“Healthcare reforms in the Netherlands: a model for Germany?”

Speech, 18 May 2006

“Healthcare reforms in the Netherlands: a model for Germany?”

Thank you for your invitation to speak here today.

I know considerable interest exists in Germany in the reform of the healthcare sector in the Netherlands. You are naturally keen to learn what your European Union neighbours are doing. But in all probability your interest stems more from the fact that your government faces the same kind of major policy decisions as we did. You heard my colleague Schmitt talk on this subject this morning. I would like to explain why we decided to make changes in the Netherlands and tell you about the most important ones.

What are the crucial problems?

Firstly, there is the sharp rise in costs caused by technological advances and ageing. The latest economic analyses tell their own story. In the coming thirty years, the ageing of the population will push the costs of healthcare to 55% of GNP. Not too long from now – in about five years’ time – we will need a budget surplus of three percent to cope with the consequences. We face this situation at a time when the Netherlands has a budget deficit of one percent.

Secondly, most Dutch citizens – like their counterparts in most other European countries – have grown up with the idea that healthcare is free. Our extensive national insurance system means people are not accustomed to being presented with a bill. They see healthcare as a matter for the government, not for the individual citizen.
Also, people tend simply to accept what they get from a doctor or hospital in the way of service. They think they are getting the care for nothing and, what’s more, it’s very difficult for them to judge the quality of care they receive.

Thirdly, we need to change because when it comes to controlling costs, the government always stands alone. Nobody else felt responsible for taking on this task. The result was increasingly spasmodic efforts to keep a grip on prices. True, you can hold down costs by having maximum prices, fixed tariffs and budgetary ceilings. But it also obstructs any kind of creativity. The government is always the bad guy, while the established powers in the healthcare sector – and they are very strong ones – make every change very difficult.

The Dutch government has chosen a path along which we want to respond to these issues in the current term of office.

The crux of the matter is that all stakeholders – consumers, care providers and insurers – must become aware of how much it costs to provide healthcare. We want to dispel the illusion that care is free because the government pays for everything. We want to strengthen the individual responsibilities of all the stakeholders. We want to do this by using elements of market forces, but in the knowledge that healthcare can never be a true market. Safeguarding strong social preconditions will always be a government responsibility.

The first action our government took – almost 3 years ago now – will not sound unfamiliar to you. We scaled down the package of insured services. People now pay the costs of going to dentists and physiotherapists. We have also increased the personal contributions that people must pay. By international standards the contributions were very low in the Netherlands. Needless to say these interventions originally caused considerable commotion. I must choose my words carefully, but I think people in Germany also needed time to get used to the idea of paying something themselves. In the Netherlands, I notice that people are gradually beginning to consider it normal.

When the care providers saw we were serious about making reforms, they were willing to make agreements. With the pharmaceutical industry, we have agreed a 40% reduction in the price of generic medicines. For the first time in decades, our expenditure on medicines has fallen thanks to this agreement.

Hospitals are starting to work more efficiently. They have promised to treat more patients for the same money. We have ended the contractual obligation of insurers. They are no longer required by law to conclude contracts with all providers. So far the insurers have not been very selective. But the fact that the contract is no longer an automatic occurrence has greatly boosted innovation at all our hospitals.

Ladies and gentlemen
This brings me to the most radical change we have made during this government’s term of office. I am referring to an overhaul of the system of medical insurance. Our experience of making this change is probably the main reason why I was invited to speak to you today.

Germany’s interest in the Dutch approach is understandable. The systems in both our countries stem from the major social reforms made by Otto von Bismarck. At the heart of those reforms was the dual system. People with a modest income are covered by national insurance. Those with a higher income pay for their care or take out private insurance. For a long time this social system worked excellently. But in the Netherlands it was in urgent need of an overhaul.

The first reason for change was the fragmentation of the market. A majority of Dutch people were insured through the compulsory national Insurance scheme. A smaller proportion – about 30% – had private insurance. We additionally had special insurance for civil servants and senior citizens. Hardly any transparency existed and workers and self-employed persons continually balanced on the dividing line between compulsory national insurance and private insurance. Many moved between the two systems from year to year. What’s more, this fragmentation also obstructed competition in the insurance market.

I mentioned the second reason in my opening remarks. It was the circumstance that nobody was aware – and did not need to be aware – of the costs. The larger part of the contributions was collected through deductions on the payslip. So people had no idea of the real costs and there was very little competition between insurers. The upshot was that insurers had no incentive to see whether the care providers could do the job a little cheaper. Our new system of healthcare insurance has robustly tackled these problems.

Let me briefly explain the changes we have made to our system.

1. Since January 1, 2006, we have had one healthcare insurance that covers every person in the Netherlands. Overnight, this made the market transparent for everybody. The insurance is compulsory and those who fail to take out cover are fined. Although it is a compulsory insurance, the system includes strong market features.
2. The market is operated by private insurers who are allowed to make a profit. Approximately 30 insurers compete in the market.
3. For this insurance, everybody in the Netherlands pays a substantial contribution, regardless of their income. The nominal contribution of approximately €1,050 per year covers about half the total costs. We fund the other half from contributions that are income-linked. The size of the nominal premium is such that people in the Netherlands now have a far better picture of exactly how expensive healthcare is.
4. The freedom of choice that people have has been greatly increased. People now have far greater freedom to choose their insurer plus a better insight into differences between care providers. Besides the compulsory standard insurance package, people can if they wish take out supplementary insurance for services like dental care and physiotherapy.

I have summarised for you the private elements of the new system. But our new-style insurance also has four important social elements that originate from the traditional national insurance.

1. The government defines the standard package that insurers must offer. The package comprises virtually all essential care, covering everything – from general practitioners to hospital care and medicines.

2. Insurers are legally obliged to accept anybody who approaches them for insurance. We have put in place an equalisation fund to balance the financial consequences of this system.

3. Insurers are not allowed to make any distinction between sick and healthy or between young and old customers. They cannot charge the elderly or infirm higher premiums.

4. We are regulating income solidarity through a special care surcharge financed from tax revenues. Each month the inland revenue service pays allowances to people who cannot afford the fixed contribution. Children under 18 do not pay any contributions. Their contributions are financed from tax revenues.

What visible effects has this policy had so far?

We have noticed three things.

1. Critics predicted that very few people would take the trouble to find out which insurance was the most favourable for them. They claimed this would undermine the idea of competition. The reality is different. Never before have Dutch people got so involved in their healthcare arrangements as they have in recent months. More than 4.5 million people have switched insurance company, almost 30% of all insured persons. This is far more than expected. It shows the insurance market has become enormously competitive. Without exaggerating I can say that our cost-awareness operation has been completely successful – and within just four months. No other European country has a population so keenly aware of the costs of their healthcare insurance.

2. Competition to win the custom of insured persons is reflected very prominently in the size of the nominal premiums. This is something else that turned out differently to what the critics expected. My ministry had predicted that the annual premiums would average €1,100. The media said the figure would be far higher. The reality is that the average premium is now €1,038.

3. There is a strong incentive for innovative projects in the healthcare sector, particularly at hospitals. I am referring to projects for effectiveness, quality improvement and customer focus.

In a short period of time we have seen an end to the enormous cost increases that occurred in previous years. Instead of going up by more than 5% per year, the costs of healthcare have edged up by just one-and-a-half percent over the past two years. And in the years ahead healthcare insurers will have a strong incentive to control their costs. Next year they will again have to keep their premiums competitive.

Over the coming years we will see an ongoing development of these "regulated market forces". This will produce various effects. Firstly, we will see the liberalisation of submarkets. It would not surprise me to see one of the commercial hospital chains in Germany show an interest in the Netherlands in the not too distant future. The conditions under which they operate in Germany appeal to me: they make their own investments, but have an opportunity to make a profit. To my mind this is not a bad idea as a way of shaking up the Dutch market.

Secondly, there will be a greater insight into the quality of healthcare, because institutions will be forced to provide greater transparency. Care providers will get used to the idea that, just like numerous other groups in the community, they are publicly accountable.

Ladies and gentlemen
Does all of this make the Netherlands a "model for Germany"?

You must obviously answer that question yourself. But I can tell you that it is an operation that has caused quite a stir.

For one thing, a far-reaching change of this kind is bound to cause uncertainty in the community. We now see, a few months down the road, that the uncertainty is gradually receding. But politically it remains a thorny issue. And there are always sections of the population who will be confronted by major income effects, even if like us you direct more than half of one percent of GNP – which comes to €3.5 billion – into compensatory measures. Last but not least, the administrative implications for healthcare insurers are obviously enormous. They are among those who have had to make enormous efforts over the past year.

A comparison of the Netherlands and Germany is difficult because in our country we have made reforms gradually over a prolonged period. Step by step we initiated smaller reforms to pave the way for the big reform we have now carried out.

The first crucial step came when the government ended the difference in the treatment between patients with compulsory national insurance and those with private insurance. From that time onwards, doctors were no longer allowed to charge higher prices for patients with private insurance.

The second crucial step was the legal obligation for private insurance companies to accept some members of risk groups – like the elderly – as customers. At the same time, the health insurance funds, which until then had all been regional monopolists, were forced to start competing with each other in the national market.

The next step was our introduction of an equalisation system for the health insurance funds. We are now benefiting considerably from this decision, because that system has become one of the pillars of our new system. I understand Germany is considering a similar system.

Finally, we lifted the ban on mergers of health insurance funds and private companies. That has resulted in the establishment of holding companies that control both health insurance funds and private companies.

This is how over a few decades we have seen the convergence of health insurance funds and private insurance companies. It made it far easier to eliminate the difference between them.

Ladies and gentlemen

These changes took a long time in the Netherlands, but it was due more to political obstacles than to substantive ones. A model that works in one country seldom fits seamlessly into another country, no matter how closely the two countries resemble each other. Other traditions, other political balances and the great difference in geographical size also impede a comparison of our countries.

Finally, as you may have gathered from what I have said, you cannot complete an operation like this in a few months. It can probably be undertaken a lot faster in Germany than in the Netherlands. But, just as it was in our country, the transition in Germany will be a question of evolution rather than revolution.

My civil servants and I will be delighted to explain our considerations to you in greater detail in the coming period. We can tell you about the pitfalls we encountered and how we overcame them. We will also be pleased to keep you informed of how the system is working in practice.

Conversely, we are keen to continue learning from you. There is no doubt that the quality of care in Germany is very high, also in terms of diversity and choice. We are sometimes jealous of your system in the Netherlands. The same applies to the way transparency has developed in Germany. Personally, I am watching with great interest the initiatives being taken by commercial hospital chains in Germany. As yet we do not have such initiatives in the Netherlands.

So in the Netherlands we will watch developments in Germany with great interest, just as you, as we can see today, are following developments in the Netherlands.

Thank you for your attention.