Rethinking the Welfare State: The prospects for ... - e-Library

Rethinking the selfare state 110
“catastrophic” health insurance. Ordinary medical insurance is provided via sickness
funds and the payment mechanism is similar to that operating in Germany, 79 but the
average contribution in the Netherlands is only about 1 percent of wages, as opposed to
13 percent in Germany. However, this does not necessarily translate into a 12 percent
difference, because the German contribution covers all health risks, whereas the Dutch
contribution covers only ordinary health risks. Catastrophic insurance coverage is
mandatory for all individuals who are required to participate in the public insurance
system, and is financed via the income tax. 80
The rationale for maintaining two systems is that for the very costly “catastrophic”
risks, citizens are pooled in the largest possible risk pool (the entire country), whereas for
ordinary risks, the existence of a number of insurers allows consumers to have a choice of
providers and introduces competitive incentives into the insurance market. Indeed, with
respect to “catastrophic” risks (including long-term care and mental health care), van
Doorslaer and Schut argue that competition would not be appropriate because effective
pressure from the demand-side is lacking: this is either because most people who need
such care do not have the ability to make a trade-off between price and quality, or
because the likelihood of people needing such care during the next contract period is so
small that they do not concern themselves with the quality of the providers selected by
the insurer. 81
Although the Dutch health care system provides comprehensive and universal
coverage, concerns have emerged with respect to its efficiency. One of these is the lack
of incentives for sickness funds to contain costs. Funds were fully reimbursed for all
medical expenses, and thus had no incentive to be efficient in their spending. In an
attempt to alleviate this problem, the government altered the reimbursement scheme,
making it partially prospective and partially retrospective. Thus, rather than being
reimbursed at the end of the fiscal period for all expenditures, each fund receives a fixed
block grant at the beginning of the period and is required to use these funds to purchase
services. If expensive services are purchased, then the fund will be left with no surplus, or
may go into deficit. In order to mitigate any perverse incentives that may arise from this
structure (e.g. under-provision of services), funds can be reimbursed ex post where they
can show that the expenditures were made in response to actual patient need. It is
estimated that this change has increased the financial risk for the sickness funds to more
than 40 percent of their expenditures. 82
Designing a voucher system
The voucher concept has a large potential realm of application to the health care field.
Universal single-payer/fee-for-service health care systems such as in place in Canada
form one potential mechanism of implementation. However, as explained above, such
systems create moral hazard problems on both the supply-side and demand-side of the
market. We believe that these problems can be substantially mitigated, as we outline
below.