Debate over healthcare system reform

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After 20 years of relative political inaction, pressure exerted by the recent spiralling costs of healthcare appears to have awakened broad support for fundamental reform of the Dutch system of medical expenses insurance and the organisation and structure of healthcare. In talks over the formation of a new coalition government, an agreement in principle was reached in March 2003 on the introduction of a new system in 2006. Earlier, in 2000 the tripartite advisory Social and Economic Council had issued to the former government a unanimous recommendation on reform of the system. However, agreement - both between the negotiators in the coalition talks and between the social partners - is fragile, and several major differences of opinion have yet to be resolved.

In March 2003, following a general election in January, negotiations were underway between the two largest parties in parliament - the Christian Democratic Appeal (Christen Democratisch Appel, CDA) and the social democratic Labour Party (Partij van de Arbeid, PvdA) - over the formation of a new coalition government (NL0302101N). An important issue in the coalition talks was reform of the healthcare system and the system of medical expenses insurance.

Spiralling healthcare costs

At the beginning of 2003, an official taskforce jointly established by the Ministry of Welfare, Health and Sports (Ministerie van Volksgezondheid, Welzijn en Sport, VWS) and the Ministry of Finance (Ministerie van Financiën, FZ) carried out some calculations to assist in the coalition talks, revealing that pursuing existing healthcare policy would lead to a public healthcare budget overrun of between EUR 2.5 billion and EUR 3.5 billion over the next four-year period (Financiële Bouwstenen Zorg[Financial healthcare foundations], Ministry of Welfare, Health and Sports and Ministry of Finance, Report for cabinet formation, The Hague, 2003). These figures do not take account of unavoidable financial problems that could amount to EUR 800 million. The official estimate is also somewhat low in comparison with calculations made by the Central Planning Office (Centraal Plan Bureau, CPB) that arrive at an upper limit of EUR 5.5 billion. None of these figures take account of 'regular' cost increases of EUR 7.35 billion between 2003 and 2007.

The open-ended character of healthcare is at the root of the massive cost overruns. Until 2000, the government set an annual expenditure ceiling for healthcare which served to keep supply deliberately low, resulting in waiting lists if demand became too great. While this Budgetary Healthcare Framework (Budgettair Kader Zorg, BKZ) is still in place, budget overruns became part and parcel of the system following introduction of an individual right to care under the Healthcare Assured Campaign (Actieplan Zorg Verzekerd, 2000) launched by the coalition government of the time, led by Prime Minister Wim Kok of the PvdA. In cases where policyholders must be awarded what they are entitled to in accordance with their healthcare insurance, all of their needs should in principle be met and there are therefore no financial limits. From this point, healthcare institutions were given a financial incentive to offer additional capacity in a drive to shorten waiting lists. The share of public expenditure represented by healthcare has thus risen in recent years to 9.3% in the Netherlands, against a European average of 8.1%. The ageing population will exert additional pressure on expenditure in the years ahead.

Proposed solutions

The official taskforce jointly established by the Ministry of Ministry of Welfare, Health and Sports and the Ministry of Finance asserts that, if a future government were to ditch the principle of a right to healthcare, this would not only fail to address the length of current waiting lists but also clash with the fundamental legal premises of the Constitution of the Kingdom of the Netherlands and a number of international treaties. The taskforce therefore assumes that this principle will have to be maintained by all future governments. As such, cost overruns will remain a recurrent characteristic inherent to the healthcare sector unless it is amended.

The taskforce presents four possible solutions, of which only two would appear plausible at present: increasing the contributions of those insured; and reducing the scope of the package of care offered. The contribution made by insured people in the Netherlands is the lowest in the EU, and proposals for higher contributions are a thorny issue in the context of incomes policy and discussions surrounding financial capacity. The sensitive issue of raising medical expenses insurance premia at the start of 2003 led to trade union protests and action on the part of the Dutch Trade Union Federation (Federatie Nederlandse Vakbeweging, FNV). Decreasing the scope of the package of healthcare offered conflicts with the interests of specific groups of patients and will therefore not be easy to achieve. The taskforce deemed wage-cost cuts (the third option proposed) unrealistic and believes that efficiency gains (the fourth option) would be plausible only following reform.

Reform is now considered inevitable in light of a report published by the CPB at the beginning of 2003 (Zorg voor Concurrentie. Een analyse van het nieuwe zorgstelsel[Healthcare competition. An analysis of the new healthcare system], CPB Document no. 28, CPB, The Hague, 2003). By introducing the right to healthcare and abandoning the old budgeting system without evidence of control mechanisms in place on the demand side, healthcare costs will continue to rise. Although reforming the system has a degree of risk, proceeding without taking some form of action would be even more dangerous, according to the CPB researchers.

Debate on system reform

As far back as in 1987, an integrated plan directed at stimulating market forces to supplement government healthcare policy was proposed by a government committee (the 'Dekker committee'). The Dekker committee called for the introduction of a basic insurance for everyone, and for insurers to play a central role in a system of regulated competition - an approach again taken up in the current debate. However the Dekker plan became bogged down in political differences of opinion, as did a later plan proposed in 1989 by the State Secretary of Public Health of the time. It should be noted that these differences primarily related to the degree of solidarity between higher and lower income earners and not to the desirability of opening up the healthcare sector to competitive forces as such. This is further evidenced by the fact that during the years that followed, steps were indeed taken to stimulate market forces, although these were insufficient genuinely to activate competition.

Two related discussions

A distinction should be drawn between two elements in the debate on healthcare reform:

• discussions concerning reform of a system regulated on the supply side to one driven more by demand. These discussions relate to the reform of the organisation and structure of the healthcare sector; and

• discussions concerning reform of the system of medical expenses insurance. These discussions relate to issues of solidarity and they form part of the broader discussion relating to the transition from supply to demand-driven regulation.

Within the political arena and among the social partners, contradictions appeared and will continue to appear in the debate concerning these two subsidiary discussions.

Reform of medical expenses insurance system

The present system of medical expenses insurance in the Netherlands is a complex blend of regulations under public and private law. A distinction is drawn between three different forms of healthcare, placing each into a different 'compartment': long-term healthcare and uninsurable risks ('care'); short-term curative healthcare ('cure') that must be available to everyone; and other forms of healthcare.

Reform of the system mainly relates to the second compartment, in which the different public and private insurance regimes come into play. Financing is a complex of factors involving government contributions, nominal and/or income-linked premia and solidarity transfers. Introduction of basic insurance is proposed as a means to stimulate competition in the healthcare sector and to realign opaque and unbalanced relations of solidarity.

SER recommendation - a historic compromise

A recommendation to reform the healthcare system put forward in December 2002 by the tripartite advisory Social and Economic Council (Sociaal Economische Raad, SER) is of relevance on current discussions concerning changes to the system, particularly because it was backed unanimously by SER representatives of employers’ organisations and trade union federations, and by independent members (Naar een gezond stelsel van ziektekostenverzekeringen[Towards a sound system of medical insurance], SER Recommendation 00/12, The Hague, 2000). This is noteworthy in light of the very diverse premises adopted by the various groups on the SER in relation to reforming the healthcare system.

The SER’s recommendation comprises two interrelated 'core components':

1. introduction of a general 'curative' healthcare insurance, whereby everyone would be legally bound to take out such insurance; and

2. a gradual and careful transition from the present situation of control of supply, price and budget, to a new demand-driven situation characterised by competition and market mechanisms.

The press gave more attention to the first point in the recommendation, in view of the fact that a number of historic compromises were achieved in this area.

Differences of opinion between social partners

'The differences of opinion in this dossier were just as big initially, perhaps more so, than among the different political groups in the Lower House: from broad public insurance based largely on income-linked premia to private insurance offering maximum freedom to insurers at the other end of the scale,' according to one of the employee members of the SER at the Council’s meeting on the draft recommendation. How did the SER reach consensus? The key issues are examined below.

Nominal vs income-linked setting of premia

The most significant stumbling block concerning introduction of a basic healthcare insurance was the consequences of the premia for people's incomes. As stated by Robin Linschoten, an independent SER member, it was the issue of finding 'a solution for the consequences of nominal premium setting that contributed significantly towards achieving unanimity with respect to the recommendation'.

The recommendation proposed addressing the effect of the new basic insurance on employees' incomes ('income repair') by means outside the system of medical expenses insurance, namely via fiscal means. This is an essential demand for employers in view of their long-standing calls for a separation of healthcare policy and income policy, and with a view to including, to the optimum extent, opportunities for competition within the system. In the end, although the trade unions had emphatically expressed in the deliberations their preference for income-linked premia, they went along with 'nominal' setting of premia because the SER attached a number of 'serious conditions' to the proposed compensation measures for the premia. For example: they must be 'robust and structural'; there must be a guarantee that the money reaches those people whose needs are greatest; and attention must be paid to the consequences for incomes with respect to groups of insured people with a specific position at present, such as public servants and older people. The Christian Trade Union Federation (Christelijk Nationaal Vakverbond, CNV) also called for the legal embedding of 'fiscal income repair', an element adopted in the recommendation.

The CPB and the Social and Cultural Planning Office (Sociaal Cultureel Planbureau, SCP) calculated in 2000 that it is feasible structurally to achieve sufficient income solidarity through the tax system (Naar een gezond stelsel van ziektekostenverzekeringen: inkomenseffecten[Towards a healthy system of medical expenses insurance: income effects], CPB and SCP, The Hague, 2000). In deliberations surrounding the draft SER recommendation, FNV reserved the right to readdress this point at any point in the future if matters turn out differently. Prompted by massive increases in national health insurance premia at the beginning of 2003 and compensation thereof which it regarded as inadequate, FNV expressed doubt concerning the possibilities of fiscal compensation and again called for income-linked premia.

Solidarity vs freedom of choice

The system of healthcare insurance proposed by the SER would offer a number of options in terms of the scope of the care package offered and the amount of risk assumed by the insured person, linked to restricted differentiation of premia. Employers stress that freedom of choice must remain 'realistic', in that a decision to take up only the minimum legally required basic package with maximum 'own' risk must offer 'sufficient premium gains' for the person concerned. By contrast, unions emphasise the limited nature of premium differentiation, stressing the importance of solidarity extending to the level of the broad standard package.

Private vs public

The SER recommendation supports heatlhcare insurance under private law, encompassed by guarantees under public law. In one way, this compromise makes concessions to employers’ desire for freedom of choice for consumers and business freedom for insurers, while it also guarantees the public interests of availability and solidarity.

However, the public/private mix championed by the SER has been questioned in the light of EU law. A number of the public guarantees built into the proposed system may well be in conflict with the principle of open competition. Private insurers providing healthcare insurance would be governed by EU insurance Directives that curb the authority of governments to impose rules on insurers. Despite a recent judgment issued by the European Court of Justice, opinions remain divided concerning the extent to which the restrictions of these Directives should apply. A possible way to side-step the Directives would be to design the proposed system in such a way as to incorporate it under the social security system. However, there is still a lack of clarity as to how this should be achieved or whether inclusion in the social security system could potentially lead to other undesirable restrictions, such as the exclusion of for-profit companies from participating in the insurance market. The CPB suggested in 2003 that support should be sought for amending the rules concerned if it is indeed conclusively shown that the system cannot be reconciled with the applicable European legislation. This could be achieved on the basis of the argument that forcing the Dutch government to choose a highly-regulated system under public law would be in conflict with the insurance Directives and the general EU right to an open and competitive common market.

From the deliberations over the draft SER recommendation it is clear that extensive discussions took place among the members in order ultimately to arrive at the compromise achieved, which was considered a carefully composed structure that would run the risk of collapsing if any of the 'building blocks' were to be removed. However, current political discussion take a different approach.

Coalition negotiations

In the discussions between CDA and PvdA in early 2003 on the formation of a new government, the healthcare system surfaced as one of the most important dossiers. At one end of the scale stood the PvdA negotiator, Wouter Bos, who during the election campaign avidly opposed increasing medical expenses insurance premia and called for reducing waiting lists first, based on budgetary increases, before considering the introduction of a basic insurance. Furthermore, should the likelihood of a basic insurance arise, the preferred form would be one of a provision under public law characterised to a large extent by income-linked premia. By contrast, the CDA negotiator, Jan Peter Balkenende, advocated introduction of a basic insurance with a nominal premium under the terms of private law. The apparent differences of opinion between the two negotiators could not have been greater.

Nonetheless, a compromise was reach at the beginning of March 2003 regarding the introduction of a new medical expenses insurance system in 2006, based on a combination of nominal and income-linked premia. To circumvent potential problems with EU legislation, the negotiators opted for a new system to be set up under public law.

Commentary

Will the new system be in place in 2006? Although the controversy concerning spiralling healthcare costs can be placed in its proper context by viewing the position of the Netherlands in an international perspective, where the Netherlands appears to exceed marginally average figures in terms of healthcare expenditure, the open-ended character of the right to healthcare would appear to go hand-in-hand with inevitable cost increases, raising the unpleasant likelihood of it becoming unaffordable. The massive premium increases for medical expenses insurance at the start of 2003 certainly appear to point in this direction. Consequently, the need for urgent change enjoys broad support.

This may well have contributed towards expediting the concrete resolution of thorny issues that have hampered progress for as long as 20 years. The political and social partners now appear willing to compromise significantly, given the agreements close at hand. Albeit subject to strict conditions, the trade unions have also agreed to the nominal collection of national healthcare insurance premia. Employers accept limitations in terms of premium differentiation options and have agreed on the public/private make-up of the system. However, the social partners stress the integral nature of the SER recommendation and the vulnerability of the compromises if the cohesion of the proposed measures is ignored. Since the politicians appear to have largely ignored the recommendation, it is important to assess the level of support for it among the social partners. Here too, the matter of how real the differences of opinion in fact are should not be set aside. Can underlying arguments in support of certain choices be substantiated or is it more a question of ideological differences of opinion?

Given the complexity of the matter and great uncertainties about how the different measures will in fact work out, questions like this cannot be unambiguously answered. However, there is something to be said.

For example, even in 2001 the CPB calculated that the ratio between income-linked and nominal premia has no impact on the extent to which insurers compete (Economische Verkenning 2003-2006[Economic Study 2003-6], CPB, The Hague, 2001). Assuming this to be true, discussions on the way in which contributions are collected essentially become a non-issue. Removal of the competitive argument raises the question of which solution offers the best guarantee for income compensation. If this does not take place within the medical expenses insurance system itself, the problem shifts to income-related policies.

Concerning the choice between a system under public or private law, employers within the SER emphasise that it is vital for them that the system is housed in the private domain. The CPB supports the underlying competitive argument, asserting that if this should nonetheless prove irreconcilable in terms of EU legislation, a solution should be sought rather in terms of generating support to amend this legislation than opting for a system under public law. The negotiators in the coalition talks have, however, already made a choice. Understandably, the level of criticism is high.

Finally, there is the important question of how far we are prepared to go in the interests establishing a sound, flexible healthcare system or, indeed, how far our solidarity should extend. This is largely dependent on the composition of the standard package included in the basic insurance scheme. After all, it is a question of what should be financed using public resources and therefore what the standard package should encompass and what aspects people will be required to insure separately. This also presents another significant obstacle regarding introduction of the system in 2006, given the fact that decisions relating to the composition of the standard package have been postponed by the coalition negotiators. (Marian Schaapman, HSI)