13 October 2020

As its budget balloons, it’s time the NHS got a check-up

By Darwin Friend

With the tax burden at a 50-year high, it’s never been more important to closely scrutinise public spending and make sure taxpayers get bang for their buck. The TaxPayers’ Alliance have a track record of doing this when it comes to healthcare, whether it’s getting the most out of high-value equipment or embracing cost-effective technologies, we have found a number of areas where the NHS could save significant amounts of money.

Given that Matt Hancock has announced the health budget is set to rise by £33.9 billion a year by 2024, combined with the cost of Covid and our ageing population, it’s time to give the health service a check-up and see how it compares with other developed nations.

The TPA has carried out an analysis of OECD statistics on (pre-Covid) health expenditure and financing in 2017. Our paper delves into the healthcare spending of six OECD nations: France; Germany; Ireland; Netherlands; Sweden and the UK.  Doing so, provides an evidence-based platform to understand the strengths and weaknesses of different healthcare models, so that taxpayers and patients reap the best outcomes.

How much do we spend? 

The NHS is a universal healthcare system and is held in high regard by the British public, but they are also realistic about the drawbacks.

Just because our healthcare is funded by taxation does not mean we have more money to spend (or better outcomes) than our European neighbours using other models.

Total spending on healthcare in the UK was £3,186 per capita. Relative to other nations, our spending per capita is low, ranking 18th in the OECD and last among the selected countries. Levels of health expenditure are highly dependent on how it is financed, and the British system is trumped by other countries. Germany, France and the Netherlands all run insurance systems and spend more than the UK per capita.

Germany spent £3,350 per person in 2017 – significantly more than state monopoly systems. Further evidence suggesting this is because insurance-based models respond to demand, rather than competing with other government departments for funding.

Unsurprisingly, a significant amount of UK health spending is financed through public revenues, which account for 79% of funds raised . However, this  is not unique. Countries with social insurance models also have similar levels of public financing. Indeed, Germany raised 78% publicly, proving that social insurance systems don’t suddenly transform a country into the USA.

It’s no wonder that in mainland Europe compulsory insurance schemes are more common. Per person spending by insurance schemes is typically higher than universal models  and taxpayers are contributing less – on paper, it’s a win-win for patients and taxpayers. Unfortunately, this aspect has been completely missing from the UK debate.

Another is the size of out-of-pocket payments not covered by a country’s main health system, such as the £9.15 prescription charge.

The UK spends the most on these payments, totalling almost £34 billion, or 16% of spending. This means taxpayers dig even deeper into their own pockets, despite already paying taxes for the NHS.

While other similar systems have high levels of out-of-pocket spending, insurance models typically do not. France’s social insurance system produced the lowest out-of-pocket payments in the OECD, accounting for 9% of healthcare spending. These payments occur across all models, but are systematically high in a specific type of health model like the NHS. Again, we are left wondering why this is not a hot-button issue.

Insurance health systems also offer more resources for their patients. Both France and Germany had over 1,000 more hospitals than the UK. What’s more, France, Germany and the Netherlands all had more hospitals per million of the population. The Netherlands alone had 32 hospitals per million people, compared to the UK’s 29.

The UK also had significantly fewer hospital beds than its insurance-based rivals. France (246,395) and Germany (269,448) had more beds in their publicly owned hospitals than the UK had across all it’s hospitals (167,589). Similar results follow when comparing the number of beds per thousand of the population, with France on 3.7, Germany 3.3 and the UK on 2.5.

Part of the reasoning for this could be because sickness funds in Germany, while taxpayer funded, are allowed to compete. Doing so creates an incentive to treat patients as consumers and provide them the best possible service. Given these numbers, British taxpayers may well ask themselves whether they are getting value for money compared to their European neighbours.

How good are the services we receive?  

Even more concerning are health outcomes for patients, where the UK performs below average across a whole range of measures. I will focus on two of the most important; life expectancy and avoidable mortality.

According to the Office for National Statistics, there is a correlation between life expectancy and health expenditure when spending is above £2,500 per person. The data supports this, with most countries with higher life expectancy spending this amount or more.

However, with an average life expectancy of 81.3 years the UK is well down the list of the OECD countries which spend at least this amount.  This compares unfavourably to our neighbours France (82.6) and Ireland (82.2). Other countries also buck this trend, spending less but delivering more. Israel, for example, spends £2,021 per head but has a life expectancy of 82.6 years.

Avoidable mortality statistics are even more concerning. Once again, the UK has the highest death rate per 100,000 of the population. However, the figures show that this is not a systemic issue, but one faced solely by the UK. Ireland and Sweden (operating universal models) have 16 and 47 fewer deaths respectively from avoidable mortality. Even committed supporters of the NHS model cannot wave away those kind of statistics.

Benefits of the NHS

However, it’s not all doom and gloom.

The UK has shown its commitment to putting cash into curative and rehabilitative care. Spending 10 percentage points more than every other selected country except France. The UK alone decided to put a spending emphasis on these forms of care, which according to the OECD, are the most frequent reasons people use their health system.

Just as important is getting money directly into patient care by keeping down the cost of bureaucracy. This is (surprisingly!) something the UK and other government-run models do well, with administration costs in Ireland and the UK (£32) being the lowest in the comparison group. Sweden also performed well here.

The OECD agreed on this point, saying that insurance-based systems tend to generate higher administration costs than tax-based models. Meanwhile, the Commonwealth Fund ranked France and the Netherlands as ninth and eleventh in administrative efficiency. Hardly a vote of confidence in their ability to focus funding on patient care.

Comparing health systems

As a comparison of healthcare models demonstrates, a country does not have to choose between the black and white options of a universal free health system or a supposedly cut-throat US  private insurance model. Social insurance systems are partially funded by the state, but taxpayers get much better value. Universal models keep administrative costs down. But insurance models outperform universal systems on medical resources like hospitals, and see citizens paying less out of their own pocket.

The data exposes that the healthcare debate in the UK is strangely insular. Serious questions should be asked about NHS performanceand how it really compares to other countries. After the Covid crisis has settled, and we begin to think about what our healthcare services look like in the long term, this debate must change.

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Darwin Friend is a policy analyst at the TaxPayers' Alliance.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.