Long term care in the Netherlands: Towards managed competition?

In 2006, the Dutch government introduced the “Health Insurance Act” which is based on principles of managed competition. In this scheme insurers and health care providers are competing on price and quality while the regulator establishes regulation to protect public objectives such as individual affordability of health insurance. As shown by Van Kleef (2012) managed competition comes with some crucial preconditions. These include risk equalization, transparency of consumer information, appropriate incentives for cost containment, freedom of choice for consumers, contestable markets, contracting freedom, effective antitrust policy, no possibility for free-riding and guaranteed access to healthcare. So far, the “Health Insurance Act” mainly included short-term care. In the Dutch policy debate, however, some parties have proposed to expand the “Health Insurance Act” (and thereby managed competition principles) to long-term care.

This paper focusses on the question “Is managed competition appropriate for long-term care?” In order to answer this question we first update the work by Van Kleef (2012) by reviewing (anno 2014) the extent to which the preconditions are fulfilled for short-term care. In a second step we discuss whether it is likely that these preconditions can be fulfilled for long-term care. If not, what are the alternatives?

When it comes to the preconditions for managed competition, Van Kleef et al. (2014) have shown that over the past years improvements have been made with respect to short term care. Despite these improvements, there are still some important bottlenecks. First, the risk equalization system undercompensates insurers for groups of chronically ill and overcompensates them for groups of healthy individuals, which confronts insurers with incentives for risk selection. Second, there is a lack of transparency when it comes to the quality of health care and health insurance products. Without transparent quality information it is impossible for insurers to take into account such information for the purpose of selective contracting and/or remuneration of providers. Moreover, consumers will not be able to take into account quality when it comes to choosing a health plan.

We expect that for long-term care it will be even more difficult to fulfill the preconditions for managed competition than for short-term care. Moreover, there are three fundamental issues when it comes to the question whether managed competition is appropriate for long-term care. First, is it possible to organize sufficient risk equalization for long-term care? Second, are users of long-term care able to make a well-considered choice of health insurer? Third, are non-users of long-term care interested in the quality of long-term care? If the answers to these questions are negative, then managed competition may not be appropriate for long-term care.