Comparison: Dutch vs US Private Health Care Costs

by on September 19, 2012 · 1 comment

in Government, Health, Politics

by Frank Thomas and John Lawrence

Introduction: Columnist and investigative reporter David Cay Johnston’s up-to-date comparison of Europe’s health care costs vs. the US is another shocking revelation of how our country still struggles to have a sane, affordable basic health care system. He shows that the average per capita cost for health care in the U.S. is 2.64 times that of the average Organization for Economic Cooperation and Development (OECD) country cost per capita. In other words, for every $100 dollars of OECD personal health care cost, the US cost is $264.00. 

In an extensive joint 2009 study (Health Care in the Netherlands and the US: A Comparative Study) comparing Dutch and US health care costs for a family of 4, Frank Thomas and John Lawrence came up with almost exactly the same ratio of a US cost of $240 for every $100 of Dutch costs for a family plan. To further document the startling cost differences Mr. Johnston has so well illustrated, following  is a much abridged and edited version of our 2009 study.

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The US has been consummately slow to learn from other countries that have systematically adopted transparent, standard basic health care that contains health care spending at 10% of GDP. However, US health insurance corporations with their myriad of non-standard policies continue to discriminate based on pre-existing conditions and to discontinue policies or raise premiums of those unfortunate enough to get sick. [The Affordable Care Act popularly known as Obamacare, while not offering a public option, was, however, successful in eliminating pre-existing conditions and insurance firms' greedy ad hoc practice of cancelling policies or raising premiums of claimants judged sick too often.]

We have chosen to compare in detail the US and the Netherlands’ health care systems based on a family of four. It’s important to point out that in both countries the health insurance systems are completely privatized. However, the two systems have produced diametrically opposite results. On a macroeconomic look, total health care spending in the Netherlands was 10.2% of GDP vs. approximately 17% for the US in 2009. Further, although the US has among the highest health care costs in the world, it ranks 37th in terms of outcomes. On a microeconomic look, both countries offer private health care via insurers … but Dutch health care providers compete on quality and service under a required basic health care system of “regulated competition” where the government has final oversight over premium prices, deductibles, costs and quality.

The following explanation puts all the detailed Dutch/US data in a “Big Picture” perspective. Figures for both countries exclude dental, except dental for children under 18 which is standard under the Dutch basic family plan. This in itself is an important bonus for the Dutch plan as US dental costs continue to soar. The Dutch plan includes something called “own risk” which simply means that people have the option of increasing the deductible by the amount of “own risk” in return for lower monthly premiums.

EXPLANATION

Key concluding observations are:

  • The average annual  US plan total cost for a family of 4 is $16,530 or 2.4 times that of the Dutch basic family plan total cost of $6,913.
  • The Dutch basic plan comprises a standard comprehensive benefits package everyone purchases; theUSplan is an average of a myriad of plans all with different non-standard benefit coverages.
  • The Dutch basic plan own risk ($495) plus deductible ($600) is $1,095 vs. a wide range of US family plan deductibles from $1,000 to over $4,000.
  • The Dutch basic plan provides 100% standard benefit coverage. US plans generally require coinsurance/cost sharing to reach 100% coverages.
  • The Dutch basic family plan includes an employee tax contribution of $1,768. This relates to a 9.35% maximum wage tax on 50% of employee’s annual basic plan premium paid by the employer.
  • Employer and employee split a 7.2% tax on wages up to a maximum of $45,000. This goes into an equalization fund used to compensate insurance firms for documented “high risk” insurees. It’s also used to subsidize low-income people and those who are poor with little or no income.
  • The US very high absolute employer share of up to 74% of an outrageously high premium cost of $13,375 for a family of four – vs. 50% of a far lower premium cost of $6,913 under the Dutch basic plan – may explain partly why the US middle class wages have risen a miniscule 12% of inflation adjusted over the last 31 years! Employers are apparently treating their very high health care contribution as a wage benefit, substituting for a normal wage increase.
  • About 90% of the Dutch basic plan insurance for 16.5 million citizens is offered by six insurers. This provides a well-balanced actuarial risk pool of age/income/healthiness groups within an approximate 2.7 million average individual client base per insurer. Also, the Dutch regulated competition system is aimed at getting premiums/costs at affordable levels by a standard basic comprehensive benefits package required by all citizens. A competition regulator checks for any abuses of dominant market positions and creation of cartels. An insurance regulator makes sure all basic plan policies have identical coverage provisions.
  • All the above gives economies of scale, easier assessment and comparison of best and worst practices by health providers. Its success depends on government’s enforcement of the rules governing premiums, costs, benefit coverage and, most importantly, quality.
  • Dutch medical procedures, prescription drug costs, prices, and coding of medical services are uniform throughout the country for the basic plan. This compares to the relatively complex, non-transparent, vast cost/price variations including non-uniform coding of medical services state to state for US family plans – all making best and worst practice comparisons almost impossible.
  • Unlike the US, copays, cost sharing or reimbursement limits on selected claims do not exist under the Dutch basic health care plan. Insurer and insured costs can be changed by the government increasing the ‘mandatory’ deductable (now at $275) or by the insured choosing for a higher ‘own risk-deductible in exchange for a lower health insurance premium.

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The details on the total system cost comparison for a family of four between the Netherlands and the US can be found here.

Current Situation in the Netherlands

In the Netherlands people are free to pay for more services over and above their basic plan coverage. There is no limit to the health care insurance plans that wealthy people can procure. At the same time everyone is covered by at least the basic plan, but no one is restricted to just the basic plan.

Like all advanced nations, theNetherlandsis now faced with serious decisions on how to adjust their basic regulated market health care system in the face of a sharp increase in size of the older generation. This generation is also facing more costly high tech cures. This means sensible adjustments in own risk/deductibles, health sickness prevention, limits or changes in benefit coverage and strict discipline on insuring system efficiency and a sound financial balance … while continuing to provide one of the top best, affordable health care systems in the world. The challenges and changes are not easy by any stretch of the imagination … but Frank is confident solid Dutch coalition governance will continue to pragmatically, creatively, and humanely master the hard health care cost/quality tradeoff realities.

One thing is certain – the Dutch are not about to allow their egalitarian, quality basic health care-for-all approach to be sacrificed to greedy insurer self-interests such as obscene management bonuses, profits and stockholder values FIRST and affordable, quality health care needs of claimants SECOND … as occurs under the currently costly, chaotic US private health care system.

In the US, Mitt Romney and Paul Ryan are promising to get rid of Obamacare on Day 1 if they should be elected to office. This would mean the continuation of sky-high premiums and insurance industry profits at the expense of the poor and lower income groups. It may also mean the possibility of being kicked off policies if people get too sick or of being denied insurance in the first place because of pre-existing conditions.

Adding (snake) oil to the fire, the “new” Ryan-Wyden Medicare reforms offer the option of retaining the traditional ‘fee-for-service’ government payments under Medicare or the option of receiving ‘voucher’ payments (mysteriously called ‘premium support’ payments by Ryan) to buy private insurance health care plans. The Ryan plan payment would be pegged to the lower end of health care premiums rather than to actual costs. Thus, people face the risk of ending up paying too much because of inflation.

Under these two payment options, the amount the government pays remains the same. Ryan’s plan has a spending growth cap per capita that must not exceed GDP annual % growth plus 0.5%. The CBO concludes this will reduce Medicare spending 35% to 45% by 2050 – leading to some negative results such as higher out-of-pocket costs, reduced access to health care, less quality of care, and reduced investment in advanced medical technologies. Caps would certainly disproportionately affect vulnerable groups when GDP growth rates are stagnant, especially for long-lasting recessionary periods … like now.          

avatar John Lawrence September 19, 2012 at 4:08 pm

In the seventh bullet point the $6,913 figure should be $3,174.

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