A Dutch Medicare model?

The debate over Rep. Paul Ryan's proposed changes for Medicare -replacing guaranteed payment for services with a voucher for most ofthe cost of purchasing private insurance - is generating a lot ofheat. The Dutch might be able to shed a little light.

In 2006, the Netherlands shifted its entire population - elderlyand sick as well as young and healthy - to a premium-support-basedarrangement. The complex, multi-payment approach had three basicelements.

The first - to ensure equity - involved attaching a risk-adjusted payment to each individual, paid by a national socialinsurance pool, ensuring that the size of each person's voucherwould make him or her attractive to private insurers.

The second - to ensure competition on price and quality - was toallow people to band together in "collectives" (interest- orInternet-based) to negotiate with insurers over price and extraservices (core benefits were fixed by law).

The third element - to ensure that private insurers served thepublic interest - was heavy regulation of insurers, includingrequirements that they take all applicants, even at the door of thehospital emergency room.

The Dutch undertook this radical reform because they understoodthat history had changed. Like other small European countries, theyrealized that global competition and the rise of Asia created afundamental threat to their economic survival, and that welfare-state-style benefits were no longer viable.

Most senior Dutch policymakers are reasonably pleased with thenew system. Cost increases have stabilized, and the risk-adjustmentmechanism has resulted in private commercial insurers usingbillboard ads to woo sick patients: "Do you have diabetes? Get yourinsurance from us." While there still are problems - only "listedillnesses" have additional risk-adjustment payments, and some peoplestill haven't enrolled - the Dutch argue that they have a balancedsystem of individual and collective responsibility that issustainable for the next several decades.

Financial sustainability is at the center of health policy inmany European countries today. A senior Norwegian health official,speaking of his country's completely government-funded system, saidrecently at a public meeting that "our present system of government-funded health care is not sustainable." This is an oil-producingnation that has no debt and is putting its substantial oil earningsinto what is now a $400 billion sovereign wealth fund (for apopulation of only 5 million people) to meet future health andpension obligations.

For the United States, a key issue is trust - specificallywillingness to trust the decisions of the federal government. Eachside in the debate has been less than honest. Democrats madepolitical hay by saying that the federal government cannot betrusted to raise the value of Medicare insurance vouchers as health-care costs increase, thus shifting more of the costs onto householdbudgets. They also argue that private insurers will raise rates andtry to cheat the elderly on the services provided to them.

Yet Democrats established, in the Affordable Care Act of 2010, a15-member panel - appointed by the president with no congressionalparticipation or oversight - that they clearly trust to makedecisions about potential reductions in Medicare services. Moreover,the law's new insurance entitlement for uninsured people is itself a"premium support" program to help households with incomes of as muchas 400 percent of the poverty level buy private commercial insurance- exactly what the Democrats claim the federal government cannot betrusted to do for those eligible for Medicare.

The Republicans commit the same rhetorical sin. They argue thatit's okay to trust the federal government to maintain the proposedMedicare vouchers at a reasonable level, especially for sick elderlypeople (who will get additional supplements), but that it's not okayto trust the federal government to make rationing decisions througha presidentially appointed panel.

Both Democrats and Republicans distrust the federal government,but only when it comes to implementing the other party's proposal.

As the European experience indicates, the world has changed since1965, when Medicare was enacted. An effective policy to reduce thelong-term drag of federal health entitlements on our economiccompetitiveness is badly needed and overdue. To get it right,however, it's imperative that the debate focus on facts, nothyperbole.

Richard B. Saltman is professor of health policy and managementat Emory University and a co-founder of the European Observatory onHealth Systems and Policies in Brussels.