Monday, 30 June 2014

If The Government Had Our Best Interests At Heart, They Would Make Most Of Us Pay For Our Health Care


Let me tell you something quite interesting - most Brits love our NHS; they think it is one of the best treasures in the world. So they probably would have been delighted to hear that, according to the latest report conducted by The Commonwealth Fund this week, our UK NHS is supposed to be the best in the world (with the US health care system being the worst). Although ‘best in the world’ is hardly a fair decoration when the data examined only consisted of data from 11 countries (New Zealand, Australia, France, Germany, Norway, Sweden, the Netherlands, Switzerland, Canada, Britain and the US).

If The Commonwealth Fund had broadened its research horizons as far as places like Uruguay and Singapore, it would have seen that the UK NHS is far from the best. Here’s why. Having 'free' healthcare is not the most efficient system for the people of nations that have it because such a system contains much more waste and inefficiency than if we all paid for our health. However, because we are not all responsible enough to pay for our health, it is probably true that we need an NHS presence to accompany a predominantly privatised health system.

That's the upshot - the majority of the NHS would be better if it was a privatised health industry (in previous ‘back of the envelope’ jottings I've reckoned on about an 80/20 market/State health care ratio). But as we know from public opinion, most people can't see this, which means most politicians are terrified to bring it up, instead preferring to gradually privatise health services in ways that go largely unnoticed, and at a pace that cushions the blow of gradual privatisation. Put it this way, in 50 years most of the UK health system won’t be run by the State, it will be a set of private entities operating within the purlieus of the market forces of supply and demand. 

In actual fact, the health service is a good analogy for the free market in general. The injection of market forces would diminish the inefficiency in the health sector, and also reward people who look after their health, while enabling the establishment to offer treatment to those worse off in society and those who can't afford treatment.

How would we pay for the health care for the neediest in society?
Here’s an idea for a system that would work, and shows why if the NHS were privatised the whole thing would be better. Instead of taking 12% National Insurance from our salaries to fund the NHS, the government lets every resident keep 11% of it, some of which goes towards a voluntary savings scheme to pay for our pensions should candidates wish to opt in, and we simply pay for health care out of their own money when it’s needed. Also, while people get to keep their 11%, the interest accrued on that money, or a percentage of it, is paid to the government as ancillary funds to help those aforementioned neediest people.

People are sensitive to losses, which means that, as a result, total spending on healthcare would drop significantly. Add to that the fact that privatised health would lead to increased competition and increased efficiency, and you’d see people much better off. In addition, consumers that currently overuse low-value healthcare services on account of not being charged for them would use them less and less, modifying their behaviour to match their price sensitivity.

Of course, most people don't choose when they're ill, or to what extent. But as we've seen, contrary to popular fears, at no point does a private health system mean that anyone who can't pay is penalised. This point is most crucial - the fervent aversion to privatised health is not to do with objection to the majority of people keeping their own money and spending it on health as they wish - it a fear that the poorest and neediest in society will miss out on free health care at the point of delivery. But having already established that that needn't be a problem, it is illogical to deny that for the majority of people the best thing a government could do to show that it has its citizens' well-being at the forefront of its endeavours would be to let us keep our National Insurance money make us pay for health care.

We need the 20-ish% of State-governed health and welfare, simply because even a good market system would be dreadful if it couldn't cater for the poorest and neediest in society, be they the unemployed, the mentally ill, the elderly, or children. But we don’t need it for the majority of people – they would be better off if it were privatised, as would those dependent on the State-funded health care services because they would not be competing with patients from private health services. Guess what the stats show? They show that under this system most Brits would be better off than under the present system. The ones who’d be worse off are those who use a lot of health care, but as they would be covered by the 20% State-run health services, there would be no problem for them either.

Moreover, once you dig deeper you find that the expected plethora of hidden costs associated with public sector management are there buried beneath the surface. The issue of funding the 20% public sector ratio of the UK's health service would be easily solved with the removal of the astronomical health sector waste that occurs because there’s no incentive to be prudent when spending other people’s money.

Research this week by the Adam Smith Institute reveals a few staggering facts, most prominently, that the total health budget exceeds £100 billion a year, and that management staff numbers increased by about 12% over the past five years, while the number of frontline staff increased by only 2%.

Without the profit motive that exists in private business, the NHS has no incentive to cut costs, or drive efficiency improvements. As far back as January I was endorsing the superlative health service in Singapore in a previous Blog post, and how its market basis is something from which the UK would benefit. It’s good to see that the Adam Smith Institute has done the same this week:

"Healthcare spending {in Singapore} is 68% market based.  Individuals control their own health savings account.  For low-income earners, this is topped up so they can afford their healthcare needs.  It also means people aren’t frivolous; they shop around, look for value.  Competition ensures that costs are driven down as healthcare providers fight for customers.  People also have catastrophic medical insurance so nobody is left to die because they couldn’t afford the surgery needed following a horrific accident. This market-based system maintains fairness - everyone has access to healthcare - drives efficiency and increases consumer choice.  Roughly, the UK could save about £50 billion by increasing efficiency to Singaporean levels."

I now want to expound on having the ability to opt in to a pension savings scheme, rather than making it mandatory – because if it were me, I’d tweak the Singaporian mandatory system a bit. Rather than enforcing a compulsory savings policy to cover you for your pension in later life, I’d extend the liberty a bit further and make that part optional. Under my system you'd have the option to invest in a pension scheme, but in a vibrant under-populated place like the UK, to make it compulsory would be somewhat inhibiting to some. Consider why. Rather than having an enforced pension saving scheme, you might wish to invest your money better than in a pension fund - like, say, in a property or two. Buying a property when you're young is almost certain to give you a better return on your investment than a pension investment. Or you might be someone whose earning potential will skyrocket in a decade or so. At the stage prior to your sharp increase in earnings it would be injudicious to save a few thousand a year then instead of later. Saving while you have less imposes a lower standard of living and a reduction in consumption at a time when you have less to spare. A government that cared most about our liberty and our well-being would offer us an opt-in saving scheme for our pensions, but not make it compulsory, as one size never fits all.

Of course, if you're a politician looking to get elected, then outwardly endorsing 80% privatisation of the NHS would be about as futile as walking into a singles night with unwashed greasy hair, a cold sore, a Lib Dem T-shirt and three kids on your arm, shouting "Who wants to go out with me?"

But there will come a time when the benefits of market forces and the profligacy of government-run services make favouring the former almost incontrovertibly judicious. Governments will eventually realise that this can work if we have a universal health system in which the State ensures affordability of services and care through an opt-in future savings scheme for all earners, State subsidies for children and non-earners, and cleverly regulated controls. Each citizen that accumulates funds through earnings will generate savings that are funded by replacing the antiquated National Insurance.  Already your incentive to not overuse is there because your use of the NHS comes at the expense of some of your savings.  All money not consumed on the NHS through your life will be added to your pension. Those who don't over-use the NHS can have larger pensions, and those that can't afford this are paid for by the immense net savings across the board. This also directly links your equity to your choice of lifestyle, and incentive to live longer. 

By then the future government will have developed a fairly straightforward means testing system that links taxation to revenue, overspend to insurance (and increased welfare for the most needy), and under spend to an equitable distribution used to fund those that can't pay (like children and non-earners), or those whose perennial bad health exceeds their mandatory savings.  This means people who act on the incentive to live healthily will be rewarded; people who are dependent on welfare and people who have serious health issues or bad luck with repeated health issues will be covered by the State's 20% stake in the UK health service, and people who had the propensity to misuse and show a disregard for the system will now have an incentive not to do so. Of course, the State's 20% stake doesn't have to be tied up in public sector health care - they could instead give people the money to spend privately in a place of their choosing.

Here's another reason why future governments will think the reformed system will improve the overall situation - currently everyone's health care is more or less paid for from your National Insurance contributions (along with unemployment benefit, disability allowances, and state pensions).  The trouble is, NI has become antiquated and not fit for purpose.  NI was originally introduced to provide cover for (primarily male) earners who endured tough economic times, by taking a slice of their wages to cover the cost of them and their family. But nowadays we have a much more diverse nation of workers, in addition to thousands of young people trapped in a cycle of benefits, Illiteracy, lack of education, lack of confidence, and ensnared by deprivation and feelings of hopelessness. Add to that the numerous people who are beset by problems associated with unhealthy eating, and excess use of drugs and alcohol, and it will be clear that things need to change. 

I don’t disagree that incentives are good in particular cases.  Most of us can agree that currently too much of our National Insurance money is going towards things like gastric bands for the morbidly obese, cosmetic surgery for the vain, and to a much greater extent, on people in the aforementioned social brackets (particularly high users of substances, cigarettes and alcohol).  But while it’s all very well focusing heavily on the kind of poor health that is self-caused – it is obvious that a lot of poor health occurs through no fault of our own. This point above all other points must be primary in the government’s thinking if this future reform is going to have any success. I say that because if the reform is actioned with the intention of not abandoning those in need, or refusing them help - it can endeavour to change the scenery over time, and link incentive with cost reduction, while still engendering an improved health service, where the NHS will still be free for everyone at the point of service, but that instead of NI, the government will be collecting the funds to pay for it more efficiently through an improved system of taxation. 

The upshot is, if a man's excessive drinking, smoking, drug-taking and unhealthy eating etc is paid for out of the pooled National Insurance, it gives him no incentive to act otherwise. To that end, this future reform could be successful, as long as the baby isn’t thrown out with the bathwater. And one further caveat; I said earlier that competition is usually good for efficiency, but with ill health and injuries this causes me some concern, because when you have small-scale competition for cherry-picked services in NHS, firms tend to opt for services that are easy to manage and readily profitable. Not only does this tendering process amount to increased bureaucracy, and excessive use of time and staff resources - it very often is awarded to poor quality low bidders whose profits are made by cheap resources, and under-trained and under-staffed units. This doesn't work so well for patients whose health is at stake, because injuries or illnesses that are complex and risky are in danger of being refused.

Anyway, we can go on and on addressing the particulars, but the upshot is, in general terms things have to change. The markets can do a lot to reduce inefficiency, but markets can't do everything - they involve people responding to the incentives that markets and free enterprise provide. The NHS no longer bears much resemblance to what it did in the fortes and fifties - and no matter how emotionally wedded to it we Brits are (it's all many of us have ever known in this country), in all likelihood it cannot be sustained except through its inevitable gradual privatisation.  

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