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Long read

The NHS in crisis – evaluating the radical alternatives

  • 31 July 2023
  • 17-minute read

Authors

Health and care services are facing challenges on many fronts. Record numbers of people on waiting lists, stubbornly high staff vacancy rates, outdated buildings and equipment are all contributing to a system in crisis with too many people struggling to access the care they need. In this context, public satisfaction with the NHS has hit its lowest on record as measured by the British Social Attitudes survey.

That same survey finds that support remains strong for the NHS model of a tax-funded, universally available, largely free at the point of use service. Despite this unwavering public support, some commentators and politicians now argue that the current situation means that the NHS model is ‘broken’ and that the only solution is a ‘radical’ alternative – although it should be said that the definition of radical is subjective and many of these ideas have been proposed – and rejected – for decades.

This piece looks at the potential benefits and drawbacks of some of the main ‘radical’ alternatives being advocated for, and then asks whether they would, in themselves, solve the problems that the health care system in England currently faces.

What is our current model in England?

The NHS is funded mainly through general taxation. It is largely ‘free at the point of use’, meaning that patients pay no direct charge for most health care. There are charges for prescriptions, dentistry, eye tests and a few other services. However, there are various forms of exemption, most typically for children, older people, and those on low incomes.

Private health care is also available, the cost being met out of an individual’s own pocket (sometimes known as ‘self-pay’) or by insurance, with most health insurance being employer subsidised. Across the UK, one form or another of private health insurance covers 10.6 per cent of the population. Cover is not comprehensive. For example, it does not include accident and emergency (A&E) services. Those who take out private cover still contribute to the NHS via general taxation and have the same right of access to NHS services as the rest of the population.

The radical alternatives: Social health insurance

Social health insurance is a system into which employees, employers and the state all contribute. The money collected by independent bodies typically known as insurers or ‘sickness funds’, which then pay health care providers for people’s care. Contributions are usually mandated so they are in effect a tax but are not directly collected or spent by the government. Employee and employer contributions are related to income, rather than risk of illness.

This system is used in some countries, eg, France and Germany, but social insurance works very differently in each country. In Germany, for example, those who can afford to pay for their own health care can opt out of the compulsory social contributions, either taking the risk of paying out of their own pocket or taking out private insurance. In France, and many other countries, there is no such opt-out. The number, construction and operation of sickness funds, and any competition among them, also varies. In other words, there is no single model of social health insurance and each country’s version is customised and usually defined by its health policy history.

As social health insurance is often based on employment, countries operating with this model must also find ways to provide cover for those not in employment – which usually includes funding health care through general taxation and other sources such as statutory pension funds. For example, the Japanese health insurance scheme has several options to ensure universal cover: employees of large firms are required to sign up to social health insurance; employees at smaller firms are given cover through the Japan Health Insurance Association; those who are not covered by either of these are covered by a government scheme (this latter group does not include families of people who are employed as they are often covered under the employee social insurance scheme).

Arguments made for social insurance

  • A high level of cover is provided, based on clinical need, in a similar way to tax-funded systems. 

  • Cover is not related to risk, which means that it does not discriminate against those who are older or have pre-existing medical conditions. 

  • Social insurance funds can be, and often are, held by independent bodies. This separation means that funds for health care are earmarked and less subject to government decision-making. It is argued that this leads to more certainty over funding levels in the medium term than in the UK, but this is contested.  

  • It is also argued that social insurance increases public understanding of the cost of the services they use. People can be more willing to accept increases in the amount they pay into funding social insurance as any increased contributions can only be spent on health. 

Arguments made against social insurance

  • Social insurance draws on a narrower tax base as it is based on payroll taxes paid by employees and employers. This means that it cannot provide universal coverage. The state and/or the taxpayer has to fund services for the unemployed and others unable to pay the payroll tax.  

  • It also means that with an ageing society, more resources will be drawn from a smaller pool of workers, despite the increased needs associated with these demographic changes.  

  • In addition, as costs rise due to growing need, some countries have increased tax-funded contributions due to concern that big increase in employer and employer contributions would harm economic growth and employment. 

  • Early analysis of whether there is much less ‘boom and bust’ in spending in social insurance than there is in tax-funded systems overall (including those in Scandinavia), suggests that is not the case.  

  • Social insurance tends to have higher administration costs as earmarked contributions cost more to raise than general taxation, and sickness funds incur their own administration costs.  

Greater use of private self-pay and insurance

People in England can access private health care through employer-based schemes (either fully or partially subsidised by the employer), individual private medical insurance (where costs vary depending on age and pre-existing conditions), or self-pay (paying to go private out of your own pocket on an ad hoc basis).

Private provision of health care in the England has historically been a choice, not a necessity. Recently there has been an increase in the number of people using private health insurance or choosing to ‘self-pay’ for their treatment because of long waits for NHS services.

Encouraging individuals to take out private health insurance or self-pay for private treatment is sometimes advocated for as a means of ‘lifting the burden’ on the NHS. There have been previous attempts do this in the England, most notably in 1991, when the Government introduced tax subsidies for individuals aged over 60 who had already taken out, or subsequently took out, individual private medical insurance. There was a deadweight cost to the state as all those who already had individual private cover also received a tax break. In 1997 the tax break was abolished. The Institute for Fiscal Studies calculated that £135 million saved by removing the subsidy more than compensated for the additional cost to the NHS of treating those who decided not to take out private medical insurance as a result of the subsidy being removed.

Arguments made for private self-pay and insurance

  • Those who are able and willing to pay can be treated more quickly. It is often argued this then reduces the burden on public finances by taking some people out of the state system. 

  • Proponents of private health insurance argue that it promotes choice for users, encourages competition and drives up standards of care. 

Arguments made against private self-pay and insurance

  • Private insurance tends to incur high management and administrative costs due to the resource required to assess risk, set premiums, design benefit packages and assess claims. Administrative costs in the United States make up 8 per cent of health spending compared to a range of 1 to 3 per cent in the other countries. 

  • There is not the capacity in the private sector or NHS to meet a greater demand for privately funded services.  

  • While private medical care has some undoubted benefits for those able to pay, it has serious implications for inequalities in health as many people are unable to pay to access services. Those who cannot pay usually receive essential health care services via a tax-funded system. For example, approximately half of all health care funding in the United States comes from government programmes such as Medicaid and Medicare, which enable poorer people and older people access to health care.  

Expanding charging for NHS services

In England there are charges for prescriptions, dentistry, eye tests and a few other services. There are various forms of exemption to charges, most typically for children, older people and those on low incomes to ensure everyone can access the health care they need.

Charging is sometimes introduced to try to alter demand. Some countries, such as Sweden, charge for primary care appointments – eg, seeing a GP – to reduce repeat visits, and there is evidence that this can lead to lower demand without impacting health outcomes, apart from for patients who are poor or in poor health. Some evidence from other countries also shows that charging for inpatient care – known as ‘hotel cost’ charges for each night someone stays in hospital – has little impact on patient demand.

Charging can also be seen as a way to increase overall funding for health care, however, there is little evidence from the NHS or other countries’ health systems that this results in significant amounts of revenue, given that these schemes will have to exempt what are often large numbers of people, such as those with long-term illnesses, from the charges.

Arguments made for expanding charging for NHS services

  • When used alongside other funding models, user charges can be a way of raising additional revenue to fund services, although the charge needs to be pitched high enough to outweigh the cost of administering it. 

  • Some argue that charging can act as a deterrent to overuse of health care, encouraging people to use health services more responsibly and to engage in less risky behaviour.  

  • Charging to visit primary care physicians has long been used abroad, and while the evidence is limited, it shows that charging can lead to reductions in use. Some argue that introducing a price mechanism, even if the money is refunded to those on low incomes, will help people to realise that health care is expensive.  

  • Most proponents agree that there would need to be exemptions to user charges to ensure everyone can access the health care they need when they need it.  

Arguments made against expanding charging for NHS services

  • The cost of the systems needed to administer and collect user charges reduces the net contribution charges can make. Setting up exemption arrangements, for example, to protect those on low incomes, can add to the complexity of administration and further reduce the financial benefit. For example, in England, 40 per cent of the population is liable to pay the prescription charge but 89 per cent of prescriptions are dispensed for free – because the exemptions include the groups that are the heaviest users of health care. The income from the charge (before administration costs) covers only 5 per cent of the total cost of prescriptions. 

  • Charges deter some people from accessing care, even when they really need it, which can be more expensive in the long run. The only robust study of the impact of charging, the RAND Health Insurance Experiment (1971–86), found that while user charges reduced demand across all types of health care, free care led to improvements among the sickest and poorest patients with hypertension, poor dental health, poor vision and selected serious symptoms.  

  • Charges may shift demand into services that are costly for the taxpayer but free to the user. For example, charging for a GP appointment may mean that people delay seeing a GP about a genuine health need; this can lead to a deterioration in the patient’s health and hospital admission, which is more expensive. 

  • In most European and OECD) countries where user charges are more prevalent, these charges make up only a small proportion of total health and care budget. 

Hypothecation

Hypothecation is the earmarking of a tax for a specific area of public expenditure. In the context of health, introducing hypothecation could provide a clearer link between what people pay in tax and the service they receive from the NHS. It’s possible that this transparency would increase support for raising taxes to pay for health care.

There are many different ways of hypothecating taxes, for example, ‘partial’ or ‘full’. Partial hypothecation would top up current levels of spending so that funding for the NHS would come from a combination of a new hypothecated tax and general taxation. This approach has been used for the NHS before, in 2002 when the Chancellor directly linked an increase in National Insurance to a significant spending increase for the NHS over a five-year period. This has also happened locally for social care with an additional Council Tax charge called the adult social care precept, through which councils who provide adult social care are able to increase their share of Council Tax by up to an extra 2 per cent in comparison to last year’s Council Tax if they use the additional money raised to fund social care.

Full hypothecation would mean that one hypothecated tax would set the whole NHS budget. International research shows that hypothecating tax revenues for health care or social care is not common (though it shares a lot of features of social insurance) – some countries have considered it but few have used it.

Past attempts at hypothecated taxes in the England– including vehicle excise duties to improve roads, a landfill tax, and a windfall tax on utilities – have broken down. A recent example is the Health and Care Levy, an earmarked National Insurance levy to raise £12 billion a year for health and social care, announced in 2021 by then Prime Minister Boris Johnson and scrapped in 2022 by the Chancellor.

Arguments made for hypothecation

  • It is argued that hypothecation could help to increase funding as it is likely to make tax increases more palatable to the public, which is important in addressing the pressures facing the health service. 

  • Hypothecation could increase transparency and accountability as the public can clearly see how much of their tax is going towards health care. This can make citizens aware of the cost of public services, both in general and to them.  

Arguments made against hypothecation 

  • The more tax that is earmarked for a specific area of spending, the less flexibility there is to spend in non-hypothecated areas, eg, if the money raised is higher than the NHS expects/requires it isn’t possible to redirect spending to schools or local government.  

  • If spending is fully hypothecated – tied to the money raised by a particular tax – it becomes tied to the revenues that tax can raise. If the economy is doing badly and revenues are lower than expected, then NHS budgets will need to be cut or topped up. Topping up would require a separate fund that allows surpluses and deficits to be spread over years. This would require legislation that would make the system more complicated and breaks the link between what you pay and the services received. 

  • Partial hypothecation promises ‘more’ spending on a service than was otherwise planned, but this relies on the government being clear exactly what level of spending was planned in the first place. This is rare as Spending Reviews cover short periods and are subject to review. For many economists this means partial hypothecation cannot determine overall spending on an area. 

  • Introducing these taxes for one public service may add pressure to do the same in others. Hospitals and schools might easily argue for greater spending whereas less popular, but no less necessary, services, for example, prison services might suffer in the short term.  

  • Extending the number of services funded by hypothecation may also increase the pressure for tax reductions to people who opt out of services.  

Merging the NHS and social care

The NHS provides comprehensive health care to everyone free at the point of use. Social care, which is the responsibility of local authorities, is both means tested and subject to tests of eligibility – meaning an individual’s income must be below a certain level and their ‘need’ above a certain level, set by government, in order to receive publicly funded support.

Despite these different funding and eligibility arrangements, health and social care services have been working more closely together for several years through the Better Care Fund, Section 75 arrangements and now integrated care systems (ICSs). Merging their budgets is one option to further formalise this way of working. Unlike England, in many countries, such as Germany and Japan, the way social care and health care are funded is very similar. For example, in Germany, social insurance is used to finance both health and social care. In this sense, England is an outlier with the distance between the relatively generous NHS and the heavily means-tested system of social care support.

When considering merging health and social care in England, there are three potential routes:

  • local authorities and the NHS taking joint responsibility for social care, perhaps working from a single combined budget

  • local authorities taking on responsibility for NHS budgets, on top of social care and public health budgets

  • the NHS taking on responsibilities for adult social care (and possibly services for children with disabilities).

Any of these options would involve reconciling a means- and needs-tested social care system with a health service that is available to everyone, free at the point of use. This would be challenging politically, financially and operationally. For example, if budgets remain similar, challenging conversations might be needed over whether more people should be eligible to receive state-funded social care in exchange for expanding rationing or charging of NHS services. Ensuring the sustainability of health and care services is the lens taken to assess the arguments made for and against merging the two systems. However, there are other legitimate arguments against merging these two systems, such as the difference in risk appetite or culture.

Arguments made for merging of the NHS and social care

  • A single health and social care system with a ring-fenced singly commissioned budget would align the disparate funding streams that currently exist. There is little logical division between what is means tested under social care and what is free at the point of use NHS care. Existing divides – artificial and historical – between health and social care would largely be done away with, and entitlements would be more closely aligned.  

  • A single budget and single commissioner would offer the opportunity to provide many more integrated services, working out what individuals’ needs and preferences are and making it easier over time to provide services in the place where they produce the best results – whether that is at home, in residential and other settings, or in hospital.  

Arguments made against merging of the NHS and social care 

  • There is little to no evidence it would save money or boost productivity – there is limited evidence from any country that pooled budgets and other forms of integrated finances have increased cost savings or productivity. 

  • For many working-age people who use social care, the NHS is not the main partner, in fact it is housing and employment support services, so it does not address the fundamental silos between services that impact on people’s care.  

  • It would not make health and social care funding more sustainable – although it may remove some of the frictions between the two services, but that has marginal impact on the overall cost of both. 

The King’s Fund view

Each of these ‘radical’ alternatives has its own strengths and weaknesses. They are all used in one form or another somewhere in the world – these are not theoretical concepts and they have been seen as appropriate for some countries. Given the current state of the NHS, should we consider using these alternatives in the English system?

There are four key reasons why this would not be advisable.

First, the cost of changing to a new model would be substantial, both in terms of the resources needed but also the opportunity cost. Take, for example, introducing a social insurance model, which is often proposed. As each country’s interpretation of this model differs, a design unique to England would need to be developed, legislated for and implemented, with a lengthy transition period if a new financial partnership between the individual and the state was required.

Second, in the long term, there is no evidence that suggests any specific funding models routinely delivers a better health care system than any other. In fact, what tends to differentiate performance of health systems is the level of investment rather than underlying model of funding. This would suggest that a lengthy, costly and disruptive transition to social insurance is unlikely to deliver significant improvements in and of itself, without a corresponding increase in investment.

Third, self-pay and expanding charges would have ramifications for health inequalities for those unable to afford them and would also be unlikely to reduce pressure on the NHS. Furthermore, those who delay or avoid care due to cost could increase demand for expensive treatments, and this could also result in poorer health outcomes. All the different models still need a tax-funded safety net, and if this is not adequately funded and resourced there will be implications for health inequalities.

Finally, in the short term, there are significant challenges facing the NHS that these alternatives do not help to tackle. None of the alternatives proposed above would in and of themselves increase the capacity of the health care sector and so there would be no meaningful impact on improving access or reducing the backlogs of care more quickly.  They would not result in more beds, diagnostics equipment, or improvements in the state of NHS buildings. Neither would they overcome the significant workforce challenges in the NHS, which require action to boost recruitment and retain existing staff. Likewise, to improve health outcomes requires action on both the quality of health care and also societal action on the wider determinants of health, which these alternatives do not guarantee.

England needs to improve both health and care delivery and health outcomes. Doing this requires additional investment particularly on capital (buildings and equipment), fundamental changes to social care funding and provision, a comprehensive approach to improving the wider determinants of health and governments adopting a long-term perspective to avoid repeating the mistakes of the past on issues such as workforce planning. None of the ‘radical’ alternative models would be an immediate or targeted solution to the challenges facing the NHS. In fact, each would bring their own drawbacks as well as benefits and introducing any of these would bring significant disruption. Tackling the challenges is better done through improving our current health care system rather than jumping ‘out of the frying pan and into the fire’.