Managed Competition for Medicare? Sobering Lessons from the Netherlands
By Kieke G.H. Okma, Ph.D., Theodore R. Marmor, Ph.D., and Jonathan Oberlander, Ph.D
The New England Journal of Medicine, June 15, 2011
Discussions about U.S. health care reform are often parochial, with scant attention paid to other countries’ experiences. It is thus surprising that in the ongoing debate over Medicare, some U.S. commentators have turned to the Netherlands as a model of regulated competition among private insurance companies. The Dutch experience is particularly relevant given the proposal by Congressman Paul Ryan (R-WI) to eliminate traditional Medicare and instead provide beneficiaries with vouchers to purchase private insurance.
It is easy to understand why Dutch health care — which does rely on regulated private insurance — would appeal to advocates of Medicare vouchers. Indeed, U.S. ideas about managed competition helped to shape health care reform in the Netherlands. But careful examination of the Dutch experience shows that insurance competition has not produced the expected benefits and in fact has created new problems, calling into question the merits of this reform model and its suitability for Medicare.
Before 2006, the Netherlands had a mixed health insurance system, with more than 60% of the population covered by mandatory social insurance, administered by nonprofit sick funds. The remaining population had private insurance, voluntarily purchased, and the uninsured rate was about 1.5%.
In 2006, the Netherlands replaced this arrangement with a mandated private insurance system similar to Switzerland’s. Under this reform, all legal residents of the Netherlands are required to purchase basic insurance from private insurers. Private plans are heavily regulated. They cannot turn down applicants, regardless of health status, and must charge community-rated premiums. A risk-equalization scheme varies payment to health plans according to their enrolled populations’ risk profiles. The aim is to reduce plans’ incentives to select profitable patients and ensure that plans with sicker, higher-cost populations are not financially penalized. Insurance plans are expected to compete on the basis of price and quality by selectively contracting with networks of hospitals, physicians, and other medical care providers.
Advocates of this system argued that competition among private insurers would reduce health care spending, enhance consumer choice, and improve the quality of care and the health system’s responsiveness to patients — arguments that are being repeated in the U.S. debate over Medicare. The reality of managed competition in the Netherlands, however, has not matched the rhetoric.
Four key points emerge from the Dutch experience. First, competition has not sharply slowed the rate of growth in health care spending. Health care expenditures continue to outpace general inflation, having increased at an average annual rate of 5% since 2006. At the same time, the total costs of health insurance for Dutch families, including premiums and deductibles, increased by 41%.
Reforms aimed at increasing and managing competition also produced high administrative costs and complexity. Administering premium subsidies for low-income people has proven expensive.
Second, some Dutch people remain uninsured, and there has been a substantial increase in the number of insured persons failing to pay their insurance premiums.
Third, the expansion of consumer choice has not worked as envisioned. Since 2007, only about 4% of the Dutch population, on average, has changed plans each year. Moreover, accelerating consolidation of the health insurance market has restricted meaningful choice of insurance plan. Currently, four insurance conglomerates control about 90% of the Dutch health insurance market. Recent polls suggest public dissatisfaction with private insurers, with 65% of insured people reporting that they have low or very low levels of trust in private plans.
Fourth, notwithstanding the rhetoric of competition, the Netherlands still relies heavily on regulation. Indeed, the Dutch case shows that competitive systems that seek to escape supposedly centralized, bureaucratic control of medical care paradoxically require sophisticated regulation and government intervention in order to work.
The comprehensiveness of health insurance in the Netherlands provides a critical contrast to the Ryan Medicare plan, which would erode the U.S. government’s contribution to the point that 65-year-old beneficiaries would pay about two thirds of medical costs themselves.
The myth that competition has been key to cost containment in the Netherlands has obscured a crucial reality. Health care systems in Europe, Canada, Japan, and beyond, all of which spend much less than the United States on medical services, rely on regulation of prices, coordinated payment, budgets, and in some cases limits on selected expensive medical technologies, to contain health care spending. Systemwide regulation of spending, rather than competition among insurers, is the key to controlling health care costs. The Netherlands, after all, spent much less on medical care than the United States with virtually universal insurance coverage long before it began experimenting with managed competition in 2006.
The Dutch experience provides a cautionary tale about the place of private insurance competition in health care reform. The Dutch reforms have fallen far short of expectations — a reminder that policy intentions should not be confused with outcomes and that managed competition is hardly a panacea. The idea that the Dutch reforms provide a successful model for U.S. Medicare to emulate is bizarre. The Dutch case in fact underscores the pitfalls of the casual use (and misuse) of international experience in U.S. health care reform debates.
By Don McCanne, MD
The authors of this NEJM Perspective on lessons from the Netherlands – Kieke G.H. Okma, Ph.D., Theodore R. Marmor, Ph.D., and Jonathan Oberlander, Ph.D. – are highly credible authorities on comparative studies and the politics of health care reform. The facts they present are well documented, and the conclusion is so obvious that it is essentially a restatement of the facts: “Systemwide regulation of spending, rather than competition among insurers, is the key to controlling health care costs.”
To no surprise, some of the published responses in the NEJM have challenged the credibility of these noted authorities, and instead have chosen to reframe the discussion – presenting “free markets,” “competition” and “consumer choice” as if these were the facts. These critics dismiss the results in the Netherlands because their “managed competition” system failed to use free market principles.
Which is it? Do we adopt Netherlands-style managed competition because it allows private insurers to compete, even though that hasn’t been proven to be of benefit? Or do we reject all existing models and adopt a truly free market wherein patients pay for all health care with their own cash? Of course, that can’t work either because of the necessity of pooling funds, and as soon as you have introduced the insurance function, you have suppressed the “price-based signals” and distorted the market.
Of course, neither of these choices – framed in terms of “markets” – will work. What does work – framed in terms of thoroughly documented studies of functioning health systems – is “regulation of prices, coordinated payment, budgets, and in some cases limits on selected expensive medical technologies.” That requires a major role for government, as the Netherlands is rediscovering.
Although the authors present this as a lesson for Medicare, it is actually a lesson for our entire health care system. Perhaps they anticipate when Medicare will be improved and then expanded to cover everyone. Let’s hope so.
Reposted with permission from pnhp.org.