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With effect from 1 January 2006, a revised health insurance system came into operation in the Netherlands. This change was introduced through the Healthcare Insurance Act and represents a major initiative by the Dutch government to promote a free market in the healthcare sector, attempting to lower the costs of healthcare and to improve quality.
Previously, the Dutch population were covered for their common medical care needs under the Social Health Insurance Act (Ziekenfondswet) through public insurance funds, with higher income groups able to opt for voluntary private insurance. Now, a new 'basic' healthcare insurance (the basisverzekering) is in place that is compulsory for all residents. It is provided through private insurers, but operates within the overall public health framework.
The cover provided under the 'basic' insurance has been determined by the government and reimburses the costs of the main parts of people's healthcare needs. It is frequently referred to as the 'standard package'. It provides similar provision to that of the old Social Health Insurance Act package, so reimburses costs of:
The 'standard package' does not, however, reimburse all healthcare expenses, so people can choose to supplement their 'basic' health insurance policy. There are also options to accept a 'personal excess' up to a defined amount of healthcare costs to lower the premiums paid and a 'no/low claim' system of reimbursement of premiums has been introduced to reflect low usage levels of the healthcare services covered.
While the government has indicated an average cost across the Dutch population of providing the 'standard package' at €92 a month (around €1,100 a year), insurers in this new market can set their own premiums. They are not, however, allowed to apply medical selection, so no-one can be excluded. Also, all applicants must be charged the same premium (regardless of age, sex, health status, and so on). People can also change insurer each year.
It is anticipated that while insurers will broadly use the government level as the benchmark premium, some will charge slightly more, perhaps to provide better quality services and/or improve their profit margins, while others will charge less to secure access to customers to enable cross-selling of supplementary health and other insurances.
There are a number of features of the changes made which require a totally different approach by healthcare insurers to sell the 'basic insurance' products. Of these, the following features are of particular interest:
Under the new system, age or health risks cannot play a role in determining the premium to be charged. Therefore, to 'compensate' the insurer for the less healthy risks in their portfolios, the government will operate a 'risk and claims settlement' (risk equalisation) system along similar lines to that used by the former Dutch public health insurance funds.
This will broadly operate along the following lines:
Introduction of this system (vereveneningssysteem) means that, for an insurer, keeping a healthy, profitable portfolio will not be equated with the youthfulness of the policyholders, as was the case for private insurance portfolios previously. Now, policyholders who are older, and even ill, can be equally profitable risks. This, however, makes it a much more complex situation for the insurance companies to manage.
In the early years of the new system, there will be many uncertain factors which will make it difficult for insurers to balance competitive product pricing and securing distribution with the risks of unacceptable financial results. Some of this is purely technical and focused on suitable monitoring of claim progression at appropriate levels of detail. It will also be important to find out if there are groups of insured persons who are structurally worse off within the equalisation system.
Other issues relate to the evolving healthcare services that have to be provided and the associated costs, as the government defines what is included.
There is also an ever present concern over the robustness of data for analysis. An immediate issue for insurers is that previously it was not necessary to record certain information related to some of the treatments covered, such as pharmaceutical use.
In the light of these uncertainties, setting the right premium is not easy.
As a result of the introduction of the new healthcare system, the Dutch Banks and Insurers regulator, the De Nederlandsche Bank (DNB) has an immediate need for a new system for the supervision of healthcare insurers. To this end, it has developed a 'customised healthcare tool', which in effect can be regarded as a first practical implementation of its planned Financial Regulatory Framework, thereby introducing risk-based supervision.
The tool will not only give the DNB an indication as to whether existing solvency levels are sufficient, but also meet its objectives that insurers demonstrate that all the relevant risks have been identified and have quantified the financial consequences (where appropriate) as well as possible.
The Dutch healthcare system is in a state of flux and for those involved in managing health insurance businesses, they need to adapt quickly to the new circumstances. Add to this, the trend towards an integrated approach to illness and the combination of healthcare insurance with absenteeism and disability benefits in the Netherlands, it seems certain that further challenges will arise as the system continues to evolve, requiring adaptable and robust management processes to secure long-term profitability.
For further information please contact
Maud Rommers and Jeroen Breen are consultants in our Amsterdam office. They specialise in medical and disability insurances.
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