Since the NHS was established in 1948 public healthcare in the UK has been funded largely from taxation and rarely are alternatives put forward – at least not by our politicians. To interfere with how the NHS is funded would be like asking Tony Blair to wear a sponsored T-shirt during Prime Minister’s question time.
Yet, examination of most other countries’ healthcare systems shows that not only do many of them produce better results than the NHS, but very few rely so completely on taxation.
When Derek Wanless was asked to consider the NHS’s future funding needs by the Chancellor, his brief was to consider how much was needed – not where it should come from. As a result, many believe that the Wanless report, published in April last year, just before Gordon Brown’s high spending Budget, signalled the end of the funding debate on the NHS when, in fact, it should have marked the start.
The NERA report
A year and a half ago, Norwich Union Healthcare entered the debate by commissioning a report from the independent economic think tank National Economic Research Associates (NERA). Its report Towards Stakeholder Health Care made the case for another form of funding – Stakeholder Health Care. In essence this would mean:
The NHS would continue to be the main provider of healthcare.
The NHS would compete with private stakeholder insurers to offer every citizen an insurance policy to cover all their healthcare needs.
People could choose basic (but still comprehensive) cover and pay for additional benefits if they wished.
Tax funding would still be used to pay for A&E and for health benefits for the poor. Tax funding could be used to subsidise all premiums.
Stakeholder insurers would have to accept every application and premiums would be community rated.
A system called risk adjustment would apply between insurers to stop them from cherry picking the best risks only. In effect, premiums would be shared out between insurers.
Stakeholder insurers would compete on price, benefits and service levels. They could charge risk-related premiums for additional benefits.
The report was published on 11 September 2001 but, understandably, the world focused on other issues that day. The concept, though, deserves greater consideration. So, Norwich Union Healthcare recently ran a lunch at the House of Commons for leading employee benefits consultants, chaired by Laing & Buisson analyst William Laing, at which an updated report Stakeholder Health Care: Moving from concept to reality was the main course.
Big issue revisited
Why revisit a debate that the Government might have hoped had already been concluded? NERA argues that we need to ask if tax funding can deliver the increases in resources that are needed and whether it is the most efficient and responsive mechanism to do so. Given that Wanless has said that NHS resources need to increase by 80% in real terms over the next 10 years (over £50bn a year in today’s terms) this is a big issue.
To put that into context, NERA modelling shows that tax revenues would need to increase by 9%, or a 3% National Insurance surcharge introduced, or the top level of tax raised to 50%, to fund the extra NHS expenditure.
So what did our diners think of the stakeholder healthcare concept? “It gives us the opportunity to have the second half of the Wanless debate – how do we pay for the NHS,” Charles Nelson of William Mercer believed.
Eastleigh MP, Liberal Democrat David Chidgey, said: “The future of the NHS is a crucial issue for the country.” He welcomed the debate. He wanted to be sure, however, that insurers would not be able to use genetic information to discriminate against those whose genes predisposed them to suffer a particular illness in the future. NERA had already thought of that and its proposals would ensure that such information could not be used.
Chidgey’s question was a reminder that politicians had a natural suspicion of insurance and would want tough safeguards built in to any new funding system.
Indeed, any system that simply promised greater efficiency was likely to come up against a political brick wall – simply because the NHS is so well-established as part of our national psyche and, with over a million employees, has considerable political clout too. Any new system would have to offer something extra.
That could be greater choice (NERA estimates a market of more than 10 and less than 30 insurers). Even more importantly, stakeholder held out the prospect of extra NHS funding – some £6.4bn a year based on the top-up benefit take up rate in Holland.
Another political issue, raised by John Dean of Gissings, was whether the concept would be used to get around the problem of waiting lists. NUHC’s commercial director Tim Baker confirmed that that could not happen but gave the example of one Dutch insurer that offered its policyholders flights to Spain for treatment when waiting lists were too long locally.
One issue that can only grow as the NHS gets the cash it has been starved of for so long is transparency, argued Dean. It had been put succinctly to NUHC’s MD David Rogers by his taxi driver earlier that day – “I want to see where my money goes,” the cabbie complained. With fears already growing that much of the extra NHS funding so far has been absorbed by previous overspends and paying higher wages and salaries, stakeholder promises greater transparency. And if you do not like what you get from your insurer you can simply change provider while, if the NHS is truly as efficient as its advocates argue, its insurance offerings will prove to be the most attractive too.
Kate Bleuel of Towers Perrin feared that stakeholder might simply perpetuate existing system failings – adding more holes to an already leaky sieve. “People want to be well informed and to have more choice,” she added. But David Cross of Watson Wyatt warned that while people want more choice, they do not necessarily know what to do with it when they get it.
Although stakeholder would be paid for by individuals, healthcare is a major issue for employers too. “What they want to know is ‘what is the cost of change to my business and what effects will there be on my employees?’” said Adrian Fisher of Aon Health Solutions. Although many businesses have medical insurance cover for some or all of their employees, its cost effectiveness was often hard to prove, because it was often seen as an employee benefit rather than as a specific tool to reduce sickness absence costs.
Unlike so-called social insurance schemes, where costs are paid by employers, stakeholder is a system that gives choice and responsibility to individuals and so would not be seen as a tax on employers.
Would medical insurance still exist in a stakeholder environment? Medical insurance in some form could still exist but a more likely scenario would be that individuals would buy topups (80% of those eligible in Holland do just that) and that could create a role for intermediaries in giving advice, both to individuals and to firms.
As to cost, report author Edward Bramley-Harker estimates that the core package would cost £1,118 per person, or £1,518 for those with dependant children – around 9.8% of income. One option would be to charge premiums as a percentage of income rather than a cash sum, so benefiting those on lower incomes. Even so, the cost looks to be high, until the current cost of the NHS – £53.7bn a year in 2000 – is taken into account. That is roughly £1,000 a year for every person in the UK or £2,000 a year for every working person; and it’s growing fast.
Will there be a shift in attitude?
Regardless of the benefits of stakeholder, the key question is whether there will ever be the political will to move away from an NHS funded by taxation. For New Labour the NHS is the last remaining bastion of post war socialism; for the Tories any attempt to raise the funding issue sees them accused of wanting to break up the NHS; while the Lib Dems have seen their plans for more funding already adopted by the Chancellor.
That could change however. The political landscape at the next General Election or the one after could well see at least one political party ready to propose a serious alternative to tax funding. The public too may well have a desire for more radical change by then.
Stakeholder may seem like a radical idea today, but similar systems already operate – with success – in Holland, Germany and Switzerland. Could the UK be next?
By 2022, Wanless expects health expenditure in the UK to have reached 11.1% of GDP and it could go even higher. If it does, the need for alternative ways to fund the NHS may become overwhelming.
Perhaps the last word should go to William Laing. In his view, stakeholder just might work, so long as it was seen to embrace equity of access. He also saw advice providers as recognising that they are in a marketplace and having the confidence to change their proposition if needs be. Stakeholder offers a new vision but will have to win over many more converts before it becomes a serious contender to take on the current champion of paying through general taxation. Mr Wanless’s financial generosity could just be the catalyst that sees that come about.
Copies of the full report or the executive summary can be obtained by e-mailing email@example.com or to download a pdf version go to www.norwichunion.com/health/publicrelations