Journal of Public Health Medicine
Vol. 18, No. 3, pp. 278-284
Printed in Great Britain
Health care systems in transition:
the Netherlands
Part I: Health care reforms in the
Netherlands: miracle or mirage?
Frederik T. Schut
Keywords.lbe
Netherlands, health systems transition, AIDS
Introduction
For nearly a decade health care reform has been high
on the Dutch policy agenda. Since the publication of
the Dekker proposals in 1987, three successive coalition
governments - each with a different composition have tried to implement sections of the recommended
market-oriented health care reforms. Though some
progress has been made, the blueprint as prescribed by
the Dekker Commission is still far from being realized.
Moreover, it is highly unlikely that it will ever be
realized in full.
Much has been written about the Dutch health care
reform proposals.1 Some observers described the
Dutch health care reforms as an outstanding model
of 'regulated' or 'managed' competition, combining
universal access and efficiency. However, the Dutch
health care system is nowhere near to having implemented managed competition. To date, only the
necessary preconditions for management and competition have been laid.
Institutional context
The main lesson of Dutch health care reforms so far has
been the difficulty of implementing radical reforms in a
society with a weak central government and powerful
interest groups.1'4 Throughout this century, Dutch
governments have consisted of coalition cabinets of
varying composition. As no political party has ever had
an absolute majority, compromises always have had to
be made. Furthermore, officially recognized associations
of providers and health insurers are entrusted with
substantial authority to negotiate health care prices and
other contractual conditions. They can influence health
policy through a number of advisory bodies on which
they are formally represented. Within this corporate
decision-making structure, neither government nor any
of the major interest groups has enough power to
accomplish fundamental changes without the support
of the others. However, each group has sufficient
influence to obstruct the others' initiatives. Unilateral
government intervention can only succeed if selfregulation clearly fails. The corporate organization of
the Dutch health care system explains why health care
reforms are proceeding so slowly. Having recognized
this, the current Government has adopted a less
ambitious stance towards health care reforms and is
concentrating on the implementation of a limited
number of policy measures during its term.
However, for several reasons, the influence of
organized interest groups in determining health policy
is declining. First, 1992 a revision of the Health Care
Prices Act, which was meant to deregulate price setting
in health care, in fact gave the Government substantially more power to control providers' fees. At present,
the Government exercises this power to urge providers
to co-operate with fundamental changes in the remuneration system which are an ingredient of the proposed
health care reforms. Second, the new Government has
Department of Health Policy and Management, Erasmus University
Rotterdam, PO Box 1738, 3000 DR Rotterdam, The Netherlands
FREDERIK T. SCHUT, Associate Professor of Health Economics
© Oxford University Press 1996
THE NETHERLANDS' HEALTH CARE SYSTEM
initiated a fundamental reorganization of the decisionmaking structure, to disentangle advisory, administrative and executive functions.
The slow and cumbersome decision-making process
also has some advantages, as it may prevent the
implementation of insufficiently understood or examined changes. In this respect, the Dutch health reform
experience can be contrasted with the National Health
Service (NHS) reforms in the United Kingdom. There,
the preconditions for implementing radical reforms
were more favourable than in the Netherlands given
relatively strong central government, based on single
party majority rule instead of coalition governments,
and interest groups which were less influential. Not
surprisingly, the NHS reforms have been implemented
at a much greater pace than the Dutch health care
reforms.5 The other side of the coin has been the
apparent lack of planning and evaluation of the radical
policy measures that were implemented in the United
Kingdom.6'7 Had health reforms in the Netherlands
been implemented according to the original timetable,
which envisaged full implementation by 1992, serious
problems would have arisen because critical preconditions for success - such as an adequate risk-adjusted
payment system for health insurers and an adequate
system of output-pricing - were not in place.
Current health care system
Health care financing
In the Netherlands, health care is predominantly
financed by social and private health insurance
contributions. Only about 10 per cent of total
TABLE 1 Source of health care financing in the Netherlands
(1994)*
Source
Governmenrt
Exceptional medical expenses
insurance (AWBZ)
Sickness funds insurance (ZFW)
Private insurance
Residual payments}
Total
Percentage
110
41-3
24-4
156
7-7
1000
* Source: references 8-10.
t Government payment include direct payments to university hospitals, public health services, and health policy and
administration and subsidies to the social health insurance
schemes (AWBZ and ZFW).
JThis category primarily consists of out-of-pocket contributions by households.
279
expenditure on health and social services is derived
from general taxation, directly covering those public
health and preventive services for which the Government is responsible.
The remaining 90 per cent of health care expenditure
is financed by two social health insurance schemes, by
private health insurance and by out-of-pocket payments (Table 1). The first social health insurance
scheme is based on the Exceptional Medical Expenses
Act (AWBZ). It was originally meant as compulsory
national insurance for 'extraordinary' medical expenses
for long-term or uninsurable care, including nursing
home care, care for physically and mentally handicapped people and in-patient psychiatric care. Over
time, however, coverage has been gradually extended to
include less 'extraordinary' medical and social services,
including mental health out-patient care, home help,
medical aids and prescription drugs. The AWBZ is
financed by income-related contributions, co-payments
and government subsidies.
The second compulsory health insurance scheme is
constituted by the Sickness Fund Act (ZFW), which
covers more than 60 per cent of the population (nongovernment employees, pensioners and social security
beneficiaries and their families with an income below an
annually determined level). This scheme covers most
health services not covered by AWBZ. The Sickness
Fund Scheme is financed by income-related contributions deducted from employment payroll or social
security benefits, which are collected in a General Fund
and administered by the Sickness Fund Council. From
this General Fund, individual sickness funds are
compensated for the medical expenses of their subscribers. In 1995, there were 26 sickness funds.
Approximately 40 per cent of the population is
privately insured against the cost of medical treatment
that is not covered by the AWBZ. The privately insured
are those who are not eligible for the Sickness Fund
Scheme and include higher-salaried employees, higherincome elderly, the self-employed and government
officials. During the 1980s, fierce competition among
private health insurance companies led to increasing
premium differentiation and risk segmentation, jeopardizing access to private health insurance for the elderly
and other persons with high medical expenses. To
preserve universal access to health care, in 1989 all
privately insured pensioners and in 1991 other high-risk
groups, were brought together under a governmentinstituted risk pool arrangement (WTZ).
A distinguishing feature of the Dutch health care
system is the strict separation of the financing and
delivery of health care. Sickness funds are legally
forbidden from employing providers or running health
care institutions and were until 1992 obliged to draw up
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JOURNAL OF PUBLIC HEALTH MEDICINE
contracts with all providers practising in their region.
Private health insurers too have traditionally been
anxious not to interfere with medical practice. They do
not conclude contracts with providers, but simply
reimburse the medical costs of their insured subscribers.
Health care delivery
Health care delivery in the Netherlands is characterized
by a sharp distinction between general practitioners
(GPs) and medical specialists. The GP performs an
important role as a gatekeeper to the rest of the health
care delivery system. Usually, health insurers only
compensate the cost of specialist medical care, paramedical services and mental health out-patient care if
patients are referred by their GP. Individuals or households are supposed to register with a GP in their
neighbourhood. Most GPs work in solo practices,
although the number of group practices is steadily
increasing. GPs receive a uniform capitation payment
for each patient insured with a sickness fund and a feefor-service payment for privately insured patients. To
strengthen the gatekeeper role of the GP, various
proposals to change the remuneration system are being
considered, because the capitation payment currently
provides a GP with an incentive to refer rather than to
treat patients.
About 75 per cent of the medical specialists are
private practitioners who co-operate in hospital-based
partnerships. Both sickness funds and private health
insurers reimburse specialists on a fee-for-service basis.
Since 1990, fee levels have been derived from annual
expenditure targets set by the Government." Currently, a heavily debated issue is the integration of
medical specialists into the hospital organization and
the replacement of fee-for-service payment by salaries
or some other remuneration system. In December 1995,
the association of paediatricians agreed to become
hospital employees and to abandon fee-for-service
payment, but other medical specialists fiercely oppose
any attempt to erode their independent status.
Most general hospitals are independent institutions
owned by private non-profit foundations. The hospital
sector is heavily regulated. Hospital reimbursement
rates are derived from the hospital's capital costs and
from the annual budget for operating expenses that
hospitals have to negotiate with health insurers.
Construction of new hospitals and all other major
hospital investments are subject to approval by the
Government.
Health care reform
Health care reform in the Netherlands was based on the
proposals of the Dekker Commission (1987). These
proposals were endorsed by the Government, which set
out an implementation plan entitled 'Change assured'.
After the 1989 change of Government, the original plan
was slightly modified and became known as the
'Simons Plan', named after the then Minister of
Health. Subsequently, this plan was significantly
modified by the current Government, which came
into office in 1994.
The main goal of the Dekker and subsequent
proposals for health care reforms was to improve the
efficiency of health care delivery so as to keep health
care affordable for everyone. It was projected that
solely on the basis of demographic change, health care
expenditure would increase by more than 1 per cent per
year. From 1990 to 2005 the percentage of those over 65
years of age was forecast to increase from 12-8 per cent
to 141 per cent of the total population. The proportion
of people over 80 years old would increase from 2-8 per
cent to 3-6 per cent of the total population. This ageing
of the population will be accompanied by an increasing
level of morbidity and a shift in disease patterns
towards chronic and degenerative disorders.12 In
addition, the development, introduction and diffusion
of new medical technologies is likely to contribute to a
further growth of health care expenditure, particularly
when incentives for cost-reducing innovations - such
as prospective payment and medical technology assessment - are lacking.13'14
One of the strategies to keep health care affordable
and accessible to everyone was to reform the health
care system in such a way as to give providers, insurers
and consumers incentives to use the available resources
as efficiently as possible.
The Dekker and Simons proposals
The Dekker proposals had two main components: a
compulsory comprehensive 'basic insurance' for all
citizens and regulated competition among health
insurers and providers. The comprehensive basic
insurance was to guarantee universal access to 'basic'
health care services, and regulated competition was to
create incentives for both insurers and providers to
improve the efficiency of health care delivery.
The national basic insurance scheme would replace
the segmented health care financing system and would
cover about 85 per cent of the total expenditure on
health care and social services. The plan for basic health
insurance had to be developed by a gradual expansion
of the Exceptional Medical Expenses Act (AWBZ), the
compulsory national insurance scheme for 'extraordinary' health services. Gradually, all benefits covered
by the sickness funds and private insurance would be
brought under the scope of the AWBZ. The legal
THE NETHERLANDS' HEALTH CARE SYSTEM
distinction between sickness funds and private health
insurers would be abolished. Both sickness funds and
private health insurers would be allowed to offer
compulsory basic health insurance as well as optional
supplementary health insurance for the remaining 15
per cent of total expenditure.
Basic health insurance would be financed primarily
by income-related contributions, collected through
ear-marked taxation. The income-related contributions
would guarantee affordable basic health care to all
citizens. The income-related premiums would be
pooled in a central fund, administered by an independent statutory body, which would redistribute the
money to the various health insurers depending on the
number of people insured and the risk group they
belonged to. Hence, the prevailing system of retrospective reimbursement of sickness funds would be
replaced by a prospective budgeting system. The
capitation payment to health insurers would have to
be adjusted to the risk of their individual subscribers, to
remove any incentives for insurers to engage in risk
selection. In addition, capitation payments would
motivate insurers to contain costs and to improve
efficiency.
The capitation payments from the central fund
would not be sufficient to cover all medical expenses
but would be set at a fixed amount of money below the
average expected costs of the subscribers in each risk
group. Therefore, income-related contributions would
have to be supplemented by a flat rate premium, to be
paid directly by the insured person to the health insurers.
Health insurers would be free to determine this flat
rate premium. The more successful the insurers in
containing medical expenses, the lower the flat rate
premium the insurer could charge. Health insurers
would have to be able to make a number of changes to
the existing system to foster efficiency of medical care.
First, insurers would have to be given the freedom
to draw up contracts with selected providers and to
differentiate the terms of their contractual arrangements. Hence, the obligation for sickness funds to
contract with all relevant providers on nationally
determined terms would have to be abolished.
Second, both price regulation and hospital capacity
regulation would have to be reduced. Third, the strict
separation between purchasers and providers would
have to be removed to provide for the development of
alternative delivery systems such as Health Maintenance
Organizations.
Health insurers would have to compete for subscribers and providers would compete for favourable
contracts with other health insurers. Health insurers
would have to compete both on price - the flat rate
premium - and on quality of the contracted health
281
services. Once every two years, consumers would be
given the opportunity to switch from one health insurer
to another. Health insurers would be obliged to accept
any applicant, irrespective of health status, on the same
terms. Selective contracting by health insurers would
motivate providers to compete on the price and the
quality of their services.
The main difference between the proposals of the
Dekker Commission and the Simons Plan was the
scope of the benefits included in the mandatory basic
insurance. Specifically, the coverage of the proposed
basic insurance scheme was expanded from 85 per cent
to 95 per cent of total expenditure on health care and
social services by including out-patient prescription
drugs and physiotherapy in the basic benefits package.
Implementation and evaluation of the
Dekker-Simons Plan
The public's impression of the Dekker or Simons Plan
is that it failed. This is no surprise, as the two key
elements of the reform - comprehensive basic health
insurance and regulated competition - have not been
implemented.
Nevertheless, some major steps towards the accomplishment of the proposed regulated competition model
were made. Major revisions of the Sickness Fund Act
made it possible for sickness funds to contract
selectively with health care professionals and to
compete for subscribers. By a revision of the Health
Care Prices Act in 1992, sickness funds and private
health insurers were permitted to negotiate lower fees
than those officially approved. Finally, since 1993,
sickness funds are no longer fully retrospectively
reimbursed for their subscribers' medical expenses,
but receive a prospective, risk-adjusted per capita
payment for each subscriber from the General Fund.
Initially, capitation payments were only based on age
and gender, but since 1995, region of residence and
disability status are also taken into account. The
original risk-adjustment formula was too crude to
make sickness funds fully liable for the medical
expenses of their subscribers. Therefore, the Government decided that until the risk-adjustment method was
improved, sickness funds would be compensated for 97
per cent of incurred losses, and 97 per cent of surpluses
had to be refunded, so the actual financial risk and
incentives for efficiency still remained very small.
The effects of these policy measures were evaluated
by the Sickness Fund Council.15 The evaluation points
out that sickness funds have not tended to use the
option of selective contacting, nor have they negotiated
lower than officially approved fees. The main effect of
the health care reforms so far has been a large number
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JOURNAL OF PUBLIC HEALTH MEDICINE
of mergers between health insurers and hospitals and a
considerable reinforcement of regional co-operation
among health care providers. According to the
Council's report, the main reasons for the lack of
effective competition were the absence of substantial
financial incentives for insurers, anticipated anticompetitive conduct by both providers and insurers
through the formation of cartels (by GPs, pharmacists,
health insurers, etc.) and mergers (hospitals, health
insurers, etc.), and the substantial reduction of
providers' fees, imposed by the Government after
1992.
The 1995 health care reforms
In March 1995, the new Minister of Health published a
considerably adjusted health reform plan.16 The goal of
comprehensive basic health insurance for all citizens
was abandoned. Instead, the new Government aimed
at reforming the present financing system, leaving
the existing segmented structure largely intact. The
proposed financing system consists of three main
'elements', covering different types of health services
and each with a different regulatory regime (Table 2).
Long-term and mental health care
The ABWZ will be restricted to cover chronic care (i.e.
long-term and mental health care). All other benefits
covered by the AWBZ will be transferred to the other
elements in the financing structure. In 1996, prescription drugs, medical devices and rehabilitation were
transferred from the AWBZ to become part of the
curative 'basic' health care cover. Administration will
be entrusted to single regional payers. To contain
public expenditure, the Government intends to regulate
both prices and supply of services covered by the
AWBZ. In each sector, prices will be derived from an
annual budget that will be determined by the Government. Special funds will be created for subsidizing
innovative projects and for providing individual
patients with optional budgets for some services.
Hence, in this part of the overall scheme there is to be
no competition among insurers. This deviation from
the original Dekker Plan is likely to be an improvement
because the inclusion of long-term care in a competitive
health insurance market may cause serious problems
even if such a market is properly regulated." For
several types of long-term care, competition among
insurers cannot work because effective pressure from
the demand side is lacking. This is the case if most
people who need such care either do not have the
(mental) ability to make a trade-off between price and
quality, or have such a low chance of needing such care
during the next contract period that they do not bother
about quality of the providers who are contracted by
the insurer to deliver that care.17
'Basic' curative health care
All citizens should have access to the 'basic' benefits
that are included under this element. In this part of
the scheme, the Government is proceeding with the
implementation of the Dekker model of regulated
competition. To motivate insurers to purchase costeffective care on behalf of their customers, the Government has planned a drastic increase in thefinancialrisk
for health insurers. Within three years, sickness funds
will be fully prospectively paid for all medical care
covered under this element of the scheme, except for
hospital capital costs. This implies that the financial
risk for sickness funds will increase from 3 per cent to
about 65 per cent of their total expenditure on 'basic'
curative services. In 1996, thefinancialriskfor sickness
funds will be raised to 15 per cent of total costs or 20 per
cent of 'variable' costs, excluding hospital capital
expenditures. Whether this ambitious scheme to increase
the financial liability of sickness funds can be realized,
depends crucially on the improvement of the riskadjustment methods used for reimbursement. It is
unlikely that in such a short time the risk-adjustment
methods can be sufficiently improved and enough data
can be gathered.18 Nevertheless, even a modest increase
in thefinancialriskand incentives for sickness funds to
behave more efficiently is likely to cause an important
TABLE 2 Health care financing according to the 1995 health care reform plan
Element
Financing
Financier
Regulatory regime
Long-term care and
mental health care
Curative 'basic' care
National health insurance
(AWBZ)
Mandatory health insurance
Regional single payers
'Amenity' care and
inexpensive care
Voluntary health insurance
Government regulation of
supply and prices
Regulated competition
(Dekker model)
Free market
Sickness funds and private
health insurers
Sickness funds and private
health insurers
THE NETHERLANDS' HEALTH CARE SYSTEM
change of behaviour in purchasing health care and in
contracting with providers.
In the long run, the Government aims at a complete
convergence of sickness funds and private health
insurers, although it has not stipulated how this
should be accomplished. In the short run, convergence
is limited to a synchronization of the benefit packages
between sickness funds and private health insurers. In
addition, to combine financial incentives for efficiency
with universal access in the private health industry, the
Government intends to regulate competition among
private health insurers by the introduction of a
combination of rate banding (the specification of
minimum and maximum premiums), open enrolment
(the requirement for an insurer to enrol all applications
for an insurance policy irrespective of their health
status) and the implementation of some sort of risk
equalization scheme (a system of financial transfers to
compensate insurers with a relatively large number of
high-risk subscribers whose anticipated costs are higher
than the maximum premium).
For the 'basic' curative services included, the
Government intends to deregulate both price setting
and capacity planning. In due course, health insurers
and health care providers will become fully responsible
for negotiating prices and for planning the workforce
and health care facilities, except for large hospital
investments. From 1998 onwards, the prevailing
hospital budgeting system will be replaced by a
system of output-pricing and some research projects
have been started to determine an appropriate classification of hospital output.
'Amenity' and inexpensive care
'Amenity care' and services which are easily affordable
to all citizens will be transferred to supplementary
health insurance. In due course, the Government
intends to withdraw any specific regulation of the
provision or financing of these services, because
collective responsibility for these services is no longer
deemed necessary.
Following the recommendations of the government
committee on choices in health care12 - known as the
'Dunning Commission' - the Government intends to
transfer to this element of the scheme any service item
which cannot satisfy criteria of necessity, effectiveness,
efficiency and collective responsibility. Applying these
criteria, the Government has already shifted dental care
for adults and parts of physiotherapy services to this
category. According to the Government, the costs of
dental care are low enough to be left to individual
responsibility (the fourth criterion), and the effectiveness
of some treatments by physiotherapists not proven
283
(the second criterion). Critics of these transfers to
supplementary insurance contend that the main purpose of the Government was to reduce the share of
collective expenditure on health care rather than a
careful application of the criteria of the Dunning
Commission.
Conclusion
Health care reform in the Netherlands has presented
two faces in the recent past. One face was that of an
ingenious grand design, which promised a miracle of a
health care system which would foster both equity
and efficiency. The other face showed the slow and
cumbersome implementation process, suggesting that
the miracle might amount to nothing more than a
mirage. The true face may, however, be neither of these.
The original idea of a comprehensive national health
insurance system with managed competition among
insurers and providers has been adapted to political
reality and to a better understanding of the limitations
of the managed competition model. For the organization andfinancingof long-term and mental health care,
a completely different regulatory regime has been
proposed. In the curative health care sector, however,
the implementation of a managed market has
advanced, albeit at a moderate pace. In recent years,
the Dutch Government has acquired more power,
which it is currently exploiting to implement changes to
increase the accountability of health insurers and
providers. Decisive steps, such as the strengthening of
thefinancialincentives for health insurers by gradually
replacing retrospective by prospective payments and
changes in the remuneration systems of physicians
and hospitals, are currently being taken. Evaluation of
these changes will shed light on the question of whether
the proposed managed market will indeed generate
appropriate incentives for improving efficiency and
maintaining equity. Moreover, such answers may also
come from experience with health care reform in other
countries, as the Dutch health care reform is not
unique, but rather an example of an emerging
paradigm."
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Accepted on 2 April 1996