Kingdom of the Netherlands—Netherlands: Selected Issues

Selected Issues

Abstract

Selected Issues

Health Care Reforms in the Netherlands: How Effective is “Regulated Com Petition”?1

A. Introduction

1. The Dutch health care system has been delivering good outcomes, albeit at rapidly increasing public costs. The quality and accessibility of health and long-term care services have been ranking high in the Netherlands, but like other advanced economies, the country faces significant cost containment challenges notably associated with a rapidly ageing population. Since the end-1990s, public spending on health and long-term care have increased faster than GDP to reach about 6 and 4 percent of GDP, respectively, and have come to represent the highest shares in the budget among European countries.2 Per national projections, should these expenditures continue to rise linearly at the current pace without triggering any endogenous policy response, total health care cost would reach 31 percent of GDP by 2040, and the average household would have to contribute about half of its income for its funding.

uA03fig01

Health Expenditures Trends

(Percent of GDP)

Citation: IMF Staff Country Reports 2018, 131; 10.5089/9781484357866.002.A003

Source: OECD.

2. The curative health care system underwent a major overhaul in 2006, notably aimed at curtailing costs by introducing more competition. To relieve pressure on public finances, the 2006 health care reform launched the transition from a heavily regulated system to one of “managed competition”, meant to foster efficiency gains, to reduce health care prices through bargaining mechanisms, and to incentivize some greater differentiation in the provision of health care services. Equally important was the objective of ensuring universal health coverage of the population by providing for mandatory enrollment and offering affordable care. The new system furthermore entailed closer linking of out-of-pocket expenses from patients to overall health costs, as a way to increase cost-consciousness among lay people and reduce moral hazard. In 2015, important steps were also taken to contain the costs of long-term care, notably via decentralization of social support activities to municipalities.

3. This analysis takes stock on recent developments regarding curative health care developments and policies. A few years into the reform, this paper seeks to identify the cost effectiveness of recently adopted measures pertaining to curative health care, trying to disentangle supply-side from demand-side effects on price curtailment. While severe data limitations preclude rigorous empirical analysis, some quantification is attempted with emphasis laid on the most innovative aspects of the reform, namely changes introduced in the relations between health insurers, health care providers, and patients. Section B describes the new curative health care architecture. Section C provides a few descriptive statistics and reviews the literature on outcomes achieved so far. Section D is a preliminary empirical exploration of the impact of the reform on overall price developments. Section E concludes.

B. The New Curative Health Care Architecture

4. The new curative health care system relies on the principle of “regulated competition” on both markets for health insurance and health care services. Prior to 2006, the financial coverage of health care provision relied on a two-tier system, with a mandatory social health insurance scheme administered by not for profit “sickness funds” covering people in the lower income brackets, i.e. about two third of the population, and voluntary private health insurance schemes covering people with higher incomes. The Health Insurance Act (Zvw) enforced as of 2006 radically changed the institutional landscape by providing for the mandatory insurance of the whole population by private health insurers against a legally defined set of basis health care services. In turn, health insurers are tasked with the responsibility of freely negotiating an increasing share of the tariffs with health care providers, including through the bundling of health care services or the setup of networks with hospitals and general practitioners. Overall, the new system aims at introducing market mechanisms to determine both the level of contributions from patients and the prices of various health care services by putting health insurers in the driver’s seat. This is complemented by strict monitoring of health care quality and access by newly-established government agencies, namely the National Health Care Institute and the Dutch Health Care Authority (NZa). About 85 percent of Dutch households also take advantage of second tier, unregulated supplemental insurance schemes offered by insurers, mostly to cover e.g. basic dental costs, prescription glasses, and physiotherapy.

5. The funding of the new system has placed higher constraints on the demand side of the insurance market. Whereas financing of health care under the old system relied almost exclusively on income related contributions, the new financing architecture comprises both an income related contribution of 6.9 percent of income before taxes and social premiums for workers in regular employment,3 paid by the employer to the tax office and subsequently allocated to insurers via a risk equalization fund, and a combination of direct payments by individuals to their chosen health insurers – with both financing flows contributing for about half to the (notional) health care budget. Direct payments to insurers comprise a health insurance premium typically amounting to 110 euros per month on average and a deductible currently set at a minimal level of 385 euros per year4 for basic benefits coverage. To ensure affordability, the government provides income related health care allowances to about 40 percent of Dutch households, and covers in full the health care provision for children. Overall, the financial burden sharing under the new system places a higher weight on individual responsibility and choice while still preserving solidarity, opening the possibility of financial combinations tailored to specific preferences and risk profiles.

Netherlands: Selected Financial Indicators in the Curative Health Care Sector prior to, and since, the 2006 Reform

(In Euros, unless otherwise indicated)

article image
Sources: CBS; CPB.

6. On the supply side, price competition is expected to result from bargaining mechanisms to jointly determine health care premia and the prices of health care services. While patients can switch among health insurers once a year without restriction, the latter are not allowed to refuse enrollment or discriminate among applicants based on risk – with some ex ante equalization mechanisms offsetting structural discrepancies across categories of patients. Moreover, insurers have to charge the same “community-based” premia to all of their insured population, and are strictly bound by the content of the basic health care package, including with guarantees in terms of geographic access to care. Given these restrictions, insurers are, however, expected to freely compete on the relative combination of premia and deductibles or on the mix of in kind or reimbursement policies they offer to clients, as well as through the setting up of tailored policies such as selective or group contracting aimed at better matching the needs of their insured. In turn, insurers are meant to use their market power to bargain on their purchase of medical goods and services from the various categories of health care providers. In the hospital sector, the spending envelope to be freely negotiated between insurers and health care providers (so-called “segment B” prices) has been gradually raised to 70 percent of hospital budgets, with discussions to be conducted on the basis of a standardized system of coding for inpatient, outpatient and specialist costs, which was simplified in 2012. The remaining 30 percent of hospital prices (“segment A”), generally pertaining to research and complex care, are set nationally by the Dutch Healthcare Authority (NZa).

7. The financial responsibility of insurers and effectiveness of overall competition have been markedly strengthened by subsequent policy adjustments. Lessons drawn from the first few years of the reform, which saw fierce competition on nominal premia for market shares among health insurers (on the demand side) but limited re-negotiations of health care prices (on the supply side), led to important complementary measures to better stimulate and organize competition. In 2012, a hitherto prevailing ex post risk compensation mechanism for health insurers was abolished and shifted to an ex ante risk equalization mechanism, putting them under increased pressure to negotiate costs with health care providers and enlarge their offer of tailored policies to clients along greater premium differentiation. As of this date also, the Ministry of Health introduced so-called “stakeholder agreements” to be concluded per sector (primary care, hospitals, mental healthcare) among health care providers, insurers and patient associations under the aegis of the government. These consist in yearly ceilings for health care expenditure growth, the breach of which can trigger across-the-board savings at the initiative of the government, leading to revenue losses for insurers and hospitals alike, prorated to their respective market shares. Even though this macro-budget tool could, at face value, be considered part of the cost containment toolkit on the demand side of the health care provision market, it is interesting to note that it has been widely recognized by professionals as essentially providing a useful anchor for centralized negotiations among stakeholders, hence helping to organize competition on the supply side.

C. Impact of the Reform on Health Care Markets

8. Several pieces of evidence suggest that the reform has had important effects on the market for health care provision. The Dutch market for health care services in the Netherlands is traditionally characterized by relatively low use by patients (reflecting the effectiveness of GPs’ role as referrals for care provision by specialists, leading to low rates of avoidable hospitalization), excellent access (owing to low out of pocket spending, in turn leading to relatively low health inequality), and generally good outcomes (with still a lower healthy life expectancy than comparable peer countries and above average cancer incidence, likely reflecting lifestyle factors), while also featuring comparatively high costs. Against this backdrop, the reform appears to have fostered marked improvements in health care delivery (see also Figure 1), among which: (i) a drop in the number of uninsured persons from about 200,000 people to negligible amounts; (ii) noticeable productivity gains in hospitals, as exemplified by diminishing lengths of stay, likely due to their enhanced appropriation of investment and staffing decisions; (iii) some visible improvement in client service (lengthening of opening hours, establishment of facilities aimed at preventing the unnecessary use of emergency care, reduction in waiting lists, which had been a perennial problem under the old system). Moreover, the offer of health care services has been enlarged by the opening of multiple independent treatment centers (ZBCs), entrusted with the provision of routine care at lower costs in various specialties (ophthalmology, orthopedics, etc.).

Figure 1.
Figure 1.

Netherlands: Selected Health Care Indicators

Citation: IMF Staff Country Reports 2018, 131; 10.5089/9781484357866.002.A003

9. The health insurance market appears to have witnessed significant efficiency gains and a shift towards increasing premium differentiation, while remaining relatively concentrated. The reform seems to have resulted in a downward trend of administrative costs (at least those of health insurers – see text table), following the peak experienced immediately upon its enactment. It also seems to have resulted in an increase in price competition on the insurance market, notwithstanding the reinforcement of its oligopolistic structure through a few mergers. Following the 2 percent decrease in the average premium triggered by the competition for market shares in 2006–2008, insurers have started to offer a greater number of differentiated policies, associated with rising variation across premia (up to about 30 percent difference between the highest and lowest nominal premium in 2014) and an increasing uptake by the insured population of higher deductibles in exchange for lower monthly payments. At the same time, following initial financial losses, the health insurers were able to markedly improve their solvency ratios to about 160 percent, in compliance with Solvency II requirements, thanks to windfall profits realized on basic health insurance. In terms of behavioral developments however, the proportion of people switching insurers each year has settled slightly above 6 percent, i.e. about 1.1 million people, after the initial spike to 17 percent recorded at the time the reform was enacted. The associated relatively low price elasticities bear testimony to some relatively strong consumer inertia, possibly encouraged by important marketing efforts by insurers. Overall, the degree of competitiveness achieved on the health insurance market remains limited, likely reflecting the persistence of important barriers to entry5.

uA03fig02

Administrative Costs of Health Insurers

(Percent of claims)

Citation: IMF Staff Country Reports 2018, 131; 10.5089/9781484357866.002.A003

Source: Dutch Healthcare Authority (NZa).
uA03fig03

Market Share on the Health Insurance Market (2017)

(Percent)

Citation: IMF Staff Country Reports 2018, 131; 10.5089/9781484357866.002.A003

Sources: Vektis; and IMF staff calculations.

10. While substantial sectoral price reduction has been achieved on the health care purchasing market, the impact is less clear on the overall health expenditure envelope, possibly reflecting excessive hospital concentration. Especially following the implementation of the macro-budget instrument and the simplification of the price coding system in 2012, negotiations between health insurers and care providers seem to have picked up. In the hospital sector, evidence suggests that real prices for “segment B” services have declined or increased at a slower pace than non-negotiated prices, albeit with substantial price variations across types of providers (university hospital, general hospitals, etc.). Nevertheless, the overall health spending envelope has continued to increase at a relatively unabated pace due to some pickup in the volume of care, possibly reflecting the practice by providers of ‘upcoding’ some medical services to preserve income in the face of lower prices. Importantly, some recent research tends to indicate that such developments could reflect substantial merging operations within the hospital sector over the last few years, which, further to greater consumer trust and comparatively lower regulation, may have resulted in excessive bargaining power of hospitals against health insurers. Among care providers at large, evidence also suggests that administrative costs may have increased for providers, partly owing to the higher number of contractual arrangements and information requirements from insurers and supervisors. By contrast, the price of pharmaceutical products underwent a sharp decrease since 2012, due to the policy of insurers to only reimburse lowest price generic drugs.

uA03fig04

Price Developments in the Curative and Long-Term Care Sectors

(In millions of Euros)

Citation: IMF Staff Country Reports 2018, 131; 10.5089/9781484357866.002.A003

Source: CBS.

D . Preliminary Empirical Investigation: Supply-Side or Demand-Side Effects?

11. Estimating the relative importance of supply-vs demand-side effects on health care prices is critical to assessing the success of the reform. The effectiveness of measures aimed at curtailing health care costs on the demand side (higher deductible, lower reimbursement) have been documented for other countries. The reduction in prices generally comes as no surprise, while raising the important issue of the extent to which it might be associated with a drop in quality and/or access to health care – ultimately a societal choice. Against this backdrop, the most novel aspect of the reform in the Netherlands consists in the search for efficiency gains on the supply side, i.e. the ambition to contain unnecessary costs without undermining quality or access. Thus, given also conflicting evidence on relatively contained sectoral price developments on the one hand, but unabated overall price dynamics on the other, we seek to examine the macroeconomic impact of the reform by estimating the effect of changes pertaining to the organization of the health care insurance market on overall health care spending – in effect internalizing spillover effects typically associated with efficiency gains. To assess the degree of competition on the insurance market, we rely on the Herfindahl-Hirschman index (HHI), namely the sum of the squared market shares of individual insurers—which appears to point out to increasing concentration following the reform, reflecting developments discussed above. In this respect, while diminishing competition generally tends to be associated with upward pressures on prices, it is worth pointing out that the moves towards an oligopolistic structure in the health care insurance market need not necessarily be detrimental to overall health care cost containment if insurers make use of their market power to better negotiate with medical service providers.

uA03fig05

Market Concentration in the Health Insurance Sector

(HHI index by insurance company)

Citation: IMF Staff Country Reports 2018, 131; 10.5089/9781484357866.002.A003

Sources: Vektis; and IMF staff calculations.

12. Very preliminary estimations suggest that more concentration among insurers is positively related to average health care price developments. Using regional data covering post-reform years (2012–2015), preliminary estimations point to a significant positive impact of an HHI index of concentration by market shares in the health insurance sector on average health care expenditures. For annual spending on health care totaling about €1,190 on average over 2012–2015, a one notch increase in the level of concentration is found conducive to a €244 increase in total health expenditure, likely due to hospital spending whereas the coefficient on GP spending is not significant. As can be expected, the ratio of people aged 65 years and above to the whole population (‘ageing ratio’) is estimated to positively contribute to all type of health spending, while the impact of disposable income is found muted or not significant, probably owing to the strong redistributive nature of the system through health care allowances. A time dummy for 2014 appears to negatively impact total expenditure on health care, possibly reflecting the impact of the one of the first stakeholder agreements on the overall budget envelope; this finding appears, however, difficult to reconcile with positive effects exhibited on hospital and GP spending. Overall, the interpretation of these results warrants, however, caution in view of the low number of observations and limited explanatory power of the regressions, as well as a likely omitted variable bias, notably due to data limitations preventing to correct for market concentration in the hospital sector.

Effect of the Health Care Reform on Average Health Care Expenditures (preliminary assessment, 2012–2015)

article image
Fixed effects panel estimations, robust standard errors in parentheses, *** p<0.01, ** p<0.05, * p<0.1Sources: CBS; Vektis; Dutch Healthcare Authority (NZa); and IMF staff calculations.

E. Conclusion

13. While manifold evidence points to significant efficiency gains in the health care sector, the jury is still out on the effect of the reform on overall price developments. This is hardly surprising, given the difficulty to quantify positive externalities associated with such structural changes just a few years after their enactment, as well as to pinpoint complex interactions between health insurers and hospitals, especially when it comes to assessing their relative bargaining power. The continued pressure towards concentration in both the health insurance and hospital sectors bears testimony to protracted effects of the reform on institutions and behaviors, which are still ongoing. In the current state of the debate, some concern has been voiced that excessive search for cost saving measures may entail a risk of lower quality of care in the future. While a societal choice, this calls for continued vigilance from the regulatory and monitoring agencies within the new institutional framework.

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1

Prepared by Marc Gerard. The author is grateful to Luc L. Hagenaars and Silvia S.T. Koerhuis for their kind support, useful insights, and help accessing data, as well as to Anvar Musayev for outstanding research assistance.

2

In the text figure, the one-off upward increase in public health expenditure in 2006 reflects the reclassification of some private spending under compulsory health insurance in the OECD system of health accounts, as an effect of the reform—see below.

3

Self-employed workers pay a contribution representing 5.654 percent of their income.

4

This amount has been frozen for three years in the new coalition agreement.

4

A new health insurer, IptiQ, a subsidiary of Swiss Re, was nevertheless able to enter the market in 2018.

Kingdom of the Netherlands - Netherlands: Selected Issues
Author: International Monetary Fund. European Dept.