Put the NHS out of its misery

Joint post by Willem H. Buiter and Anne C. Sibert. This post was published earlier in the Daily Telegraph, on September 3, 2007, as "City comment: Put the NHS out of its misery and allow competition".

Does any reader of this column still believe the once conventional wisdom about UK healthcare? That is, that healthcare in the UK is among the best in the world, first, because provision is fair and good care is accessible to all and, second, because it offers good value for money.

Unfortunately, neither of these assertions is correct. Among the rich industrial countries, only the United States has a healthcare system that is less fair and less accessible, and (at least as judged by admittedly imperfect quantitative health indicators) offers poorer value for money than the UK. The bureaucratic monster that is the NHS has few incentives to encourage efficient use of resources; it is dominated by producer interests and used as a political football by national party politics. Patients have very limited choice of providers and virtually no recourse if they are unhappy with their quality of care.

Healthcare should be available to all, regardless of ability to pay. However, the principles on which the NHS is based, universal healthcare financed entirely out of tax revenues and free provision at the point of delivery, no longer make sense. Research and development has created effective, but expensive, treatments that are not affordable for all - and this makes free universal access at the point of delivery impossible.

Currently, what determines your quality of care in the NHS is your education, intelligence and connections. While the "aristocracy of pull" (in Ayn Rand's wonderful words) receive their cancer treatment in the Royal Marsden, the inarticulate and less-well-connected may never see an oncologist. We need to find more fair and more efficient ways of allocating healthcare. Rationing by queuing works for taxis - it is fair and efficient. But, when your place in the health queue is determined by unaccountable bureaucrats, luck and pull, it is inefficient and unfair.

The NHS is the sacred cow of UK politics. Being perceived as hostile to its principles is the kiss of death for a politician. Better, therefore, to have unelected academics point out that the emperor has no clothes and to propose alternatives.

The NHS must go. It should be replaced with a system that guarantees good quality healthcare to all, but one which is - at least to a much greater degree - financed through payments for service. A system of mandatory health insurance of the kind found in the Netherlands would provide an attractive alternative, but there are good systems all over the Continent that might serve as examples.

In the spirit of the Dutch system, we propose that a committee of experts should determine the benchmark standard of healthcare. The government should then design a default health insurance plan that meets this benchmark. This plan, as well as plans that offer additional care, can be offered in a competitive market by regulated insurance companies that negotiate fees for services with healthcare providers. Everyone must have a health insurance plan that is at least as good as the default plan. The government should pay the premia for people who cannot afford them; individuals with the income and desire to purchase coverage that exceeds the standards of the benchmark plan may do so. Health insurance should not be tied to employment (through tax or other incentives) - one of the singular weaknesses of the US system.

Insuring people with known pre-existing conditions at a reasonable, affordable rate is often not commercially viable. There are two solutions to this. First, those who would be uninsurable in a purely private insurance market could be guaranteed the default insurance package, with the government providing excess payments to the insurance companies to make this financially viable. Second, those with pre-existing conditions could be put in an "assigned risk pool" at a capped premium, the way bad drivers currently are in many US states for car insurance. Insurance companies could be forced to sell a certain percentage of their plans to people in the assigned risk pool. As this would increase the price of the default plan, in this solution, the less risky subsidise the risky.

It is fair that those who have the means to pay for their healthcare should do so. It is efficient some of the payment should be "at the point of delivery". The argument that healthcare should be free at the point of delivery because it is essential for life and human dignity is silly. Food is essential for life and human dignity but we do not expect supermarkets to hand it out for free. Thus, in a sensible healthcare system, individuals should pay for their healthcare both through insurance premia and through (co-) payments for services, eg 20pc of the cost of most services up to some maximum amount each year.

A universal mandatory insurance scheme requires competition among insurance providers to produce reasonably efficient outcomes. But, some inefficiency is inevitable when the suppliers of the services (the healthcare providers) know much more about the services than the consumers (the patients). Having a public or not-for-profit health insurance provider alongside the private providers might be useful for cost control. There is also an efficiency argument for preventive health services to be funded publicly and offered free at the point of delivery; this includes inoculations and vaccinations, dental check-ups for children, eye tests for everybody and a range of other services.

During the past five years, just under two additional percentage points of GDP have been spent on improving the NHS. This has been poor value for money, with most of the additional resources going into the pay packets of the incumbent providers and with little apparent improvement in accessibility and care. The provision of medical care need not be done by the public sector. It may be more efficiently done by the for-profit private sector, or by non-profit NGOs and similar organisations with charitable status. Let them all compete on a level playing field and may the best provider gain market share.

Finally, we would depoliticise the oversight and regulation of healthcare. The amount spent on healthcare by the state must remain a political decision. The allocation of public funds could be delegated to a group of non-elected experts, appointed by the Secretary of State for Health and accountable to Parliament. A few months ago, Jim O'Neill proposed the creation of an education policy committee, along the lines of the Monetary Policy Committee of the Bank of England, to minimise the influence of party politics on educational policy. The case for a health policy committee to oversee and set priorities for public spending on health care seems equally convincing.