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How does the rest of the world manage…

by David Green
Published in The Sunday Times, 2 December 2001.

Gordon Brown thinks he has closed down the debate about funding the NHS by declaring that insurance, whether private or social, is off the agenda. The only questions are, how much money does the NHS need, will a tax increase be necessary, and how much must the NHS change its producer-dominated ways to persuade him to hand over more cash?

These are the wrong questions. We have a lot to learn from other countries. Here are five questions the Government has failed to ask.

1. Do individuals have any control over how much of their own money is spent on health care? How visible is their contribution? In France, for example, there is a mixture of user charges and social insurance. Germany’s system is also based on social insurance, but with far fewer fees at the time of use. In both countries social insurance payments are highly visible on pay slips, but in Britain we have no way of calculating how much of our taxes goes to the NHS.

2. Which organisation receives the money taken from individuals and whose interests are served by this third-party payer? In Britain the Treasury takes the taxes and treats the money as its own. Not so in France and Germany.

3. Does the system encourage doctors to serve their patients? In Britain paternalism is the rule. In France and Germany there is consumer choice for rich and poor alike.

4. Who owns the hospitals and other healthcare institutions? What incentives do the owners or managers have to serve customers? Even the Blair Government accepts that NHS hospitals are producer dominated. In France about one-third of hospital beds are private and in Germany about half.

5. What standard of care is available for the poorest members of society, including the unemployed? Is it clearly an inferior standard? Or is it a standard also enjoyed by middle- income earners? In France and Germany the poorest members of society have access to the standard of care available to middle-income earners, a significantly higher standard than under the NHS.

The Main Alternatives

If the aim of policy is to devise a system that genuinely serves everyone and empowers the poorest members of society, four main alternatives deserve consideration: French social insurance with a single insurer, German social insurance with competing insurers, medical savings accounts, and consumer purchasing co-operatives.

The French model In France employers pay social insurance premiums of nearly 13% of salary and employees over 7% of their income. This money does not go to the French equivalent of Gordon Brown but to an independent insurance agency governed by a board representing employers and trade unions. Representation of consumers at board level, though imperfect, helps to encourage service of the consumer.

The French enjoy choice of doctor, whether a GP or a specialist, and typically pay their doctor’s fee and then claim back about 75%. French national insurance makes no distinction between public and private hospitals and patients have complete freedom of choice.

The French government is always trying to control costs but the secret weapon of the French people has been their willingness to pay more out of their own pockets. They have been willing to pay a lot for their health care and on top of their compulsory contribution typically pay 2.5% to a voluntary insurer. In the 1960s about 30% of the French paid privately for supplementary health insurance. Today 87% pay extra. Adding in the out-of-pocket payments made to doctors and hospitals, the French people meet about 26% of total expenditure.

The German model

Unlike the French, Germans have a choice of insurer. In Germany health insurance is compulsory for everyone up to an income limit. Above that point individuals are free to choose private insurance, and about 10% of the population have done so. The rest join the non-profit sickness funds which administer national health insurance. The sickness funds compete for their membership on price and by offering better optional benefits over and above those required by law.

German sickness funds are required to be financially self-sufficient, and premiums are set as a percentage of income, with employer and employee paying half each. This percentage varies from fund to fund, with the average about 13.5% of gross income.

To sum up: in Germany and France, individuals can identify on their pay slips how much they are paying and come to a rational view about whether it is too high or too low. In Britain none of us has the slightest idea how much we personally pay.

Medical Savings Accounts

Singapore provided the inspiration for medical savings accounts. The idea was developed by some American think tanks and in 1996 the US Government introduced a limited pilot scheme involving about 100,000 small employers and self-employed people. They work in conjunction with ‘catastrophe’ insurance policies which cover people for all medical expenses above, say, £500 a year (like an excess in motor insurance). Individuals can pay the excess out of the medical savings account. This combination keeps insurance costs down and discourages the over-use of services without penalising the poorest people. In South Africa similar schemes have captured more than half the market for private health insurance.

If the idea caught on here, it would be a simple matter to extend the existing individual savings accounts to create medical ISA’s.

Consumer Co-operatives

The underlying idea is based on the US Federal Employees health benefits plan established in 1960 and now covering some 9 million people. Each year employees choose from among a range of approved plans and the employer pays 75% of the premium.

To adapt it to the UK would involve setting up a consumer purchasing agency (a co- op) in each health authority. People who are satisfied need do nothing. Others may opt to receive cover through the co-op which will make available a range of choices of insurance policy. Individuals will make an annual choice between insurers. Their choice will be assisted by the co-op which will give advice and price a standard plan for its area. People who are self-sufficient would get back 50% of the standard plan as a tax credit. People on benefit, 100%. No one should face exclusions or limitations of coverage because of pre-existing conditions.

The poorest people would be empowered to choose both doctor and hospital. Hospitals, NHS or private, would charge insurers for their services. What would be the advantages?

  • Competition and personal choice.
  • Because the scheme is not linked to employers (unlike French and German social insurance) it will not distort job opportunities.
  • People will buy insurance collectively with the result that administration costs will be lower, consumer bargaining power will be increased, and individuals will have access to good quality information to aid their choice.
  • Above all, there would be a universal market-tested guarantee for everyone.

The NHS was introduced in 1948 at roughly the same time the Communists were taking over in China. Today the Chinese are introducing social insurance and consumer choice. We are still waiting.

Dr David G. Green is Director of
Civitas: the Institute for the Study of Civil Society


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