We need to find a new way to pay for healthcare

January 22, 2015 8:59 AM

Nigel Farage has said that it is inevitable that we will have to move towards insurance-based models of healthcare in the future. Cue outrage: as we know, the NHS is often described as the closest thing Britain has to a religion. Indeed, the reaction by some of the media to even the very notion of reform suggests it would be an act of heresy.

The frenzied reaction is principally down to the perception that the NHS is being privatised. But that’s clearly untrue. That point has been well made by the Kings Fund and it’s one that’s not worth spending a great deal of digital ink in making.

The control and command structure of the early days of the NHS began to be unpicked by the internal market reforms of the 1990s and the role of the private sector was greatly enhanced by Alan Milburn’s reforms in the early 2000s.

Whilst flawed, these measures were ultimately successful in improving patient outcomes through the use of market-related incentives and Milburn deserves praise for taking on the intransigent health establishment for the benefit of patients.

Nevertheless, the coalition’s legislation, which is far less revolutionary than that of the early 2000s, has seen much of the Labour Party oppose the pro-market reforms they made. UKIP MPs Douglas Carswell and Mark Reckless have joined them.

A new “National Health Action Party” has even been formed, bizarrely calling for less political interference in the NHS while simultaneously calling for more power for the Secretary of State for Health, amongst other policies that will increase costs and worsen patient outcomes. It’s telling that many of their parliamentary candidates are GPs and hospital doctors who directly benefit from the financial security the NHS monopoly provides for them

Politicians rightly go to great pains to bemoan the lack of competition for – and even caused by – the “Big Six” energy companies and the “Big Four” supermarkets. But they are devoted to sustaining the dominance of the NHS, the “Big One.” Its market share far exceeds that Tesco, Sainsbury’s, Asda and Morrison’s combined.

It’s wrong according to some that companies can profit by providing healthcare that people need. By that logic it’s also wrong that Tesco make profit from selling food that alleviates people’s hunger.

But logic is in short supply in this debate. Indeed 21 per cent of those recently polled by Lord Ashcroft believe that “private companies should not be allowed to provide NHS services even if this would save money and improve treatment for patients.”

This indifference to the health of patients and the cost to taxpayers by a fifth of the population makes positive reform all the more difficult. That’s why it’s so important that debate on NHS reform is not shut down. It is not unreasonable to question whether the current system is best for patients, but it is wholly unreasonable to label those who ask questions as extremists.

Because the truth is that reform of the way in which the NHS is funded does need urgent attention. At present, it’s almost entirely funded through general taxation. It’s always been the same and almost nobody is willing to suggest we should move on from the 1940s. Nigel Farage stuck his head above the parapet by suggesting the UK should move towards an insurance-based system, and he has even lost the argument in his own party.

Unfortunately for UKIP, and the NHS congregation, he’s right.

Healthcare is obviously going to get more expensive because healthcare inflation is greater than general inflation. And rich countries do often spend more on healthcare as technologies advance and new drugs become available.

And that is an enormous problem for the NHS in its current form.

Frank Field correctly identified many problems recently in a piece for the Daily Mail but his solution to the problem; “a serious increase in National Insurance Contributions” couldn't be wider of the mark. The biggest expense for families is already tax and increasing NI will hurt them and further entrench the problems inherent in the system.

Turning on the taps with taxpayers’ cash has been tried before. In fact, the biggest problem of with the early 2000s reforms was that too much new money was pumped into the system at the same time. Productivity collapsed, prices were fixed and as in the 1990s, inefficient providers were not allowed to fail. The problem wasn’t the market, rather the reluctance of the government to allow it to function properly.

But it’s not just the politics that are challenging. Despite trying an extraordinary range of different rates and thresholds of almost all taxes, no recent government has been able to raise more than 38 per cent of GDP. That seems to be the peak of what is politically achievable and/or economically sustainable. Messing around with so-called mansions and bank bonuses won’t make a difference.

There is plenty of scope for savings across Whitehall, but eventually an ageing population and high healthcare inflation will mean the NHS absorbs a much higher proportion of public spending. And given that both major parties are committed to at least eliminating the current deficit, if they want to maintain or increase the NHS budget that would eventually mean deep spending cuts to non-protected departments.

Would the public accept an insurance based model if the alternative was halving spending on schools to pay for the NHS? Eventually they may have to decide.

It’s difficult to conceive that if we were building a healthcare system from scratch, we would opt for more than £100 billion to be raised in general taxation and handed over to a barely accountable arm’s length body.

Neither would we opt for an American style system, which manages to combine both enormous costs for taxpayers and massive insurance premiums despite not providing universal coverage.

We’d probably opt for a French or Dutch style insurance system with genuine competition, choice and superior outcomes for patients.

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