more.

  3. From Tanner (2008) “The Grass Is Not Always Greener: A Look at National Health Care Systems Around the World”

    Employers generally pay half of insurance premiums, with individual workers picking up the other half. Individual premiums are tax deductible. Subsidies, or care allowances, that help low- and middle-income income workers purchase the basic insurance plan are extensive and reach well into the middle class. Currently, 5 million Dutch citizens qualify for some level of subsidy on a sliding scale based on income. Those subsidies are financed through a tax on salaried workers. Because of the high levels of subsidy, the Dutch government remains a large source of health spending, one area of significant difference with the Swiss system.

    Insurers negotiate quality, quantity, and price of services with providers. Notably, many insurers require providers to document the quality of the care they provide, frequently relying on evidence-based guidelines and performance metrics.

    Some insurers provide care directly, using their own staffs and their own facilities, such as primary care centers and pharmacies. Other insurers contract with a network of providers similar to U.S. preferred provider organizations (PPOs). Patients can go out of network but will receive only partial reimbursement. Most insurers require a referral from a primary care provider before a patient can see a specialist. Pharmaceutical prices are capped nationwide at the average price of medicines in a therapeutic class. Individuals may choose more expensive drugs but must pay the difference out of pocket.

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