WHY PRIVATISE THE NHS ?
The British love the NHS, they have no wish at all to see it changed at present but privatising the Health Service is not as politically impossible as one might think. People only object to (or care about) political decisions when they think they have something to loose. By Twinning the removal of government payments and the imposition of charging with suitable tax cuts that compensate the likely users of the health service (ie 60% to the elderly) this together with guarantees that the poor will not die for lack of an operation ( a guarantee that doesn't cost that much but concerns people greatly) should greatly aid the process. Fundamentally people need to understand what privatisation of health means . Firstly it means no waiting lists , queuing is a feature of the lack of a price mechanism in state ownership, it disappeared very quickly when BT was privatised . Secondly there would be more efficient management , none of the bureaucracy that has arisen with government cost cutting attempts , and thirdly there would be better incentives, resulting in lower costs and most people being able to pocket much of their tax cuts and not have to spend it too much of it on health insurance. Paying for healthcare ensures a better service for all as the doctor then wants to please us rather than the government. Most people in Britain are unaware of how much better service is in other parts of the world. There have been some instances when poor service was more obvious than others in the UK , for example one shocking study showed that between 1950 and 1970 there was an increase in maternal complications mostly it was found because the birth was being induced for the convenience of the hospital and staff rather than the patient!
Furthermore in the NHS: Unit costs are high because there is no competition , hospitals are often sited for political reasons - jobs for the constituency and close healthcare. For the same reasons unnecessary hospitals can't be closed. Since at zero price demand is infinite so no way of sorting in the waiting lists between people who are absolutely desperate and would pay a higher price and people for whom it would merely be nice to have the operation but they are quite happy without. However much we love the NHS , its standard of care particularly in chronic illness is far below that of US and EU
This can implications beyond the hospital . Free health care encourages unhealthy lifestyles. Since we don't pay the price thereof , if we have to bear the costs of our unhealthy lifestyles then we might think more seriously. Whose got the highest rates of heart disease in Western Europe again ?
In a public system there is no incentive to sell anything such as vaccines and screening, since there is no money to be made.. Where there is a profit motive there is much more likelihood that these valuable processes will be effectively communicated to the public.
Furthermore, in Britain even under a right wing government we haven't experienced privatisation but tight budgets , a normal feature of state systems which often merely lead to the withholding of service or lowering standards. Those who reject this cost reduction program should be in the forefront of demands for privatisations which would mean that standards can be raised and money drawn into the health service if services can be provided which people are happy to pay for. Sometimes its easier getting money from individual customers than it is to get it from the government
Importantly , the classic fear of most against privatisation namely , a poor person not getting treated after an accident is unfounded. The average cost/ patient in accident and emergency in Scotland is £33, hardly beyond anybody's means. And even private hospitals in other countries usually treat accident victims even if they are uninsured.
RESTRICTIVE PRACTISES
The government would have to insure that any restrictive practices that restrict the supply of doctors are abolished as long before privatisation as possible. The American Medical Association had managed through the use of such laws to greatly inflate the price of US healthcare by disciplining anyone who dared to advertise lower prices and blackballed insurance companies that tried to encourage hospitals to cut costs. Deregulation to enable free competition is greatly needed.
The government might also release a special tax concession for an interim period on health insurance with an excess over £300 or higher and co insurance at least 20% on the rest. ( Co-insurance is where the individual pays a percentage of the bill) .This seems sensible in the light of the US experience where it was found that administering a claim cost about £1000 as many individuals: doctors, specialists, pharmacies etc. each had to be paid a small amount. Its much cheaper for the everyone individuals to pay their own bills (i.e. without claiming insurance) unless they are above their normal ability to pay. Of course there's no reason why hospitals may not evolve credit plans for medium size bills and leave health insurance to pay only the really high ones. The market will find the optimum solution
COSTS OF PUBLIC PROVISION
GP surveys indicate that they believe only 30% (2) of those who see them have anything wrong with them. The cost of free provision is 70% of doctors time. Charging for each GP consultation would not be excessive . Every year GB's 32,000 GPs (employing 60,000 staff including 10,000 practice nurses) carry out 250-300 million consultations per year and cost £3.55 billion. (3)
That works out at £110,000 / GP which is £14.20 per consultation. Competition would bring this down further, in Singapore's private GP .system the cost of a consultation is about £9 (4) The doctors there also note that people who pay for advice are far more likely to take it.(5)
This is hardly enough to deter anybody with a serious illness from going to the doctor but its enough to reduce the costs from hypochondriacs, those looking for an excuse not to go to work and still get paid, and those looking for prescription drugs at below the black market rate(6)
There are large enough numbers of GPs to offer a competitive market almost anywhere and the costs bourne by the public are not high so there seems no reason not to privatise this sector of the NHS and reap the higher service and lower costs that privatisation always provides.
Private health and real value for money
State owned companies do not get feedback through the price mechanism like a private company does. There is no way for them to tell if a customer is getting a service commensurate with the cost. For this reason there is reason to suspect that the whole direction of healthcare for the last 40 years has been entirely misguided.
Health scholars show that the vast increase in health centres this century had done virtually nothing to increase health or life expectancy despite huge expense. A private system would not have paid for something that didn't yield measurable benefits State systems can be a vast waste of money simply because they have no way of knowing if they are meeting a real need or not. Everybody wants a good if its free
"Main factors leading to C20 improvement in health is not medicine but improved diet, hygiene and public health". (8)
Historic case for the free market in health
The most notable thing about the health service (like education) in Britain before the government took over was how vibrant it was. It wasn't in need of reform !
Most acute care was done by the voluntary hospitals whose main strength was that they brought out the best in people. Primary care was mostly by consumer led Friendly societies covering about 75% of population. The poor were effectively provided for by the county and voluntary hospitals. Interestingly fee for service was usually abandoned in the long run people, before the NHS most people paid a fixed annual fee for any number of consultations per year and where competition was present fees fell dramatically. After 1911 co-insurance expanded rapidly. Voluntary hospitals treated 60% of patients and they were in profit in 1935 when the study took place.
The demand when NHS was introduced vastly increased ,Bevan himself talked about "cascades of medicine pouring down Britain's throats and they're not even bringing the bottles back". In 1949 the authority to charge for prescriptions was introduced. Dental and spectacles charges in 1951. Even in the initial stages then it was clear that public medicine made people insensitive to costs.
Problems real or supposed with private health
(1) Administration Costs :Competing insurers do have higher administration costs than in a national system if we take the US as our example but the US is a bit of a special case, namely a case of high costs through regulation by the state as opposed to Europe's high costs through ownership by the state. They do give us lessons that we can use to avoid high costs. Primary among them is having policies with high excesses ( £600 best ). Here the costs fall rapidly for two reasons (1) people are paying from their own pocket for the vast majority of small costs so they are infinitely more costs sensitive, and (2) because the costs of administering claims becomes many many times cheaper for the insurance companies
Singapore's is a better example of a more private system . Health care is only 3% of GDP ( Vs 6% in UK and 14% in US) and its health outcomes are the same as other OECD nations, sometimes better.
Medisave in Singapore is 3% from employer and employee up to 35 and 4% after age 45. It is a savings scheme not insurance and aims to build up reserves. So they have eliminated the problem of high administration costs with insurance because you save into your own account (though it is compulsory). If you don't spend the money on health care you can buy a house with it or get it at retirement. The system is still regulated and not entirely free but its a big improvement than the UK ,EU or US systems..
In Singapore ,regulation dictates the number of doctors (which is dangerous) , their degree of specialisation (60% in primary care) , number of beds and what hospitals can charge . So with these impediments on the market its possible that even lower costs could be achieved in the market was truly free.
Another possibility to solve the administration problem is the formation of healthcare groups. The administration costs of ensuring small groups or individuals can be up to 40% of premiums whereas groups of 10,000 or more have expenses of only 5.5%. So in time there would be strong incentives for such groups to form. There are other benefits to this type of arrangement , health insurance is difficult to understand. If someone is researching for a given group- possibly all the same age , then policyholders are going to be much more discerning and policies will improve faster,
(2)Cherry Picking. This is the practice where insurance companies go for the better people and charge higher rates for those that are bigger risks. While this is unfortunate in individual cases it is a very positive system for society as a whole. Diet and lifestyle is a far larger effect on health than medicine in modern society and finding a way to communicate these costs to people is very important. When insurance charges better rates for better lifestyle this encourages us to become more healthy. It would be wrong for someone who disciplines themselves to be fit and healthy to have to bear my medical costs if I choose to be a slob !
Preventative strategies are important : 100 million die each year from smoking related diseases , encouraging them to give up might be a little more effective if the individual pays for healthcare Lung cancer :40,000 per year , emphysema : 28,000 both caused 90% by smoking -costs £500m per year plus. The cost of treating one AIDs patient in the states from diagnosis through is $140,000 and this for a disease that is almost entirely preventable in the West. (11)
(3) Free-loaders : most civilised societies treat ill people even if they can't afford to pay even if they are private. This can create incentives for people not to insure and hope they don't need the insurance. What's needed here is a comprehensively enforced system of debt service where people can be forced to work to pay back a loan if they don't have the relevant funds. This would benefit more areas of modern life than simply healthcare. If the person died or was unable to render debt service for medical reasons ( pretty rare) then if they had absolutely no assets at all then that's a loss the hospital would have to take but the prospect of debt service would almost certainly deter most free loaders. We will talk more about debt service in later chapters. And even in the partially private US system there are very few freeloaders. Most of the uninsured are young and even of those few who are uninsured at a given point, 70% of them are insured a year later (11) (4) "Competition has been tried in the US". .
The US system is not free market or anything like , in fact 42% of health dollars come from the state (In 1990 only 20.5% were paid directly by patient, insurance paid 33%, government 42%) and the government has regulated the sector which is operationally equivalent to public ownership. There are some benefits to what competition it does have though : Americans spend less time in hospital, have less visits to the doctor and consume less drugs than the UK average(12)
Yet US health spending tripled in 60s then again in the 70s, then doubled in the 80s
6% of GDP in 1965, 14.7% now 1995. The clue is that the average income for physicians is $170,000 (in 1991) after growing 8.9% pa in the 80s. The reason for this is that "the AMA virtually controls the supply of physicians" , County medical societies also exclude those who drop their prices- excluding them from hospitals. Here we have a classic example of why the state shouldn't license anyone :Licensing restricts the supply and raises the price.
OTHER COUNTRIES
New Zealand higher earners pay $31 ( $16 for children) for each use of the medical services. Even in
Germany those earning over £35,000 have to pay insurance to fund their own healthcare
In France only 30% of chronic diseases are treated for free, the rest pay 35ff (£3 ) per day for hospital treatment ( except the poor). Patients pay the GP or dentist but can claim 80% back from the state. The other 20% is covered by insurance in 80% of individuals (by companies mostly).
Zimbabwe has raised fees to patients recently , cutting social spending 1991-5
Zambia also abolished free medical care in 1990. All over the world the advantages of moving more and more of the health care industry into the private sector. The logic of the position will produce this trend more and more. COSTS
It is useful to look at what costs are current in the NHS at present. To have a baby for example costs £1200 average ( that's £150 p.m. over 8 months, or if the hospital allowed HP then ( £100 p.m. over 12). Of course ,more people might decide to have them at home.
Day cases when people come in to have an operation or procedure and then go home again are all fairly reasonable sums: £270 in acute (which is most common) . The trend is for more operations to move to this basis , a trend that privatisation would accelerate as people started to care about costs. Even the average acute inpatient operation is £1200 which would for something as occasional as that is not going to be unaffordable with the appropriate credit agreement and , if desired, health insurance.
Geriatric cases are rather more expensive at around £3000 per inpatient episode (which is why 60% of the tax cut should go here). Insurance would be in order for operations of this size ,but preferably on a co-insurance basis so that there is some incentive to keep costs down.
Mental Handicap I would imagine would represent an extra expense for parents. Possibly a system would evolve where the possibility of having a handicapped child would be built into your medical insurance. The risk would be small for most people so the pay out could be large and paid on an annual basis to cover the increased medical costs payable over the person's lifetime.
Pharmaceuticals cost £4.85 billion (income is an extra £350 million on top of this) (13) Drugs are £4billion, of this staff, premises etc. the other £850 million. Over 540 million prescriptions dispensed each year, at an average net cost of £9. But because most of these are free the average amount actually paid is only 60p ! I think most people could afford to pay £9 for a prescription especially if they were getting a tax cut worth £2000 pa !
HOW TO PRIVATISE IT
We shouldn't worry too much about the costs of healthcare falling mainly on the elderly, particularly if we give the same proportion of the tax cut to them. The elderly aren't a high % of the poor, indeed age is correlated more with income that virtually any other factor, people get richer as they get older. Currently 50% of Health expenditures are on the over 65s. In 1979 the elderly were 26% of the poorest tenth but now only 12% . The over 65s on average have assets of £24,000 which is 50% higher than non pensioner average , 53% of these are homeowners whose assets are worth about £50,000 on average.
Furthermore 50% of pensioners have a works pension and 70% of new pensioners have them. Clearly, the bulk of the elderly are far more able to pay for their healthcare than their struggling grandchildren who can't afford to bear the taxes currently needed to support it !
The structure of health payments is that the older you are the more you pay. Incomes also tend to go up with age. In this area then the most appropriate way to match new costs with new benefits is to reduce the rate of income tax . This means the older people who earn more will be paying more for their healthcare ( or healthcare insurance) but they will also be getting greater reductions on their income tax than do poorer younger people whose insurance costs much less. Wiping out community charge (8.5 bn) which is loosely tied to increased income by house value and that leaves an elimination of higher rate tax to zero (8.8 bn) and a reduction in basic rate by 12.5 % to 10.5%. . This not most actively applies not only to pensioners themselves but to people at the end of their working lives at their highest levels of income who are now saving for retirement. Privatising the NHS would eliminate £40 billion from the state budget (13%) and put over 1 million workers (who are 70% of its budget ) into the private sector (the NHS is the largest employer in Western Europe , and that's nothing to be proud of !)
DEVELOPMENTS
Many developments would happen in the private sector that would never happen in public ownership. For example it had been discovered that the cost of operations gets cheaper if that particular operation is all the surgeon does. .Shouldice hospital in Toronto treats nothing but Hernia's and does it for $2,000 where some hospitals charge $15,000 for the same operation. . Similarly the Texas Heart institute for the same reason does Heart bypass for $27,000, $16000 cheaper than the national average and with a higher % of success (92% survive 5 years) (14) . Interestingly ,75% of US healthcare spending is for chronic diseases like cancer, diabetes, heart problems, emphysema which lend themselves to this approach (15) 1 How to pay for healthcare
2Gordon Regius Professor of Moral Philosophy at university of Aberdeen
3Government Statistics
4 Conversations with Singaporeans and Singaporean doctors
5How to pay for Health care (IEA)
6Convesations with denizens of Wester Hailes, social security dependent area of Edinburgh
7Thomas McKeown 1976 " The modern rise of population and the role of medicine".
8 "Life Lines" by Edwina Currie p97
9Three Hundred Billion
10 Regional Trends
11 Various NHS trust accounts
12. Economist June 14th 97
13. £300 hundred billion p 102
14. Ec Aug 7th97 p60
15 Ec Aug 97
16 Economist Oct 93 1. Notes and Stats
Regional Trends (31) 1996; p18
Out patient attendance's £49,545,000 per year
Acc and Emerg £16,880,000 per year
Day cases £3,131,600 per year
GPs : 32,773 average list size 1845
Finished Hospital consultant episodes: Eng 8065000, Scot 959000
Cases treated per available beds: 38.1 Eng, with 4.3 daily available beds per 1000 population.so cases treated per thousand population is 165.6
In Britain there are 15 million out patient consultations per year.
Hospital with 400 beds has several hundred doctors, 1200-1500 paramedics (in about 60 specialties)
Health Trust accounts : expenses £42,584,000 clinical expenses , £5,766 ,000 hospital expenses,
£11,180,000 other services, Premises £4256,000 , dep £4142,000 total 69,635,000
( 164 medical and dental staff take £7,279,000 : Nursing £22,034,000 (1271 nurses/midwifes)
1/6th of costs . 1/2 of costs ( as expected from national staff numbers ) In patients treated : 26,000
Day cases : 13,000
Out patients : 36,000
Total: 75,000 = £900 per person
Scotland (over 14 health boards)as at March 95
ACUTE SERVICES
Inpatients: Exp :£913,266,000 ,cases 728,513 ,cost per case £1254
Day Cases : Exp £75,585,000 , cases 279,533, cost per case £270
Outpatients : Exp £203,928,000 , attendance 4,603,886 ,cost per att £44
Accident and emergency £82,453,000, attend 2,490,307, cost per atten £33
Total expenditure £1,275,232,000
MATERNITY
In : E 129786,000, C 100276, e/c 1294
Day E 4,835,000, C 19646 e/c 246
Out E 11,598,000 C 213,682 , e/c 54
Total ex £146,219,000
GERIATRIC
In : E £116,407,000 C 38442, E/C £3028
Out E 2,575,000, C 27,788, E/C £93
Day E 9,546,000, C 134786, E/C £71
Total Exp £128,528,000
"MENTAL ILLNESS"
In E £344,388,000 c 489610 , e/c 703
Out E 9,453,000, C 161,472 , e/c 59
day e £24,180,000att 474179, e/c £51
Total £378,021,000
MENTAL HANDICAP
In E 114047, c 145948, e/c £781
Out E 304,000, c 7665, e/c £40
Day E 3030,000 , c 35248 e/c £86
Total : £117,381,000
Geriatric Continuing Care
In E £211177, c 367355, e/c £575
Day E £1,500,000, c 19445, e/c £77
No outpatients
Total £212,677,000
Younger Physically Disabled
In E £11,846,000, in patient weeks 11739, Cost per inpatient week £1009 out patients negligible ,no day patients
Community Services (Nursting , midwifery and health visiting)
Exp £209,132,000
Visits 6958201
Cost per visit £26.75
(others negligible)
Family Health Services
General Medical E £282,576,000 ( no cost per visit given )
General dental £142,508,000
Pharmaceutical Services: GP Fundholding : £65,743,000
Other £394,368,000
Opthalmic £24,483,000
FAMILY HEALTH £ 934,431,000
TOTAL HEALTHCARE PURCHASED: £2,640,266,000
HQ and purchasing admin £87,555,000
Other Services Expenditure £109,572,00
TOTAL REVENUE EXPENDITURE £3,771,824,000
TOTAL CAPITAL EXPENDITURE £173,994,000 ( small fraction on revenue exp)
(so acute is about 1/3rd of all expenditure and family health about 25%)
3HB : total spending on hospitals : £21.7 bill, on family health 9.9 billion ( same proportiona as above) Hospitals
TOTAL 21.7 bil
Acute 13.1 bil
Mat 1.1
Geriatric 2.1
Mental Health 1.5
Learning Disability 1.1
Other 1.3
Admin 1.4
40% is hospital care, 21% physician services
Staff in England in hospitals
50k medical--- 1/6th of costs (extrap from one hosp in scot)
350k nurses -----1/2 costs
120k admin
70k professional and technical
90k ancillary
680k TOTAL
(Life Lines -Currie)
Heart Disease: 6000 beds pre day £200million/year,surgery £50m pa, £360 million on heart drugs (with lung cancer victim dies quickly)
Lost industrial production 1.4 billion , benefits 260 million
St James hospital is the biggest in Europe with 1500 beds
60% of all acute beds are occupied by those over retirement age., similar proportions for all branches of medicine. Most of the 100,000 hip operations, av age for cateracts over 90.
Average person between 16 and 44 costs £400 a year whereas those over 85 cost about £3000 a year In the 70s and 80s many intelectuals distrusted doctors and supported the NHS as a means of reducing the numbers of medical interventions which they viewed as harmful and ineffective in many cases