The economic case for user charges in healthcare is easily explained. A well-designed system of charges for people accessing services can encourage cost-consciousness and reduce overuse.
If people had to pay a share of their healthcare costs out of pocket, they would start asking their GPs (and other sources of information) about whether a treatment represents “value for money”, or whether there is a more cost-effective alternative – a kind of thinking that is practically non-existent in the NHS today.
There would suddenly be demand for low-cost options, at least for less serious cases and routine procedures, and more of these options would be made available over time.
User charges would also diversify healthcare funding, reducing the over-reliance on general taxation. Sure, there would have to be special safeguards for low-income households and exemptions for preventive healthcare. But most people could pay a share of most healthcare costs most of the time.
Yet while the economics may be relatively straightforward, the politics is a lot trickier. The latest British Social Attitudes (BSA) Survey shows that people are quite pragmatic about the provision of healthcare (that is, they are surprisingly relaxed about private sector participation), but when it comes to funding, the status quo is non-negotiable.
Eighty nine per cent of respondents support a fully tax-funded health service, and while people are very much aware of the financial pressures, only 14 per cent support a modest co-payment for GP and hospital visits. So politically, it would seem, user charges are a definite non-starter.
But they need not be. In fact, when designed in the right way, they could even be popular. In my recent IEA discussion paper “A Patient Approach: Putting the Consumer at the Heart of UK Healthcare”, I outline a strategy that could detoxify user charges.
The basic idea is simple: if a government introduced user charges across the board, they would be tarred and feathered – but why not start from the other end, and allow people to opt into a co-payment scheme voluntarily, in return for a tax refund?
The status quo, with healthcare being free at the point of use, would remain the default option. But there could be alternative coverage plans, with deductibles and/or co-payments for people who are willing, and able, to take greater financial responsibility for their health.
Optional deductibles have already been tried and tested. In the Swiss health system, the default option is a comprehensive insurance plan, but people can voluntarily accept deductibles of up to £1,700 per year in exchange for insurance premium rebates of up to 40 per cent.
There are huge differences in healthcare costs between those on high-deductible and those on low-deductible plans, most of which is, of course, explained by self-selection: healthier people tend to opt into high-deductible plans while people with health problems prefer to play it safe.
But there is a cost difference over and above what can be explained by self-selection. According to one estimate, about a quarter of the cost difference is due to incentive effects. This can be seen as an efficiency gain, and this efficiency gain finances the premium rebates.
Due to self-selection, the Swiss system delivers, in a sense, the best of both worlds. The long-term sick, who have little control over their healthcare costs, remain fully protected against the financial risks of illness, while the people who enjoy the best health also face the strongest incentives to economise on healthcare.
This is good economics combined with strong social protection – nobody is penalised for the bad luck of ill health. Why not give it a try here?