The NHS is in terminal decline – a social insurance model is the only cure
Compared to similar countries, the NHS ranks second to last in terms of life expectancy, healthy life expectancy, and preventable and treatable mortality. There is a better way, says Ben Ramanauskas
The NHS is not fit for purpose and is in urgent need of reform. That is the conclusion of a new report from Policy Exchange and endorsed by Sir Sajid Javid. ‘The NHS – a Suitable Case for Treatment?’ has found that the NHS ranks near the bottom compared to other highly developed countries for key health indicators. It ranks second to last in terms of life expectancy, healthy life expectancy, and preventable and treatable mortality. The only country with worse patient outcomes is the United States.
The reason for this according to many commentators is that the NHS is underfunded. If only we spent more money on it then all these problems would be fixed. This is simply not the case. The NHS has received increases in its funding well above the inflation rate for decades. From 1955/56 to 2022/23, in real terms health spending increased by an average of four per cent per annum. Over this period as a whole, real health expenditure per capita rose by approximately 850 per cent. The health budget is now roughly the same size as the entire GDP of Portugal. The NHS may be many things, but underfunded is not one of them.
So, if a lack of funding is not the reason for the NHS’ malaise, what is?
Funding is not the problem
Part of the problem with the NHS is not how much funding it receives, but the way it is funded. The UK is unique among advanced economies – not just in terms of poor health outcomes – but also in that the vast majority of it is paid for through taxation. This places a burden on households and firms meaning that they have less money than they otherwise would have. It also creates problems for the entire country. This is because taxes dampen productivity and thereby stifle economic growth which in turn impacts living standards.
Such a model is unsustainable and the Government needs to take radical action to reduce the burden on taxpayers and improve patient outcomes. To achieve this it should follow the example of the Dutch. For decades the Netherlands funded its healthcare system in a similar way to the UK. After years of higher taxes and with no improvement to patient outcomes, the country gradually transitioned to a social-insurance style model where healthcare is financed through a combination of insurance, co-payments, charges and some taxpayer funding. The Netherlands now has one of the most highly regarded healthcare systems in the world.
The Dutch model is the way in which other countries with some of the best healthcare systems in the world such as France, Germany and Singapore fund healthcare. The UK should seek to emulate these systems by introducing a social-insurance style model alongside co-payments and charges for certain procedures and equipment. This would significantly reduce the burden on households and firms as they would see their tax bills fall. As a result, the disincentive to work extra hours or to grow your company would be diminished and so productivity will increase and the economy will grow.
Such a move would also introduce competition between healthcare providers and insurers and strengthen patient choice. This will help to keep costs low and drive up standards. Most importantly, it will lead to better health outcomes with people living longer, healthier, and happier lives.
It is also vitally important to point out that under this model, universal coverage would be maintained. Under no circumstances should we follow the example of the United States other than as a cautionary tale. Under our proposed model everybody would still have access to healthcare, regardless of their financial situation.
If we want to deliver better patient outcomes, reduce the burden on taxpayers and boost economic growth then the NHS should follow the example of the Netherlands and shift to a social-insurance model.
Ben Ramanauskas is a Senior Research Fellow in Economics at Policy Exchange