The Covert Rationing Blog

The New Dutch Healthcare System

September 7th, 2007 by DrRich

Jason Shafrin at the Healthcare Economist has posted an excellent analysis this morning of the new Dutch healthcare system, also described yesterday in the Wall Street Journal.

The three operating principles of the Dutch system are these:

1) All individuals must purchase health insurance on the private market.
2) Health insurance companies must insure anyone who applies.
3) The insurers, while charging whatever they want for insurance premiums, are in active competition for subscribers.

There are, of course, details. But thanks to the Healthcare Economist (who presents a thorough summary of the innovative Dutch system, along with the usual insightful analysis of its advantages and potential pitfalls), DrRich has the luxury of limiting his comments to the Real Question, the Real Question being: How does the Dutch system account for healthcare rationing?

Healthcare rationing occurs when some centralized agency makes decisions regarding the distribution of available healthcare resources, such that, given a group of individuals who would probably benefit from certain healthcare services, at least some will not be permitted to receive those services.

Any time we create a centralized pool of money from which all healthcare services must be paid, some degree of rationing must occur. This is because the centralized pool of money, even if it is very large, is nonetheless limited, whereas the amount of money we could spend buying every bit of potentially worthwhile healthcare for every person who might benefit is fundamentally unlimited.

The only way to avoid any rationing whatsoever would be for individuals to pay for all of their own healthcare out of pocket. This way, any limitations in healthcare services would be determined by the individual, and not arbitrarily by some outside agency. (DrRich stipulates that such a system - where everybody simply pays for their own healthcare like they pay for their own housing or food - is not feasible. This is why he perseverates on the question of HOW we do the subsequently necessary rationing - that is, openly or covertly.)

The Dutch system does not avoid centralized pools of money from which healthcare services are paid, and so cannot avoid rationing.

But it does introduce an intriguing feature that might render the necessary rationing less destructive to individuals and to society than the kind of covert rationing we have in the US, or the kind of somewhat-less-covert rationing common in countries that have single-payer systems.

Under the new Dutch system, individuals are making the health insurance purchasing decisions themselves, and they have a choice among insurance companies. Individual Dutch citizens a) have suddenly become the customers of the insurance companies, and b) have the power to take their insurance premiums elsewhere if they don’t like the offerings of their present insurer.

This arrangement is radically different from what we have in the rest of the world, the US included - under the Dutch system, insurance companies are forced to compete with one another for the business of individual citizens.

Furthermore, the competition will be based not just on cost, but on value. That is, what do you get for your money? As always, there will be limits on which healthcare services are covered (in other words, there will indeed be rationing of available services). But the need to compete on the basis of value, ideally, will eventually force insurance companies to be more forthright on what those limits are. Individuals could then choose their health insurance based not only on the cost of premiums, but also on the various rationing features of available insurance products. Call it “competitive rationing.”

Competitive rationing will require insurance companies to attempt to discover the “perfect” balance between cost and services. Since not all individual purchasers will have the same set of values in this regard, a range of insurance products will have to evolve to meet the needs and desires of different customers.

So in theory, at least, the Dutch system has much promise. It doesn’t eliminate rationing, but it has the potential of bringing it out into the light, limiting it as much as possible, and rendering it far more equitable than either the covert rationing we have in the US, or the arbitrary, heavy-handed, centralized rationing we see in single-payer systems around the world.

Unfortunately, we can already see how the Dutch system is likely to fall apart. The problem stems from the system’s first two operating principles:

1) All individuals must purchase health insurance on the private market.
2) Health insurance companies must insure anyone who applies.

Competitive rationing, as DrRich conceives it, depends wholly on the competition that occurs in free markets. But in a system where every buyer must buy insurance, and every insurer must sell to anybody who applies, free markets cannot exist.

The only way to make these two operating principles feasible is to provide subsidies to the insurance companies in order to underwrite the cost of mandated coverage for those who are too old, or sick, or poor to pay for it themselves. Accordingly, the Dutch government has done just that. DrRich isn’t saying the government doesn’t need to do this; there’s no other way he can think of to provide mandated insurance to those who can’t pay for it. But the bottom line is that the Dutch system simply does not create free markets. It can’t.

We can already see where this will lead. The government will pay for a larger and larger chunk of Dutch healthcare, and if it hasn’t already, will begin dictating behaviors within the healthcare system. It will have to (to protect the investment of the taxpayer). As a direct result, the rationing decisions in the Dutch healthcare system will necessarily become centralized once again. To avoid having to admit that it is making rationing decisions, the government will attempt to keep those decisions and their execution as covert as possible.

The guru of the Dutch system is Professor Alain Enthoven of Stanford University. Professor E is best known as the father of “managed competition,” which was the driving idea behind the Clinton’s attempt to reform American healthcare in the early 1990’s. The Dutch system is, in fact, the first actual implementation of managed competition.

The major difference between what the Clintons proposed and what the Dutch have actually implemented, as far as DrRich is concerned, is that the Clintons were more forward looking than the Dutch. They saw exactly what sort of end-game was destined for “managed competition,” and went right to the bottom line. Accordingly they presented to the American people an appallingly massive book of rules and regulations for the centralized control of our healthcare system (read: for covertly rationing healthcare). It scared the hell out of us, and we said no. (We opted instead for a more gradual pathway to an appalling system of covert rationing, one administered by both the government and private insurers.)

While what the Dutch have is in many ways a good idea, they will almost certainly also end up with a healthcare system that is largely centrally controlled. And unless the question of rationing is addressed openly and forthrightly, they, like us, will eventually fall under a system where the necessary rationing is done covertly.

God bless them for their attempt, though. It is a brave one.

Posted in General Rationing Issues

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