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MUNKHAMMAR: The Dutch do it right

By Johnny Munkhammar, Special to the Rocky

Published November 4, 2008 at 9:34 a.m.

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Johnny Munkhammar

Photo by Conservative Institute of M. R. Stefanik

Johnny Munkhammar

Most Europeans have followed the American presidential campaign with interest, particularly when it comes to the groundswell of support for comprehensive health-care reform. It seems likely that the U.S. will attempt to introduce an old European model, accepting heavy government involvement in the delivery of and payment for health-care services in exchange for universal coverage.

Considering that several European countries are moving away from this paradigm and instead giving the private sector a more robust role, this trend is ironic.

The Netherlands is the best example of Europe’s move toward market-oriented reform. Before U.S. officials devote even more taxpayer dollars to health care, they should take a long look at how the Dutch have improved their health-care system by reducing the government’s role in it.

Health insurance has been mandatory for all Dutch citizens since 1941. During the ’60s, the Dutch government gradually took over the entire health-care industry. This crescendoed in 1971 when a national bureaucracy was established to plan everything from funding to staffing and pricing.

Unsurprisingly, the Netherlands’ health-care costs spiraled out of control, far outpacing overall growth in prices and incomes. The government tried to limit price hikes by rationing care, resulting in fewer choices, waiting lists and staff shortages.

But such rationing did little to rein in costs. So Dutch leaders turned to the private sector.

Today, every Dutch citizen is required to have basic insurance coverage for major areas like medical treatments, long-term care and dental and maternity care. Citizens and noncitizens alike in the Netherlands choose from among 14 private insurers. Supplemental insurance for vision or dental care is available; about 90 percent of the population has such coverage.

To enforce the mandate, the government imposes a fine on anyone who doesn’t purchase basic insurance. The fine is steep — 30 percent more than the cost of insurance for the period they weren’t covered.

For citizens who cannot afford insurance on their own, there are government subsidies.

Private insurers can’t deny coverage to high-risk individuals and are prohibited from charging people different prices based on age, sex or risk of illness.

The Dutch spend less on health care as a percentage of GDP than Americans do. The government keeps costs low through intelligent subsidies.

Every Dutch worker has 7.2 percent deducted from his salary, with a maximum deduction of around $3,300. This fee goes to a central Health Insurance Fund that equalizes risk. About two-thirds of households get a subsidy through the fund to purchase private insurance, with the size of the subsidy tied to income level.

The results have been remarkable.

Previously, 70 percent of the population — basically everyone with an annual income below $49,000 — was directly insured by the government. This scheme was financed with an 8.2 percent tax on workers’ salaries.

By leveraging the power of competition between insurers, Dutch policy-makers have been able to lower the “health tax” a full percentage point.

Private competition has also improved the purchasing power of Dutch consumers. The average annual premium is nearly $1,500 lower than initially estimated. Eighty percent of the population has saved money on health care.

During the first year of reforms, health-care prices increased by a mere 0.5 percent — less than the increase in average income or in the price of other goods. So real health-care costs actually decreased. Instead of seeing their pay raises eaten up by higher medical costs, Dutch workers were actually left with more disposable income. If this trend continues, a person of average income will have a salary about $1,500 higher in 2040 than he would have had under the previous tax code.

Consumers can now shop around for the best deal on health insurance — just like for any other good or service. Using the Internet, Dutch consumers can compare insurers with regard to prices, services, customer satisfaction and supplemental offerings. Hospitals are also rated on a number of performance indicators, allowing patients to make informed decisions about where to get treated.

The Netherlands provides a blueprint for successful, market-oriented health-care reform. The real question for American voters is whether their leaders will be smart enough to follow it.

Johnny Munkhammar is managing director of Munkhammar Advisory and research director of the European Enterprise Institute.

Comments

  • November 4, 2008

    5 p.m.

    Suggest removal

    BrianSchwartz writes:

    Mandatory insurance is wrong for consumers. It forces you to pay for other people’s health care at the expense of your own. When politicians force you to buy insurance, they decide what policy is acceptable, not you. They pander to special interests by mandating that your insurance include expensive benefits you may not want.

    Consider Massachusetts. The Boston Globe reports that residents whose insurance does not meet regulations “could face a hefty tax penalty.” Too bad for those who like their current policy.

    For more on why mandatory insurance is wrong, see:
    http://www.patientpowernow.org/2007/1...

  • November 5, 2008

    5:55 a.m.

    Suggest removal

    Mike_In_Hartsel writes:

    When the government starts telling the citizens how they should live their lives they are no longr free.

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