The UK has been suffering from an identity crisis, a development crisis and a health crisis. The identity crisis lies in the lack of consensus on its place in the world. The growth crisis lies in the stagnation of real income. The health crisis is rooted in the plight of the National Health Service.
Regrettably the reaction of the government and many supporters is magical thinking. Brexit and tax cuts are magic tricks for the identity and development crisis. Changing the funding of the NHS from general taxation to health insurance is tantamount to a health crisis.
Magical thinking is perhaps the worst characteristic of populist politics. Politicians give simple solutions to complex problems. They fail, and undermine the trust on which democracy depends.
So, let’s consider whether a change in funding model can fix the health system and if so, how.
The most important point in the economics of health is that it is both a public good and a private risk. The former means that everyone benefits from living in a healthy society. The latter means that everyone needs insurance except for the very richest. But if healthy people who prefer to take risks are not in the pool, then insurance becomes prohibitively expensive and insurance companies make enormous efforts to exclude those who need it most. That’s America’s disaster – the world’s most expensive and least effective healthcare system. The solution lies in a compulsion: Everyone must be in an insurance pool.
This is the UK solution, where the pool is financed by taxation. In many other high-income countries, it is funded by something called “social insurance”. But for this payment is mandatory. If it quacks like a duck and quacks like a duck, it’s a duck. If it is compulsory to pay a duty for something, then it is a tax. Such charges are included in the standard calculation of tax revenue. Indeed, they account for a large portion of tax revenue in many countries.
At first glance, a shift from tax-funded to compulsory social insurance funded is no more than a relabeling exercise. When one looks at our current predicament, it is hard to believe that such relabeling could be more than magical thinking. There will still be mandatory fees that come out of earnings. These will feel (and will be) like taxes. Furthermore, there is no reason to expect spending to fall overall: for example, France and Germany spend the same share of GDP on health as the UK.
There are three arguments against this dismissal of social insurance as a solution to funding UK health.
The first is that people will see a clear link between revenue and expenditure on health and will be more happy to pay for it. Yet the expenditure could not be set sensibly in this way. Had it been so, it would have had to be reduced simply because there was a recession.
The second argument is that it would allow decentralization and depoliticisation of decision making in health. What is special about the NHS compared to most other systems is that it is a nationalized industry under tight political control. It is not hard to see that some decisions taken as a result – such as keeping some empty beds is “efficient” – reduce the flexibility of a system subject to large fluctuations in demand. The parallel decision to invest less was a classic example of the “pennywise, pound-foolish” approach that I have long associated with the Treasury.
Yet even if one believes in an abstract way that the UK health services could do a better job with a radical restructuring of the supply side, the upheaval, both political and organizational, would be enormous and probably devastating. One has to start from where one is. Revolutions often fail. The conservatives understood this.
A third argument is that change may allow for more choice. It may also be possible to add co-payments to the system, introducing an element of material incentives. But both can be offered in the NHS, if desired. It is entirely possible, for example, to introduce a means-testing fee. In fact, they already exist – for example, for drugs. Whether fees would be a good idea is another matter: they would be both unnecessary and discouraging. essential Trips to the doctor. And they will hurt far worse than others.
Furthermore, it is also clear that the biggest failure is not in the NHS itself, but in the under-funding of social care. This is why so many people are blocking beds in the NHS. The solution lies not in changing the health system, but in spending elsewhere.
Is magical thinking the only thing that can do this country now? Instead, why not try coherent thinking on the goals, structure and organization of care services?
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