The effect of the new health insurance system on the key economic indicators

A number of far-reaching changes in the Dutch health care insurance system came into effect on 1 January 2006. There is now one type of health care insurance for everyone in the Netherlands. The distinction between social health insurance and private insurance has been abolished. The change will have an effect on a number of statistics in the area of income, prices, consumption and national accounts. This article looks into some of the consequences for a number of key economic indicators, and the possible effect on the Business Cycle Tracer.

The new health insurance system

Two new laws came into effect in the Netherlands on 1 January 2006: the health insurance act, and the health insurance allowance act. There is now one health insurance, compulsory for everyone who lives in the Netherlands or pays wage tax in the Netherlands. The government sets the standard package. The coverage corresponds with that of the “old” social health insurance act. People who have to spend too much of their income on the premium for the new insurance are entitled to a health care allowance. There is the option of a policy excess for people who want to pay less premium. People who receive hardly any or no health care benefit: a no-claim system then entitles them to a part refund of paid premiums. Supplementary policies can be taken out for health care not included the standard package, e.g. extensive dental care for persons aged 18 years and older and physiotherapy.

Monthly figures corrected because of substantial effect on household consumption

The monthly figures on consumption by households are consistent with the concepts and definitions in the national accounts. As the new standard health insurance is compulsory, in accordance with international guidelines for the compilation of national accounts, it must be included in government consumption. All expenditure on medical care of formerly privately insured households, in as far as it is included in the standard package, therefore no longer belongs to consumption by households in 2006. The supplementary insurance for health care not covered by the standard package is considered as expenditure by households. The introduction of the new health care insurance system thus results in a shift from consumption by households to consumption by government.

Because of this transfer of a large part of health care to government consumption, consumption by households will be much lower in 2006 than in previous years. By way of illustration: in 2005 more than 6 percent of domestic consumption expenditure by households was accounted for medicines and health care articles, and health services and welfare. A large part of this was health care for households with private insurance which is now insured in the standard insurance package and thus transferred to consumption by government. According to a preliminary rough estimate, the downward effect of this transfer on household consumption in 2006 will be just over 3 percent.

The shift distorts the development of consumption by households and thus also the course of the business cycle. Therefore Statistics Netherlands has decided to calculate the monthly year-on-year changes exclusive of medicines and health care articles, health services and welfare. The annual and quarterly national accounts will include figures on consumption by households excluding care alongside the unadjusted figures. 

New health insurance system has no effect on GDP

The system of national accounts presents an integrated and consistent picture of the economy. The concepts and definitions used in the national accounts have been standardised worldwide. The quarterly accounts are part of the national accounts. The central element is the volume change in gross domestic product (GDP) which is an important measure for a country’s economic growth. Consumption, together with imports, exports and fixed capital formation, plays an important part on the expenditure side of the economy.

Consumption includes spending by households and by the government. The new health insurance system results in a shift between the two components. The transfer will push down consumption by households substantially. In 2006 the national accounts will record expenditure on health care covered by the new standard package and which used to be covered by private insurance under consumption by the government. This will push up government consumption compared with 2005. Both components of consumption are thus affected. However, as the shifts compensate each other in net terms, the effect on total consumption in the national accounts is neutral, just as the onward effect on GDP.

No effect on Business Cycle Tracer

The Business Cycle Tracer is made up of 15 short-term indicators which give a monthly picture of the economy. The new health insurance system does not distort the Tracer. The monthly figures for consumption by households are corrected and the new system has no effect on GDP.

Smaller shopping basket, no effect on the harmonised consumer price index (HICP)

In addition to the national CPI, Statistics Netherlands also calculates a consumer price index  according to the harmonised European rules, the HICP. The package of goods and services this includes with respect to health care and health insurance is defined more broadly than in the national CPI. The HICP basket includes spending on private health insurance premiums, contributions by consumers for care received and spending on non-insured medical care. Premiums for social insurance in the field of illness and health are excluded. The standard health insurance is considered to be a social insurance and is therefore not included in the HICP. All health care not included in the standard package is included in the HICP basket.

The new system will therefore have an effect on the HICP. Part of health care now covered by the standard package was provided to consumers with private insurance in 2005. Therefore the HICP basket is smaller in 2006 than in 2005. However, in a Commission Recommendation Eurostat, the Statistical Office of the European Union, laid down that such changes may not be seen as price changes. Therefore, up to and including 2005, the indices of the HICP will be based on the old HICP basket. The price change from December 2005 to January 2006 will be calculated according to the HICP on the basis of the new smaller basket. In the index series this change will be retained in the calculations. This means that the introduction of the new system will have a neutral effect on the inflation rate for the Netherlands as calculated according to the HICP.

Consumer price index (CPI) unchanged

The CPI is part of a system of statistics in the area of prices, income and purchasing power. To measure purchasing power the components in the system are made consistent with each other. The CPI measures the price changes in the package of goods and services purchased with the disposable income. Health care insurance and health care covered by this insurance do not belong to this category. They are therefore not included in the basket on which the price changes are based. Self-medication items and a number of medical aids formerly not covered by social health insurance or private insurance, are included in the basket. The basket will not be adjusted, and the introduction of the new system will not have an effect on the CPI.

Income and purchasing power

The income statistics measure changes in disposable income of households. This is the income that remains after compulsory deductions from the wage or other source of income. Therefore, the income statistics take account of changes in the health insurance system. Purchasing power is related to the changes in disposable income of households and inflation. To measure changes in the real disposable income the disposable income is corrected for the effects of inflation.