Dutch Adopt Managed Competition in Health Care Proposed by Stanford Business School Researcher.

STANFORD, Calif. -- The Netherlands has become the first nation to inaugurate a system of universal health insurance based on regulated competition in the private sector. Their program, adopted in Janaury 2006, draws extensively on a plan first proposed in 1978 by Stanford Graduate School of Business Professor Alain Enthoven, who coined the term "managed competition."

The new Dutch system adheres closely to Enthoven's original vision, which provides national health coverage through private companies rather than relying exclusively on the government. Under the Dutch program, each citizen is required by law to buy individual health insurance from an insurance company of his choice. The consumer pays a flat rate premium to the insurer at a minimum of about 1,200 euros a year.

Each individual pays an additional income-related tax contribution to the government to help subsidize the premiums for low-income groups so that everyone can afford health insurance. The tax monies also help support coverage plans that tend to attract a greater percentage of chronically ill people whose treatment is generally more expensive. The system keeps risk and costs spread evenly among various insurance plans so that their premiums can stay competitive.

"What the Dutch are now doing is very different from what we have in the United States, where most people are insured through their employers and thus do not have a choice of insurers," explains Enthoven, the Marriner S. Eccles Professor of Public and Private Management, emeritus at the Stanford Business School. "Most Americans are not responsible for paying differences in premiums, and so there is no incentive for them to make economical choices--and, consequently, for competition to operate among insurers."

To have effective competition among health insurers--competition that really leads to greater efficiencies in health care delivery, improved quality, and lower costs--insurers need to contract selectively with doctors who practice more efficiently. "People want to be able to choose doctors they like and trust," Enthoven says. "So if the insurance in a plan is limited to a certain set of participating doctors, then people must be allowed to choose their insurance plan. And their choice must be cost-conscious."

Holland saw the wisdom of Enthoven's plan back in 1988, when it invited him to deliver the prestigious de Vries Lectures in Economics. His subject was "Theory and Practice of Managed Competition in Health Care Finance." The Dutch government formed a commission recommending the adoption of a system of regulated competition in the private sector.

"The Dutch are to be commended for sticking with their original vision, and then developing and sustaining it through research and education over the past 17 years," Enthoven says. "They stayed the course, even when the parties controlling their parliament switched."

Enthoven notes that the current employer-based health insurance scenario in the United States is locking people into jobs they don't want just so they may maintain their benefits. It excludes the growing labor force of freelance workers who face the risk of being turned down by insurance companies if they have previously existing health conditions. "We need a system that is much more compatible with the realities of the workforce," Enthoven says. "The realities include many people changing jobs. They ought to be able to take their health insurance choices with them."

Of course, the worst off are the unemployed and part-time employed. "If you want everyone covered, you do have to have some rule setting," Enthoven says, which is why his proposed system also involves some government regulation.

The U.S. government could take a few non-partisan lessons from the Dutch, says Enthoven, who has advised several presidential administrations on the benefits of adopting a managed competition approach to the problem of universal health care coverage. One of his audiences was Hilary Clinton, then First Lady, who picked up on Enthoven's ideas but ended up following advisors who developed a plan that ultimately failed. "Price controls just do not work in health care," says Enthoven. "What you need to do is change incentives so there is a reward for holding down costs."

More recently, Enthoven has been advising the Wisconsin Health Plan to implement a system similar to that of the Dutch. Wisconsin is aiming to enact a payroll tax in lieu of employer contributions to health insurance. The state will translate this tax into a fixed premium contribution that covers the lowest priced health plan in a given district. Those who want a more costly plan will pay the difference. Insurance plans will contract with a private corporation that will manage competition and market insurance to individuals.

"Some Americans may not like the idea of a new tax," Enthoven says, "but what we have now--the burden on employers--amounts to a much heavier form of taxation than most people realize."

(This story reports on research at the Stanford Graduate School of Business and appears in the most recent Stanford Knowledgebase, the free monthly information source for thoughts, ideas and lectures at the Stanford Graduate School of Business. For related research citations and to dig deeper, visit http://www.gsb.stanford.edu/news/knowledgebase.html.)