11 January 2018

We can radically reform the NHS without privatising it


The Government says it wants a national debate about the future funding of the NHS. The press is full of talk of “hypothecated taxes” and “long-term funding envelopes”. Perhaps it’s all the usual guff and nothing more than code for a bit of a rise in NHS spending for a couple of years.

But let’s take them at their word. If you truly wanted to reform the funding of the NHS, how should one do it?

Here’s how. First, assuming it was all currently funded out of national insurance and income tax, calculate the current portion of those two taxes that funds the NHS. Total income tax receipts in 2018/19 are budgeted at £185bn and total National Insurance receipts £134bn. Total health spending is scheduled to be £122bn. There’s some complexity here with taxes and spending for devolved authorities, and we ought perhaps to allow some National Insurance receipts to cover pensions. Nonetheless it should be clear that we can create a new “National Health Insurance Premium” payment, raising of order £120-130bn, with a corresponding reduction of £120-£130bn in current Income Tax and NI.

Note that this is, in a sense, simply a reorganisation of current taxes, rather than an extra tax, and in the first instance its purpose is not extra revenue. Note, also, that at no point in anything that follows will I be suggesting any additional private sector involvement. There is no sense whatever in which this would be a “privatisation” scheme. Rather, the idea is that everyone would be making a transparent payment to buy their health insurance from the state.

Since everyone should be buying their health insurance from the state, we will also need to create a notional paper “Health Insurance Benefit” corresponding to the Minimum National Health Insurance Payment (which I would suggest should be based on the portion of income tax and NI paid by someone working full-time on the National Minimum Wage currently allocated to the NHS). This would, however, merely be an accounting transparency measure — benefits recipients would receive neither more nor less as a result.

Thus far, the scheme changes nothing except in presentational terms. The next step is where important changes start. Since we now have an allocated and transparent payment, we can deem all citizens to have bought something — the Standard National Health Service. That would be a specified set of health service entitlements that citizens had purchased and thus owned as a result of their National Health Insurance payment.

Right towards the end of his term of office, Gordon Brown had the good idea of setting in law the health entitlements associated with the NHS. Unfortunately. his plan lapsed when he left office. We should bring it back, but in the form of a specified set of Standard Health Service Entitlements (waiting times, medicines formulary etc) that are purchased by the Standard National Health Insurance payment. The exact Standard Health Service Entitlements should be laid out in a set-piece statement by the Health Secretary every year, with a Parliamentary debate and vote to modify or approve the list.

Once these Standard Health Service Entitlements have been approved by Parliament, they then apply for the following year and you own them. If you don’t get your Standard Health Service Entitlements, you don’t write you to your MP. You consult your lawyer.

Next, there would be the option, for those that wanted to, to purchase an Extended Health Service Entitlement for an Extended Health Insurance payment. It is very important to note that this already occurs within the NHS (quite apart from occurring when people go private). It is already the case that if a patient, being treated on the NHS, wants to use, say, a very expensive cancer drug that is not approved for NHS use because of its cost, that patient can pay extra to use that drug as part of the NHS treatment plan.

I am thus not proposing any departure in principle, merely a different, more general mechanism for funding such additional spending by patients that want to do that. Neither am I proposing “privatising” anything. Rather, I am proposing that, instead of (as now) patients that want to pay extra having to make their payment at the point of need, there should be the option of paying, to the state, more in advance for a more comprehensive health insurance plan. This might, for example, allow for free at the point of need dental care, committed shorter waiting times, an extended list of funded medicines including more expensive drugs, beds in one-person rooms — all covered by the state health insurance scheme, and all provided free at the point of need.

This would allow those that want to pay for more extensive health insurance, for themselves and their families, to do so without either buying private medical insurance or paying extra at the point of need. It is thus arguably more in line with the stated principles of the NHS than the current funding system is or ever could be.

The key advantages of this scheme are as follows:

  • It would force an annual specific, concrete debate over what precise services should be provided under the Standard National Health Service, instead of vague assertions that “we cannot carry on like this” or “we must find a way to ration care”.
  • Citizens would own their health service entitlements, so a failure to deliver such entitlements would be depoliticised and instead trigger legal action, forcing standards to actually be met instead of merely “aspired to” politically.
  • The ability to purchase extended levels of health service than the standard state provision would become available to ordinary people, instead of being the preserve of the wealthy.
  • Extended levels of health service from the NHS would become available free at the point of need, instead of extra payments being required at times of personal distress.
  • Because voters would have faith that increases in the Standard National Health Insurance payment (or its Extended version) would actually be spent on higher levels of health service, instead of soldiers or transport or benefits, they may be more willing to accept increases, either by opting themselves for the Extended packages or by voting for politicians undertaking to vote for a higher Standard service with a higher Standard insurance payment.

If politicians really want to reform NHS funding, that’s how to do it. But do they?

Andrew Lilico is an economist and political writer