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Going Dutch

Life after the public option.

"You can’t really have reform without a public option," former governor Howard Dean, a prominent public-option advocate, said recently. "If you really want to fix the health care system, you’ve got to give the public the choice of having such an option." Promising as this sounds, it seems increasingly likely that the public option will be a liberal dream deferred. Republicans and conservative Democrats, panicked that the government plan will squash competition and the medical industry as we know it, are slowly killing the idea. Even President Obama, who has endorsed the idea unambiguously, has indicated a willingness to compromise on the issue.

Liberals, understandably, are in agony. But they can take at least some comfort in looking overseas--where one tiny country has managed to build a popular and successful universal health care program based entirely on private insurance. That country is the Netherlands, which several years ago overhauled its health care system and achieved most of the goals the liberal reform movement holds dear: near-universal coverage, affordable insurance, and quality health care.

Under the new system, the Dutch government has required that everybody gets insurance; in return, it makes sure insurance is available to everybody, regardless of pre-existing medical conditions or income. Although the government finances long-term care through a public program, it has turned over the job of providing basic medical coverage exclusively to private insurers, including some for-profit companies. Surveys show that the Dutch are happier with their health care than are Americans--or the people of any other developed country, for that matter. There are even signs, albeit faint ones, that the insurers are achieving what’s become the Holy Grail of health reform: using their leverage to improve the quality of care that doctors and hospitals provide--by improving the coordination of treatments for the chronically ill or steering patients to providers that get the best outcomes.

Still, there’s a catch. A big catch. Private insurance in the Netherlands works because it operates more or less like a public utility. The Dutch government regulates industry practices tightly--more tightly than the reforms now moving through Congress propose to do in the United States. The public insurance option was supposed to make up for that deficiency, at least in part, by setting a standard for service and affordability that the private industry would have to meet--and by offering a fail-safe option in case the private plans simply couldn’t keep up. If Congress ends up gutting the public plan, in part or in whole, then it needs to work even harder on making private insurance work. And it’s an open question whether that will happen.

What makes private insurance work in the Netherlands? It starts with tradition. The Netherlands first extended insurance coverage to everybody during Germany’s occupation of World War II. (It is, the Dutch like to say, the one good thing to come of that experience.) But, by the end of the century, frustration had set in. At the time, government provided insurance directly to people with incomes below a certain threshold; everybody above bought coverage on their own. The left found the system inequitable, since people with private coverage sometimes had better access to care; the right found it inefficient, since they thought public insurance interfered with the natural forces of competition. Eventually, they brokered a deal: Create a seamless system to cover everybody, regardless of income or medical condition, but do it all through private carriers.

The new system came on line in 2006 and, so far, the results are encouraging. Everybody picks an insurance carrier once a year, more or less the same way employees of large companies routinely do here in the United States, during annual open enrollment periods. By law, the coverage is generous, no matter which carrier somebody chooses. Plans cover all medically necessary services--as defined by the government, in consultation with independent experts and medical societies--and they pay for all but a tiny fraction of the bills. The government provides income-based subsidies, and roughly two-thirds of the population gets some assistance. In surveys of major countries by the Commonwealth Fund (which financed my own travel to the Netherlands), the Dutch were least likely to report forgoing care because they couldn’t afford it.

But the real secret to success is what happens behind the scenes, in the way government watches and regulates the insurers. The big worry with private insurance is always that carriers, eager to make a profit, will try to avoid paying the large medical bills that people with serious health problems inevitably generate. And the main way insurers do that is by avoiding such people altogether--a practice known as "cherry-picking"--which can ultimately destabilize the entire insurance system.

The Dutch government prohibits cherry-picking. Insurers cannot turn away applicants, or charge them more, because of pre-existing medical conditions or risk of illness. For example, they can’t demand that you pay higher premiums just because you happen to work in a physically hazardous job. And, because clever insurers can find ways around such rules--by, for example, marketing largely to young people--the Dutch government takes some crucial additional steps. It makes sure the minimum-benefits package pays for ongoing chronic-disease treatments, as well as for medically intensive services for the seriously ill. It has also been collecting and publishing easy-to-understand data about insurers and providers--not just prices, but consumer reactions and quality indicators as well. The hope is that people will use the data to guide their coverage decisions from one year to the next.

Perhaps more important, the Dutch have what some would consider the world’s most sophisticated scheme for "risk equalization." Because even the best regulations may not stop people in relatively good health from congregating in certain plans--and because such separation can wreak havoc with the whole insurance system--the government audits each plan’s enrollment every year. Insurers with really healthy beneficiaries--say, a lot of young single people--pay a fee. Insurers with really unhealthy beneficiaries--plans with lots of diabetics or retirees--get a subsidy. In effect, the program takes away the financial reward for shunning unhealthy patients.

That, of course, is all well and good for the enlightened Dutch. But how would you replicate such a system in the United States? To begin with, mandating transparency could help a lot. One way insurers here take advantage of consumers is through confusion. They don’t always make clear what’s covered, they don’t always provide basic information in ways that allow consumers to easily comparison shop, and they aren’t currently required to submit data about their activities to any single authority. Fortunately, that’s one set of problems reform seems likely to fix. A provision first introduced by Representative Rosa DeLauro and Allyson Schwartz, along with Senator Jay Rockefeller, would mandate a "coverage label" modeled on the nutrition label that all food products must include. The label would let consumers see, in plain terms, what protection different policies covered. In addition, the plans under consideration in Congress would establish minimum-benefit standards, initially for individuals and small businesses. (They could later extend to all plans.) Consumers who bought plans governed by the standards wouldn’t have to wonder whether a plan covers preventative services or chronic care, because that coverage would be part of the law--just like in the Netherlands.

But, as in the Netherlands, the more important work is what consumers won’t see directly: the way the government will regulate insurers. And it’s not so clear that the reforms under consideration will do everything they must. A key goal, here as there, is preventing insurers from cherry-picking. In theory, all of the plans would prohibit insurers from excluding or charging higher rates to people in poor health. But the bill now before the Senate Finance Committee, for example, would allow insurers to vary rates according to age--which can be a proxy for health--by a factor of five. (Adequate subsidies can help mitigate this, but the Finance bill doesn’t have those, either.) What’s more, because all the plans before Congress allow companies to vary offerings considerably, insurance companies could tilt their coverage in ways that attract healthier beneficiaries. An aggressive risk-equalization scheme, like the one in the Netherlands, could help thwart such efforts--but the reform bills don’t specify how aggressive those schemes will be.

One additional issue, not to be overlooked, is the question of price. Dutch consumers don’t have to worry about paying a lot of money for their health care, even if they are sick, in part because the insurance has very little cost-sharing--and in part because the government continues to play a strong role in setting prices, although it’s been gradually relaxing them. But there’s nothing in the current bills approaching the type of price controls that the Netherlands has. In the Senate Finance bill, some middle-class people could spend almost one-third of their incomes--$20,000--on medical care. The House bill has better protection, but there may not be political support for it.

Unless, of course, progressives can create political pressure for such regulations. Most of the left is focused on preserving the public option, in some form; and, overall, that does still seem like a highly effective way to make private insurance work. But, if they can’t succeed, improving the other elements of reform becomes all the more important. The U.S. health care system will never look entirely like the one in the Netherlands: the demographic, cultural, and political differences are simply too vast. But, with sufficiently strong regulation, it can achieve some of the same virtues. And that would be an accomplishment of which the left could still feel proud.

Jonathan Cohn is a senior editor at The New Republic.