Reforming the employee benefit system: how much privatisation?

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In July 1998, during the negotiations to form the Netherlands' second "purple coalition" cabinet, the Labour Party, Social Democrats and Liberals agreed to privatise the administration of unemployment and disability benefits almost completely. An exception was made for the assessment of the claims themselves, which will be carried out by a public body. This outcome can be seen as a breakthrough in the process of reforming this system, which has been underway since the early 1990s. It also reflects the ideology of the governing coalition, in which the parties are willing to meet one another halfway.

Since 1993, the reorganisation of the Dutch social security system has been hotly debated (NL9704109F). At that time, the results of a parliamentary inquiry were published which made it clear that major changes were needed in the administration of employee benefits. Until the mid-1990s, this system was run and supervised by employees and employers through industrial insurance associations (Bedrijfsverenigingen).

Reforms since 1993

The 1993 parliamentary inquiry revealed that the joint boards had applied the Disability Benefits Act (WAO) to prevent people from qualifying for the Unemployment Benefits Act (WW). This strategy led to staggering levels of WAO spending. To remedy this, supervision was shifted to an independent but government-monitored body called the Social Security Supervision Board (College van toezicht sociale verzekeringen, Ctsv) in 1995. In the same year, the industrial insurance associations were required to transfer the actual administration of employee benefits to designated administrative institutions (Uitvoeringsinstellingen, UVIs). The industrial insurance associations were then dissolved two years later. From that moment on, a public tripartite body, the National Institute for Social Security (Landelijk instituut sociale verzekeringen, Lisv), has assumed responsibility for policy making and concluding contracts with the UVIs.

At present, the UVIs - currently five in number - still have both private and public tasks to perform. Government plans suggest that the administration of employee benefits will be left largely to the market, implying that the UVIs will be privatised completely. The intention is that, in 2001, they will compete with one another for contracts from the various sectors and large companies to administer employee benefits. Debate currently centres on which body will process WAO and WW benefit claims since this entails assessing a given request in terms of legal and medical conditions, a task that demands a high level of expertise and care.

In the spring of 1998, the social partners within the bipartite Labour Foundation (Stichting van de Arbeid, STAR) agreed to privatise fully the administration of employee benefits (NL9806184N). Under the terms of the agreement, both employers and employees will play a role in the conclusion of contracts with the UVIs. This was an essential condition for privatisation, especially for the Dutch Trade Union Federation (Federatie Nederlandse Vakbeweging, FNV). In addition, both employers' and employees' representatives recommended that the Ministry of Social Affairs and Employment also privatise claims assessment, provided that this would be carried out by an independent, non-profit making unit within the privatised UVIs.

New government proposals

During the negotiations to establish a second "purple coalition" Government - made up of the Labour Party (PvdA), Social Democrats (D-66) and Liberals (VVD) early in July 1998, an agreement was reached to exclude the processing of benefit requests from the privatisation effort. This conforms to a memorandum published by the Ministry of Social Affairs and Employment (NL9804174N). For a long time, the political parties had opposed one another on this issue. The Liberals and Social Democrats felt that the 1993 parliamentary inquiry gave good reason to exclude the social partners from the administration of benefits. However, since the Labour Party has historically maintained strong ties with the unions, it is in favour of granting employees organisational responsibility. Moreover, the Labour Party was not unanimously enthusiastic about privatising the administration of employee benefits in the first place.

Nevertheless, these divergent viewpoints compromised on partially privatising the administration. The coalition parties also feel that, in terms of bureaucracy, there is no significant difference between an assessment of claims carried out by an independent unit and one carried out by a public body. They argue that a public body will not necessarily create more bureaucracy than an independent unit within a private organisation. Specifically, they proposed that this public body be located within the municipal centres for work and income currently being established throughout the country. The tripartite employment service, the UVIs and the municipal social services will all be included in these centres.

Commentary

The Dutch Government seeks to put an end to the hybrid nature of the social security system in which UVIs carry out both public and private tasks. However, this ambiguity is not completely dispelled by allocating the task of claims assessment to a public body and the payment of benefits to the UVIs. The main reason for the Government not to privatise assessment seems to stem from the fear that commercial interests may interfere with the interests of individual clients. The Government feels that a public body can guarantee both equal and efficient treatment in processing claims. However, this point of view has been heavily criticised. The separation of claims assessment from benefit payments allegedly interrupts an integrated process. Critics say that this interruption will lead to an increase in the transfer of client data between the organisations involved, which will result in additional bureaucracy.

A more important question is whether the privatisation of the administration of employee benefits will succeed in terms of efficiency and equity. The Sickness Benefits Act (ZW) was privatised earlier in the 1990s, giving employers financial responsibility for their employees in the event of illness. Surprisingly enough, no information is yet available about the success of this operation. However, there are suspicions that employers have begun to consider health risks when hiring new staff: "healthy" employees are being preferred to those with a "poor medical history". Moreover, it is rumoured that employers' financial incentives have placed pressure on the medical assessments made by company doctors (NL9804171F).

Although the Government seems convinced that privatisation will contribute to a more efficient administration, it obviously does not want to create a situation in which powerful market players confront individual employees. However, as sufficient evidence is still lacking, it cannot be simply assumed that private institutions will fail to protect the interests of individual employees. (Martijn van Velzen, HSI)

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