No. 30: An Experiment with Regulated Competition and Individual Mandates for Universal Health Care: The New Dutch Health Insurance System.

Pauline Vaillancourt Rosenau and Christiaan J Lako. Journal of Health Politics, Policy and Law, Vol. 33, No. 6, pp 1031 – 1055, December 2008.


All too often, our ability to analyze the potential and pitfalls of market competition is limited to studies from the U.S.   Market competition in the U.K. has certainly not met many of the intended expectations of governments, providers, or patients, but are there other international examples that may be instructive for Canada? One consideration is the Netherlands, which introduced regulated competition in 2006, with a mandate for individuals to purchase insurance – sound familiar? This month’s e-Rounds examines an article published in 2008 about the New Dutch Health Insurance System, drawing out lessons of timely importance to the U.S. We think these lessons also speak to Canada, where some continue to think that we must allow duplicative private insurance for medically-necessary services that are now publicly-funded under Medicare to permit choice, reduce waiting time, increase competition, and support long-term sustainability.

Methods and Limitations

This analysis is a narrative on Dutch health insurance reform, based on Dutch Central Bank statistics, national opinion polls, consumer surveys, and qualitative interviews with policy-makers. Although peer-reviewed, it is not original research. Some observations and supportive data are opinion-based, and may not be representative of broader perspectives. This article makes many important statements, without reference to peer-reviewed publications. As such, more optimistic or pessimistic commentators may offer differing conclusions and different perceptions of success or failure. Moreover, these observations are made two years into the reforms and, of course, directions, costs, quality, and satisfaction may not have been fully realized. Nonetheless, this information should not be dismissed, because the Netherlands was seen as an ideal system for experimentation in market reforms. If unable to achieve success there, can larger, or more diverse and heterogeneous countries really expect to do any better?


Previous System

Prior to 2006, the Netherland’s health care system was a variant of the social insurance model originally formed in Germany, and otherwise common in European countries, though now with meaningful alterations. Health insurance was available through a complex mixed public/private system, with a major role for public financing and private provision of care. For those earning less than 32,600 Euros in 2004, about 65% had compulsory health insurance from one of the sickness funds (24% tax-funded, 66% employer-funded, 10% individual premiums). Above this income, individuals voluntarily purchased private insurance, with civil servants having their own plan, and 2% of the population being uninsured.

Between the 70’s and 90’s, various comprehensive health insurance reforms aimed at cost containment and efficiency were considered, but none were enacted. By the end of the 90’s, the political landscape in the Netherlands was changing, stimulated by growing frustration with the status quo. This arose from complaints about inefficiencies in the existing parallel public and private insurance systems, with each part of the bifurcated system having different rules and characteristics.

The Reforms

Prompted by the presumed success of prospective payment systems (known in Canada as “activity-based funding” or “patient-focused funding” systems) elsewhere and the availability of effective risk-adjustment mechanisms, political forces converged in 2003 and a new Dutch Health Insurance Act was introduced in 2006, uniting both insurance systems — public and private — into a single compulsory private insurance system, thereby discontinuing the public health insurance system. The prevailing view of the Dutch Government was that this would promote cost containment, reduce waiting times, and offer consumer choice – the usual promises that are offered when governments introduce market-oriented reforms.

The sale of health insurance is highly regulated and the purchase of basic health insurance is mandatory, with fines and penalties for those who do not obey the law. Insurance companies must sell basic coverage at a set price to anyone wishing to purchase it. The companies retain the right to decide if they will sell supplementary insurance to individuals for services above and beyond the basic coverage. In 2006, 92% of the Dutch purchased supplementary policies, and it is through these largely unregulated supplementary policies that private insurers expect to make most of their profits. A progressive, income-based, sliding-scale subsidy supports 38% of the population to purchase a basic policy, which is somewhat comparable to the approach taken by the Australian Federal Government.

Outcomes to Date

The Dutch implemented the full package of regulated competition – guaranteed issue, risk equalization for insurers, universal coverage by mandate, price competition for benefits packages, and community rating. How have they done thus far? The risk equalization program is intended to stop companies from cream-skimming and cherry-picking. Large companies cannot limit coverage to geographic areas and they are offered equalization payments if they have a disproportionate share of costly patients, in some cases accounting for 50% of insurers’ revenues. Total health care cost increases were declining prior to reforms, but that rate of decline has not changed since then, with actual total cost increases of 4.5% and 5.1% in 2007 and 2008, respectively. Health insurance premiums increased 8-10% in 2006/07 and are predicted to go higher in future years. A deductible of 150 Euros was introduced.

Economic theory assumes that costs are most likely to be contained where there are a large number of sellers, each competing for market share. Companies have reported large losses since reforms were introduced, with losses in 2007 variably reported at 320-400 million Euros. This has resulted in downsizing of administrative staff, a move that may affect customer satisfaction. Not surprisingly, insurance companies believe more effective bargaining with providers is required, including reduction in fees paid to physicians, and exclusion of physicians deemed too costly (viz. inefficient). And while the insurance industry is busily selling insurance, a few large companies are beginning to emerge, which may lead to monopolistic behaviour.

Surveys of consumers show that health care premiums are more expensive after reform, with one small study showing that two-thirds of respondents were worried about personal financial impact. Moreover, the high level of switching between different forms of coverage in the first year (20%) has fallen dramatically, with only 5% changing coverage in the second year. Much of the initial switching is not believed to be related to price competition. Rather, it is individuals moving to group plans or changing companies in order to get better supplementary insurance. As well, public perception of the insurance reforms is mixed, as shown by two surveys. While these surveys are not methodologically strong, they suggest that only 18% of respondents like the new system better, and 41% said the new system was worse than the one it replaced. Concerns included low trust, poor consumer service, insufficient transparency, and decreased quality.


This paper concludes by reminding readers that the reforms introduced in the Netherlands were believed to include the complete package of mechanisms necessary for successful market-oriented, regulated competition in health insurance, as originally envisioned in a model developed by Stanford economist Alain Enthoven. Moreover, the country had prior experience with universal coverage, supporting favourable conditions for systemic reform. Despite these near ideal conditions, cost containment, improved patient satisfaction, and better quality are by no means apparent. While it is true that this assessment is only a few years in progress, there are harbingers of further problems – reduced benefits, increasing costs, industry consolidation that chips away at consumer choice, and adverse risk-selection practices. Several lessons are suggested:

  • Regulated competition will not result in dramatic cost reduction;
  • Regulated competition will not make voters happy;
  • Consumers cannot be expected to act as economic models predict;
  • Insurance companies focusing on market share, rather than profit, will lose money;
  • Resistance from physicians — many who define their profession as more than simply a job — should not be underestimated; and
  • Predictions are that consumers’ premiums will escalate in the future, to make profit for insurers.

What does this say to Canada? Regulated competition results in imperfect and ineffective competition. Canada certainly does not need this in addition to the issues our publicly-funded health care system already faces. Even with such heavy regulation and extraordinary numbers of enabling rules enacted to account for market inefficiencies, how could “managed competition” ever be considered superior to the administrative simplicity of a single-payer system? We should, instead, put our energies into making our current system better, rather than inventing competition; rather than governments propping up private insurance industries; and rather than embracing market mechanisms that fall short of their intended expectations.


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