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David Dean, Rienk Prins, & Theo Veerman

Summary: The Dutch disability benefit system is part of a broad social welfare system that has

been constantly changing over the last two decades. This chapter reviews recent reforms and the current structure of the sickness benefit program and the full and partial disability pension program in the Netherlands. It starts with a short description of the reforms that the disability system has been through during the 1980s and 1990s, and then describes the sickness benefits program and its recent changes. While sick pay had been collectively financed through sector specific insurance funds administrated by public agencies, employers became responsible in 1996 for coverage of sick pay first up to six weeks and then 12 months, after which the disability pension program takes over. This period was subsequently increased to two years. The impact of such reform is discussed, including the drop in sickness absence rates. The third section covers rehabilitation and reintegration efforts in the Dutch disability system. Traditionally, vocational rehabilitation has played a minor role in the Dutch disability system. Recent reforms attempt to give vocational rehabilitation a more prominent role, especially with a new focus on early intervention while the person receives sickness benefits. The fourth section gives an overview of the full disability pension program, including the assessment of disability and the financing of the program. There have been several attempts to make the definition of disability more stringent. In addition, since 1998, experience rating of firms has been phased into the disability pension program. Employers with a greater than average disability claimant rate pay a higher variable payroll tax. The last section of the chapter covers the partial disability pension program, including an analysis of the work behavior of partial pensioners and of the problems associated with

administering a partial program.

The current Dutch disability pension system consists of three separate programs that provide compensation for loss of earnings capacity due to long-term or permanent disability. These programs cover employed workers, self-employed workers, residents without an employment history who have been disabled since childhood, and students. By far the most important program is the long-term disability pension program, called WAO (wet

arbeidsongeschiktheidsregelingen), which provides wage-related benefits to workers who have

Netherlands - 181 force and is the entry point to many other social services, including housing, mobility, and reintegration benefits, which are made available to claimants.

The WAO program was authorized by the Disability Insurance Act of 1967. It has been changed numerous times since its inception. The WAO is administered by UWV (Uitvoering Werknemersverzekeringen), also known as the (national) Social Insurance Institute, an

independent body under the Ministry of Social Affairs and Employment. The members of the governing Board are appointed by this Ministry. This Social Insurance Institute also administers the country’s Unemployment Insurance Benefit program.

Under the WAO program, an insured worker with an illness or injury is entitled to a disability benefit after a mandatory waiting period of 12 months (starting in 2004 the waiting period is 24 months). There are no specific conditions of eligibility in terms of citizenship. One particularly unique feature of this primary Dutch disability pension system is that employers are responsible for paying benefits, irrespective of the cause of the claimant’s impairment. That is, a disabled person receives a WAO pension whether the impairment occurred on the job, due to an off-the-job accident, from a sports-related injury or elsewhere--there is no separate work injury program.

The other two disability pension programs are: 1) the Self-Employed Disability Insurance Act (WAZ), which covers self-employed workers and provides benefits at the minimum wage level; and 2) Young People's Disability Act (WAJONG), which provides a subsistence level benefit to young persons with congenital impairments and students. Both programs operate in a similar fashion to the WAO in terms of disability definition and assessment procedures and provide flat rate, social minimum benefits from age 18 onwards. The former program will end July 1, 2004.

Netherlands - 182

Recent Reforms to Administration of the Dutch Disability Pension System

The aforementioned discontinuation of WAZ is but the latest revision in the seemingly ever-changing Dutch social insurance system. Indeed, it was only in 1998 that WAZ and WAJONG were established to replace the AAW. The latter program, which was authorized in 1975, was a universal, contributory “incapacity pension” providing a cash benefit for disabled Dutch citizens. The AAW was a “first tier” benefit, which provided subsistence level cash payments tied to the minimum wage. The employment-based WAO cash benefit then supplemented this payment.

The WAO evolved from the Dutch tradition of local industrial branch associations comprised of employer organizations and workers’ trade groups. These groups were initially established to oversee the unemployment insurance (1916) and sickness insurance (1931) programs (Van Wirdum, 2000, p.93). A comprehensive two-tiered social security system eventually evolved to pay cash benefits irrespective of the cause of disability, consisting of the universal insurance at a subsistence level for all Dutch residents and the supplementary income- related benefit for wage earners.

This notion of running disability pension programs through the autonomous Industrial Associations, which lacked direct governmental control, is another unique aspect of the Dutch social insurance system. These local agencies had wide discretion in setting benefit award and return-to-work policies. Every firm was mandated to be a member of an Association, which operated under a contract with a national agency called the LISV.

Netherlands - 183 During the 1980s and 1990s, concerns about the rapidly rising number of disability claimants and concomitant increases in disability pension payments led to a series of legislative reforms intended to curtail the growth in the WAO. Most of the reforms in the 1980s were concerned with reducing the eligibility for disability pensions and cutting the amount and duration of benefit payments. Some of the reforms also changed the administrative structure. A 1986 reform severed the interaction between the “first-tier” universal incapacity benefit (AAW) and the “second-tier” employment-based disability pension (WAO). The WAO would now fully fund all disability pensions for eligible claimants. In 1998, civil servants were also brought into this incapacity scheme for employees.

The 1980 reforms did little to curtail the rapid increase in the costs of the disability pension scheme. By 1993, the total expenditure on sickness absence and work disability

regulations had climbed to 14 billion euros. In that same year a parliamentary inquiry determined that employers too often used the WAO disability pension as an alternative to unemployment and/or early retirement as a method for terminating employees. As a result, from 1992-1996 the government made various attempts to restrict expenditure on disability pensions. Many of these reforms, in particular the TBA of 1993 (Act on Reducing Claims for Disability Benefits) were also concerned with restructuring the administration of the Dutch disability pension scheme. The principal objective was to increase the role of the “social partners” in terms of financial

responsibility. In particular, the role of the Industrial Associations, GAK, and the Joint Medical Service (GMD, which provided disability assessments and rehabilitation services) were

dissolved. In 1999, after a drastic revision of previous plans, the Dutch government replaced the 26 industrial insurance agencies with one public agency to be in force by 2002. The (national)

Netherlands - 184 Social Insurance Institute (UWV, and also referred to as LISV) now administers the Disability and Unemployment Insurance benefit programs.

Sickness Benefit

The gateway to the disability pension in the Netherlands is through the sickness benefit program. The Dutch Sickness Benefits Act was originally enacted in 1967 and has been revised numerous times in the intervening 37 years. From 1967 through the mid-1990s, the sickness benefit program, along with the disability pension and unemployment insurance programs, was administered by the aforementioned Industrial Associations. As previously mentioned, these quasi-public organizations were managed by representatives of employers’ associations and trade unions. All employers were required to maintain membership in an association until 1977. All disability program expenditures were financed via employer premiums that differed between sub-sectors within a given industry. These autonomous associations had wide discretion to develop benefit award and rehabilitation policies; unfortunately they were not financially responsible for these decisions.

In the past decade, there have been a series of legislative changes that, in effect, have completely privatized what was once a totally publicly-funded program. In 1994 employers were mandated to provide sickness benefits covering the first two to six weeks of an illness/injury episode. Employers were also now responsible for carrying out the sick leave inspection visits. The legislation mandated that firms must hire a private provider of occupational health services (OHS) to monitor these longer duration sick leaves. In addition to providing support to the employer’s sickness absence and disability management policy, these private OHS firms also

Netherlands - 185 provide other occupational health services, such as information on the nature of health risks at the worksite, how to minimize these risks, and how to best “reintegrate” workers to the job site.

The current sickness benefit program. Absence rates dropped by 20% in one year after

the introduction of the employer-financed two to six week sickness wage payment period. As a result, in 1996 the Sickness Benefit Act was abolished and the employers were now responsible for providing sickness coverage through the first 12 months, after which the disability pension program provides benefits. Starting January 1, 2004 this employer-provided coverage is now extended to two years. The OHS will supervise both the sickness and reintegration process for this two-year period. Full work resumption will usually be decided by the physician of the OHS in cooperation with the employee and her employer. After one year of sickness (now extended to 2 years), the employee may apply for a disability benefit and then, if awarded, be transferred to this pension program. Either the employer or the employee may request postponement of this disability pension application for an additional period of up to13 weeks, if full recovery/work resumption is expected within this period.

This program provides sick pay at a rate of 70% of gross wage earnings to employees unable to perform their job due to either illness or injury, irrespective of its cause. Because of collective bargaining agreements, most employers supplement sickness benefits to the level of 100% of net earnings. While figures are no longer available because of privatization, it appears that the majority of employees still receive 100% of earnings from the first day on. However, with the new second year of employer-funding of this sickness benefit, there is a restriction to 70% of wages. Companies are allowed to “self-insure” (i.e., finance all claims payments

Netherlands - 186 private insurance policies to cover the associated risks that have accompanied this privatization initiative.

There is also a publicly-funded sickness benefit scheme for unemployed workers who become ill or whose labor contract has run out during a sickness episode. This plan is

administered by the same UWV that oversees the disability pension benefit scheme. It also provides a payment covering 70% of former wages.

Qualifications for receiving sickness benefit. In the Netherlands, family doctors

traditionally refuse to provide sickness certificates. So when an employee reports sick,

physicians employed by the OHS check whether the absence from work is legitimate and provide guidelines concerning a possible date of work resumption. The beneficiary of sick pay is

obligated to do any acceptable work if he or she is able to perform it. This can be any other acceptable work with the old employer (who is obliged to offer such accommodation if feasible) or even with another employer. The legislation, which took force in 2003, stipulates that if an employer cannot offer comparable work, a reintegration service organization must be secured with the goal of placing the individual in a new firm. (See following section on rehabilitation service provision). The penalty for refusing to return to work is a curtailment of wage payments with the possibility of termination, albeit the latter rarely occurs.

Utilization and cost of sickness benefit program. As sickness benefits were largely

privatized, there are no detailed statistics collected on a nationwide basis any longer. Rather, since 1994 sickness absence data cannot be based on an individual level, but based on interviews from a sample of employers. The only data available concerns gross sickness absence, i.e., the percentage of days lost due to sickness.