`We'll Need Hillary Clinton In Holland'

Eelke van der Veen is worried. The Dutch government wants him to help lead a radical program to cut exploding medical costs. Health officials have already unshackled his nonprofit insurance fund, one of the largest in the Netherlands, so it can compete for customers instead of merely paying bills according to a list of government-set prices. Now, they want the Amsterdam health-care executive to live on an annual budget, based on the number and type of people he enrolls. Soon, they will ask him to bargain with hospitals and doctors over prices. But van der Veen doesn't believe health care should be left to the savagery of the market. "In a few years, I think we'll need Hillary Clinton in Holland," he muses.

Van der Veen's concern? It's called managed competition, European style. And the Netherlands, while furthest along, is not the only country embracing it. As in the U.S., governments all over Europe are struggling with the problem of soaring medical bills--and coming to the same conclusion: The way to hold down costs is by introducing market forces into government-run programs. But as President Clinton soon may learn, policy prescriptions that look good on paper often have unintended side effects that cause traumatized patients, providers, and payers to stymie reform.

PACT UP. While the Clinton Administration seeks greater government control over what is mostly a laissez-faire system, Europe is looking at ways to reduce the top-heavy role of government. The two may be coming from opposite ends, but their solutions are already converging. "There's a growing understanding that what's needed are strong incentives for people to make economic choices," says Stanford University health economist Alain C. Enthoven, one of the architects of managed competition, who has advised both the Dutch government and the Clinton Administration. That's a bitter pill for many European governments, which as little as two years ago held up their systems as models of what the U.S. health-care system should be. Yet Europe is grappling with the same problems that plague the U.S.--an aging population, rising number of AIDS cases, and expensive new medical technology, all of which are driving up the cost of care.

What isn't widely understood on either continent is how to implement a managed-competition approach. No one has yet tried it on a large scale. And as the Netherlands' experience shows, the obstacles are enormous. That reform program has become a volatile

political issue among the normally cooperative Dutch population. As a result, the changes are on hold until after elections in May, 1994. The force behind reforms, Health Secretary Hans J. Simpson, will retire next month from national politics.

But even where European governments aren't looking to purely market solutions, they're drifting away from the social pact they've had with citizens for generations: that all health-care needs will be met from cradle to grave. For the past two years, European governments, especial-

ly Belgium, Britain, France, and Germany, have been forcing patients to foot more of their bills through co-payments, limits on doctor visits, and crackdowns on payments for such luxuries as government-paid spa therapy and plastic surgery. But such regulatory efforts haven't done the trick, and now the governments are looking more at structural reforms, such as Britain's move toward increased competition among its doctors. "They're all being squeezed, and they're all having to reinvent their health-care systems," says William Wheeler, a health analyst at Andersen Consulting.

Even Germany, long a model for other countries, with its quasi-private network of "sickness funds" that negotiate prices and services with providers, is tightening its belt. It's seeking to trim the $125 billion health budget by 6%, or $7 billion, with $1.5 billion of that coming from prescription drugs. In January, the government ordered a 5% reduction in prescriptions for two years and threatened to dock the pay of doctors who overprescribed. The government also is moving away from reimbursing hospitals by the day and toward payments by diagnoses. Germany hopes that this will shorten hospital stays, which now average 16.2 days--the longest in any European country.

Despite the cuts, universal health care is still one of the hallmarks of life in Europe, where doctors in most countries still make house calls. While Europe's systems vary widely, they generally fall into two categories. One is a compulsory, insurance-based scheme financed mainly by employer and employee contributions, as in France, Germany, and the Netherlands. German workers and their employers, for example, each pay as much as $250 a month for care. Other countries offer a government-run program financed by payroll taxes, as in Britain, Italy, Spain, and Sweden. The remaining countries use a combination of the two. They all provide basic benefits to young and old, healthy and sick, regardless of income or preexisting conditions.

At first glance, Europe's health-care spending may not seem out of control: It averages 8.5% of gross domestic product, well below America's 14%. But a larger portion of each country's bill is shouldered by the state--eating into its ability to improve education or fight crime. Sweden's government, for example, pays 99% of the bill, while the Dutch government foots about 65%. Washington, by contrast, pays about 40% of the nation's health tab.

"OUCH!" As European governments come to realize that they can't be all things to all people, they're looking at how to harness market forces to make hospitals, doctors, and patients aware of the true costs of care--in hopes they'll change their habits. For example, Belgium is ordering all patients to have a primary-care gatekeeper within a year, while Italy is setting per-capita budgets for each of 21 regions. But as Dutch politicians are finding out, shaking up the old order makes everyone cry: "Ouch!"

To trim a health bill approaching 10% of GDP, the Dutch government wants to transform its state-run system, which has never before heeded the laws of supply and demand. Under the old regime, the top 40% of wage earners belonged to private, employer-provided insurance programs. The remaining 60% of the population, including low-wage earners and the unemployed, belonged to nonprofit insurers called sickness funds, a combination of America's Medicaid and Blue Cross plans. Employees and government grants also support a central fund for extraordinary care, including nursing-home stays.

Yet while private insurance plans are running smoothly, sickness funds such as the one managed by van der Veen are struggling to provide for the 60% of the population at highest risk--immigrants, the elderly and chronically ill, and Amsterdam's huge drug-addict population. Because insurers with their local monopolies have no incentives to cut costs, a web of price controls and tariffs has sprung up. In addition, the central fund for extraordinary health costs such as nursing-home care now eats up 45% of total health spending.

UP IN ARMS. The new Dutch system eliminates differences between private insurers and sickness funds and forces them to compete for patients. The government has insisted that neither benefits nor the quality of care will be compromised. But the reforms have everyone up in arms. Employers say higher premiums to finance the new system will make them uncompetitive. Wage earners complain that they, too, must pay higher premiums to further subsidize a growing army of unemployed. Physicians worry that treatment decisions will be driven by economics, and insurers such as van der Veen, many of whose clients are on the bottom rung of society, don't believe they will get their fair share of the overall health-care pot.

The problem the Netherlands is facing may be the mirror image of what Clinton will have to confront as he tries to make his health-care plan a reality. As different countries try to move to managed competition, sacrifices will be required by all parties in the debate. What the policymakers are learning is that reform in any language is painful.

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