Debate on Dutch Health Care Policies: An international perspective with Prof. Marmor Yale Rick van d

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Debate on Dutch Health Care PoliciesAn
international perspectivewith Prof. Marmor
(Yale)Rick van der Ploeg(EUI, Florence, CEPR,
CESifo)

• International conference on The Dutch Welfare
  State within Europe
• Pulchri, The Hague
• 24 September 2004

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Dutch Reform 1/1/2006

• Every adult must insure health care.
• Insurers must accept everybody, i.e. cannot
  select, and must offer minimally the basic
  package of health care.
• Insurers will have to bear risk without guarantee
  of back-up compensation.
• They must ask the same premium for all
  independent of age, gender, health condition or
  income. Children sign up for free. Premium
  probably bit more than 1000 euro per year.

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Dutch Health Care Reform ctd.

• If premium exceeds 4 for single person or 6.5
  for somebody with partner, people get
  income-dependent care bonus from tax office.
• Own risk may not be more than 500 euro.
• Insurers can offer top-up insurance for extra
  care.
• Current Ziekenfonds disappears.
• Both social insurers and private insurers will
  operate on this new market.

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Highlights Prof. Marmor

• Can and must learn from history and from
  experience of other countries (GE, US)
• But NL is provincial and does not learn from own
  history or experience of other countries
• Rhetoric and language about concern with rising
  welfare costs is fierce but over the top
  (explosion of costs, crisis, etc.)
• No analytical underpinning of policy reform
• Unjustified belief in the benefits of the market
  and the role of business for containing health
  care costs

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Highlights Prof. Marmor ctd.

• Managed competition will fail
• Health is not a normal market commodity
• Moral hazard and adverse selection preclude
  functioning of market mechanism
• Why want universal coverage? What is wrong with a
  mixed system of health care financing if there is
  99 coverage? Are people unhappy?
• Why not appreciate high quality care at
  reasonable cost relative to other countries?
• Dont fix it if it is not broken!

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Prudent policy reformThe Marmor principle

• (1-pHI) U(old) pHI U(real) gt
  (1-pLO) U(old)pLO U(ideal)
  implies
• pHIU(real)-U(old)gtpLOU(ideal)-U(old)
• Hence, better to do a realistic policy reform
  than a risky idealized reform with a high
  probability of failing or of not being
  implemented.

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• I applaud Prof. Marmor for interesting
  international perspective on Dutch health care
  policy and for reminding us to look at our own
  past and at experience of US, Canada and Germany.
• I also share his critique of the Dutch
  governments faith in the market to contain
  health care costs.
• I want to go back a few steps and ask five
  crucial questions.
• Economists are also extremely critical of this
  unfettered faith in the market mechanism as a
  cure for problems or perceived problems of the
  health sector.

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My main questions

• Is the increase in health care costs really so
  bad for the economy? And for welfare?
• What is the cause of the relentless growth in
  health care costs?
• Why will the market solution for containing
  health care costs fail and be a disaster for the
  sick and poor in society?
• How to organize solidarity between sick and
  healthy, old and young, and poor and rich?
• Can we keep on delivering high-quality health
  care at reasonable cost?

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Is the increase in health care costs really that
bad?

• No!
• National income is not a good proxy for welfare
  need to correct for pollution, leisure and
  household services (child care, cleaning, etc.)
• Also need to convert to an equivalent stock
  concept to allow for expected lifetimes rising by
  almost two years every decade.
• William Nordhaus (also Yale) shows that, if that
  is done, longer living and health care adds as
  much to welfare as innovations (PCs, mobiles,
  and all others) during the past half a century.
• Innovation Platform should focus at health care!

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What causes the relentless growth in health care
costs?

• Not monopoly power of specialists, health care
  insurers, and others in the health sector.
• It is true that information asymmetries give rise
  to huge monopolies and too high costs but they do
  not explain ever-increasing health care costs.
• Not Baumols Cost Disease! Not lazy nurses or
  docters!
• It is the interplay between rapid advances in
  medicines and medical technology the demand for
  only the best health care (informational
  asymmetries plus bad incentives).

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Charles Jones (Berkeley)

• Real costs of existing treatments, after
  correcting for rise in care quality, decreased on
  average by 2 per year.
• For heart attacks or glaucoma even 5. Also,
  think of peep tube operations. And aids
  patients use to die but now live on thanks to new
  expensive techniques.
• Half to three quarters of rise in care costs is
  due to new treatments and medicines. In terminal
  phase of life much more.

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Stretching lifetimes is expensive

• Care expenditures rise on average with 10 per
  year as people get older.
• But during the last three years of life they rise
  with almost 50 per year!
• About a third of total care expenditures (3 of
  BBP) is caused by people in the last year of
  their life.
• The level of costs depends on how much society is
  prepared to pay for people in the last year of
  their life.

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Why the market solution is counterproductive and
will fail?

• Regional cartels of health insurers patients
  less likely to shop around in other regions
  (especially if they are ill, old and confused).
• What can insurers compete on? Price? Quality?
• Dutch insurers do not nowadays bear any risk
  they can simply pass all costs of health care and
  of management failures to the people.
• Contradictory to give insurers task for
  coordinating health care and at the same to ask
  them to compete.
• Remember failures of market solution for gas,
  electricity, water, taxis and notaries.
• No privatization without competition Need a lot
  of rules and regulations to organize it.

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How to organize solidarity?

• Will insurers do their best to insure/service the
  old, the sick or those with children? In all
  these cases the insurance premium may not
  correspond to marginal cost.
• What is wrong with the tax system or
  income-related subsidies? Insurers cannot compete
  without flat fees.
• But flat fees undermine solidarity between poor
  and rich. Hence, give tax vouchers to try to have
  solidarity without undermining the market
  mechanism.

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Tax vouchers

• IHCSs Individual Health Care Subsidies (tax
  vouchers) try to disentangle insurance from
  redistribution, so hopefully yield more choice
  and distort the market mechanism less.
• Problem with IHCSs is that they add to the
  poverty trap make it less worthwhile for people
  to work and improve their lives. Also, difficult
  to administer solidarity between sick and healthy
  due to adverse selection problems. Bureaucratic
  nightmare.

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Can we keep on delivering high-quality health
care at reasonable cost?

• Yes if we cherish what we have and cope with the
  four real challenges
• New medicines new medical technology. What to
  include and what not?
• Internet much more vocal clients and patients
  and danger of adverse selection
• Europe get best (most expensive) care even if it
  is abroad
• Globalization and migration