WHY THE UK NATIONAL HEALTH SERVICE SHOULD BE PRIVATISED Danny Frederick1 26 April 2015 Abstract. It is an article of almost religious faith in the United Kingdom that the National Health Service is far superior to a competitive market in health care services. In this brief and informal paper I show that the opposite is true. In contrast to market provision, the existence of the National Health Service entails the following. First, consumer sovereignty is virtually destroyed, since what services the consumer receives and how much he pays (through taxation) are determined by the government of the day in consultation with vested and ideological interests. Second, a person may be denied a lifesaving service despite having contributed more than his fair share to the National Health Service over the course of his working life. Third, people often spend less on health care than they would like to spend, because any additional contributions (via increased taxes) are not linked to any benefit specifically for the person who makes them. Fourth, provision of services free at the point of need which is not linked to what a person pays encourages a wasteful misuse of resources. Fifth, absence of competition between health care providers leads to high cost and poor quality of service and a tendency to produce a standardised service rather than a tailored one; and government attempts to address this problem usually make it worse. Sixth, people’s freedom to engage in particular activities or lifestyles is likely to be curtailed because the costs of those activities are artificially socialised. I also point out that issues of inequality or poverty are much better addressed by means other than a nationalised health service. Keywords: affordability; competition; consumer sovereignty; free at the point of need; freedom; health insurance; inequality; National Health Service; poverty; privatisation; underfunding; 1. Introduction One way of organising and financing health services is for the state to set up a near-monopoly provider of health services and pay for it by taking money off people through taxation. That is the nationalisation solution, to which the United Kingdom National Health Service approximates. Another way of organising and financing health services is for private-sector health companies to compete with each other for customers, and for those customers to pay for the services they receive by using a mixture of private health insurance for some health services and direct payment for other health services. That is the market solution. There are various other options involving mixtures of state, for-profit and non-profit organisations; but I ignore those here, since I want to contrast state and market provision. 2. He Who Pays the Piper The two different ways in which health services are funded have starkly different consequences for patient control. If people pay for their healthcare through taxes, they have little choice about the services they receive. The money to pay for health care is taken from them without their consent and given by politicians to bureaucrats and doctors. The politicians decide in broad terms what health services the people will get. In making such decisions, the politicians take some account of advice offered by medical professionals and service administrators. But they 1 Webpage: https://independent.academia.edu/DannyFrederick also take much account of how they can enhance their electoral prospects by allocating money to particular kinds of health services that are demanded by organised interests or that will benefit particular segments of the electorate who will therefore be more likely to vote for them. So the services on offer reflect, to a significant extent, the electoral interests of incumbent politicians. There is inevitably only a finite pot of money raised by taxation to pay for health services, so politically unfavoured services either are severely rationed or are not provided, with the result that patients who need those services have to be turned away, either directly, or by being put on a waiting list during which time many of them will die, despite the fact that they may have paid a fortune for healthcare via heavy taxes levied on them through decades of working life. Within the broad outlines provided by the politicians, the specific selection of services on offer is decided by a mixture of: (a) doctors and other medical staff, and their trades unions, who take account of ‘clinical need’ as well as the career prospects for medical staff, and prevailing political, religious or other ideologies; (b) administrators and administrators’ trades unions, who take account of organisational and cost implications of alternative options as well as the career prospects for administrators, and prevailing political, religious or other ideologies. The upshot is that some decisions that affect the health, including life or death, of an individual are not taken by that individual, but are instead taken by doctors and administrators on the basis of priorities agreed through political haggling between vested and ideological interests. The patient is thereby rendered powerless in the face of some of the most personally important problems in her life; and she may find incomprehensible the decisions made about those problems by people who have no personal stake in the life directly affected. That is inhuman. In contrast, if people pay for their healthcare in a competitive market for such services, then they will take out health insurance for unpredictable and expensive treatments and pay directly for any other treatments or advice as and when the need arises. That will enable them to shop around between competing health care providers to obtain the sort of service that provides the best balance of cost and benefit for their particular needs. The doctors and other professionals will provide what the patient wants because if the patient does not like what is being offered, she won’t pay for it; instead she will go to another provider. The patient has choice, she has purchasing power, she has control. In short, nationalised health care means power to the politicians and professionals (doctors and administrators), with ordinary people being robbed of their purchasing power through heavy taxes for health care, and having their health decisions made for them by a bunch of “we know best” Guardian readers. In contrast, a competitive market for health care means power to the persons, since politicians will be excluded, and the health professionals will earn their money only if they do what is wanted by the patients who purchase the health care. 3. Underfunding It is a common complaint that the UK National Health Service is underfunded. The complaint is often made by the professionals who work in the National Health Service; but they have a vested interest in seeing greater spending on the service, since some of it is likely to fall into their pockets. In fact, health spending in the UK in 2012 was around the average of the thirty- four countries in the Organisation for Economic Co-operation and Development, at 9.3% of GDP, though it was below that of the United States (16.9%), the Netherlands (11.8%), France (11.6%), Switzerland (11.4%), Germany (11.3%), Austria (11.1%), Denmark (11.0%) and several other Western countries (OECD 2014). Although overall public satisfaction with the National Health Service was 65% in 2014, with only 15% dissatisfied (The King’s Fund 2014), people in the UK seem generally to complain that the government does not spend enough on the Health Service. That may be due to knowledge of treatments which are not provided, or of long waiting times for particular services, or of press reports of missed targets and various scandals involving abuse of patients; in combination with the assumption that greater spending would solve or ameliorate such problems. However, people also seem generally opposed to paying the higher taxes that would be required for additional health spending. Is this a case of wanting to have your cake and eat it? I do not think so. The problem with paying for health care through taxes is that there is no guarantee that higher taxes will be spent on health; and even if they are, there is no guarantee that an individual will see any personal benefit from his higher tax contribution, since his particular health needs may not be deemed a priority by the politicians and health professionals, or even if they are, he might go to the end of a long waiting list. So under nationalised health care, it is quite rational both to want more or better health provision and to be opposed to higher taxes to pay for it. A competitive market in health care would resolve that dilemma. In a market for health care, anyone who wants more or better health services just buys them (either through insurance or directly); and anyone who wants less just spends the money on something else. Since people generally seem to want more and better health provision, privatisation of the National Health Service, moving from state to market provision, should lead to a boom in the health industry with an increase in the quality and quantity of services. 4. Affordability It is to be expected that some will object that many people cannot afford to pay for healthcare. The objection overlooks the fact that the people in question are usually already paying a great deal for health services through their taxes, whether or not they receive the services they need. If people did not have to pay such high taxes to pay for the National Health Service, they would have a much greater disposable income which would enable them to pay for health care by means of a suitable combination of health insurance for major risks and payments as-and-when for minor ailments. A related objection refers to inequality of incomes which would leave some people too poor to buy healthcare even if they were reimbursed the tax money they currently pay for health services. However, the question of inequality is a separate issue from that of nationalisation versus marketisation of health care. To the extent that inequality is a real problem, rather than simply an affront to some people’s favoured ideology, it can be rectified by a negative income tax for poorer people, which would redistribute wealth from richer to poorer persons, thus enabling the latter to pay for their own health care needs. There is no need to set up a massive state-run health care bureaucracy, with all its ills, in order to solve the problem of inequality. Further, the redistribution which is effected by the National Health Service is not in fact a redistribution from the rich to the less-well-off; it is rather a redistribution in favour of the middle classes because it is typically people from those classes who understand how to work the system and who are articulate and able to communicate with doctors and administrators on their own level. That is inevitable when purchasing power, which is blind to class, race, sex and creed, is replaced by rationing by professionals. Some people may object that some poor people are too stupid to take out health insurance and would prefer to spend their money on short-term pleasures, so when they desperately need health care, they will not be able to pay for it. There is some truth in that. The problem can be avoided, though, by making a minimum level of health insurance compulsory. 5. Free at the Point of Need A common claim made in favour of a nationalised health service is that it is “free at the point of need.” But that does not really distinguish state from market provision. What does distinguish the two is that they generate different incentives. In nationalised health care, money to pay for the service is taken from people via taxes and given to health care professionals to provide a health service for which people do not pay when they need it. As there is no connection between the size of a person’s tax payment for health care and the amount of health care that person receives, each person has an incentive to obtain as much health care as she can. Thus, people are encouraged to use health services which they do not really need and which may be very costly to provide. If people realised what the services cost, and had to pay that price, they would often think that the services are not worth the money; that is, they would rather spend that money on something else. However, because people are consuming some health services which they do not think are worth the money, less resources are available to provide services that people really do want and would be happy to pay the price for. So a nationalised service inherently involves a wasteful misuse of resources. In a market for health services people would pay for the bulk of their health care by means of health insurance rather than paying for services when the need arises, so those services are also “free at the point of need.” However, the person will have a choice of insurance policies, allowing them to pay more for a better quality service or for more comprehensive coverage, so the service they get, though free at the point of need, is one that they think is worth the cost of provision, because they are paying that cost though their insurance policy. Thereby, the wasteful misuse of resources that is encouraged by a state system is avoided. 6. Competition A great advantage of market provision of health care is that different health care providers compete with each other to gain custom, which gives them a powerful incentive to keep costs down and to provide the quality of services that consumers desire, since otherwise they might go out of business. Since different consumers value particular health services differently, competing companies will offer different combinations of cost and quality to different consumers, and some companies will specialise in particular market niches. Competition also inspires innovation in types of service involving new techniques, new drugs, new treatments, even new payment options. In contrast, state provision tends to offer a standardised, one-size-fits-all, service. The lack of competition takes pressure off the near-monopoly provider to reduce costs, improve quality and innovate. The money for the service comes from the consumer via compulsory taxation, so it is assured even if the customer is dissatisfied. That permits the people who staff the service to make or resist changes according to how easy it makes life for them rather than according to whether it improves the service for the consumer. Some politicians are aware of the problem, so there have been numerous attempts over recent decades to try to resolve it. No politicians have proposed privatising the National Health Service. Instead they resort to other measures. The main ones are targets, contracting out, and internal markets. None of those proposed solutions work very well; indeed, they often make things worse. The main problem with targets is that they create perverse incentives. Often, ways are found to meet the target which undermine the purpose of the target. For example, diverting patients into a ‘pre-assessment unit’ prior to starting the Accident and Emergency four-hour waiting time helps achieve the target but does not address the issue it was introduced to combat, namely, long patient waiting times. A trolley may have its wheels removed and be re-described as a ‘bed’ to avoid breach of an emergency-room waiting-time target. Resources are diverted from activities without targets to activities that have targets. At MidStaffordshire NHS Foundation Trust the pursuit of financial targets led to patient neglect; and so on (Mears 2014). Contracting out is often confusingly described as privatisation. But it is different to privatisation because health services are still funded by taxes, and priorities are still decided by politicians and service professionals. The only advantage of contracting out is that it introduces an element of competition because some circumscribed services are no longer provided by the state near-monopoly, but are instead provided by a private-sector or charitable organisation which has had to compete against rival organisations for the contract to provide the service. This element of competition should mean that services contracted out are provided at higher quality or lower cost or both. In practice it often does not work out that way. The main problem is that health service managers are usually not business people and very often have little business sense, being not only ignorant of basic economic principles but stubbornly resistant to even acknowledging them. As a consequence, the contract specifications are often faulty and the contractors are not managed effectively to try to ensure that the specification is met at the agreed cost (Public Accounts Committee 2014). The problem with internal markets is that they are not real markets. Indeed, they are often just make-believe markets in which service providers are playing at shops while continuing to manage their services in the same old way. While a scheme of internal markets, if well-thought out and implemented effectively, can lead to marginal improvements in staterun services, it often merely adds a layer of bureaucracy that wastes resources and impedes service delivery (see Brereton and Vasoodaven 2010 for a balanced review). 7. Threat to Freedom Whereas a competitive market in health services makes the consumer sovereign, a nationalised service does not only rob the citizen of his purchasing power and reduce his choice, it also threatens his freedom in myriad other ways. It does this because the costs of health services are socialised. For example, it is often claimed that particular activities, such as alcohol consumption and tobacco smoking, or particular conditions, such as obesity, impose huge costs on the National Health Service and that this requires various restrictions on people’s freedom to consume alcohol, to smoke tobacco, to eat fatty foods, and so on. The sorts of restrictions proposed include higher taxes on alcoholic beverages, tobacco or specific types of food in an attempt to make them unaffordable, at least to people with lower incomes; restrictions on the advertising of such goods, making it more difficult for consumers to find out about them; restrictions on the outlets or times at which such goods may be purchased, making it more difficult for consumers to obtain what they want; and even banning some such goods. There have even been calls that the National Health Service should refuse to treat smokers, heavy drinkers or people who are obese. There are a number of problems with such claims and proposals. First, the fact that an activity involves costs is not a reason for abstaining from that activity. Every activity involves costs, at least of time and energy if not financial costs. But many activities are performed because the benefits of the activity are worth the costs. As the saying goes, “there is no such thing as a free lunch.” But that is not a sufficient reason for skipping lunch. Thousands are injured and killed on the roads each year; but road transportation yields great benefits. People are often injured and sometimes killed through participating in sports; but many people derive general health and enjoyment benefits from such participation. It is possible that the total benefits of alcohol, tobacco or fatty food consumption are well worth the total costs that they involve, including the costs to the National Health Service. To decry the costs without considering the benefits is just stupid and ignorant. Second, in the case of drinking and smoking, the costs to the National Health Service are swamped by revenue raised by taxes on drink and tobacco. Thus, it has been estimated that the annual costs of alcohol consumption to the National Health Service in England2 in 2013-14 was £3.5 billion (Public Health England 2014); but taxes on alcohol (even excluding VAT) raised £10.4 billion in 2013/14 (Seely 2014). It is estimated that smoking costs the National Health Service in England2 £2 billion per year (Ash 2014); but taxes on tobacco raised £12 billion in 2012/13 (Ash 2014). So drinkers and smokers, who are imposing the additional costs, are contributing far more in additional taxes: they are more than paying their way. Third, the costs to the National Health Service are “social costs” only because health care has been nationalised. If instead there were only private sector health care providers, and people paid for their health care via health insurance, perhaps supplemented with payments as-and-when for minor ailments, then everyone would pay his/her own health costs. Each person would then be able to assess the benefit of their activities against their costs, including additional health care costs, and decide for themselves whether the benefits are worth the costs. That could indeed lead to some people reducing their consumption of alcohol, tobacco or fatty foods, without being compelled by law to do so. Further, it would not then be possible for prigs and puritans to argue that people’s enjoyment of life should be controlled because of costs to the National Health Service which are shared by others. 8. Conclusion A nationalised, state-controlled, health service financed by taxation and largely free at the point of need compares very unfavourably with health services provided to consumers in a competitive market in which people decide for themselves which provider to use and what services to receive at which available price. In contrast to market provision, state provision entails that: • • 2 consumer sovereignty is virtually destroyed, since what services the consumer receives and how much she pays (through taxation) are determined by the government of the day in consultation with vested and ideological interests; a person may be denied a life-saving service despite having contributed more than her fair share to National Health Service coffers over the course of her working life; I have been unable to find an estimate for the UK as a whole; but the figure for England, which accounts for 84% of the UK population, will not need massive adjustment to bring in the costs for Scotland, Wales and Northern Ireland. • • • • people often spend less on health care than they would like to spend, because any additional contributions (via increased taxes) are not linked to any benefit specifically for the person who makes them; provision of services free at the point of need which is not linked to what a person pays encourages a wasteful misuse of resources; absence of competition between health care providers leads to comparatively high cost and poor quality of service and a tendency to produce a standardised service rather than a tailored one, and government attempts to address these problems usually make things worse; people’s freedom to engage in particular activities or lifestyles is likely to be curtailed because the costs of those activities have been artificially socialised. Despite all this, no politicians in the United Kingdom propose privatising the National Health Service. The explanation for that is that in Britain the National Health Service has the attributes of an old-time religion. It is regarded as sacred, as an obvious good, that is not open to question. Even this calmly argued paper will cause great offence to many true believers. The reasons that the National Health Service is able to retain its status as a quasi-religious faith are many but connected. I can hardly hope to get to the bottom of it here, but I can offer the following preliminary assessment. First, the National Health Service’s heavily unionised workforce is committed, out of ideology as well as vested interest, to maintaining a state-run service; and as the National Health Service is the largest employer in Europe, that equates to a large number of people. Second, schools, like health services, are also largely controlled by the state, and teachers are, almost universally, ideologically committed, unquestioningly, to the virtues of a National Health Service. State school teachers are also heavily unionised and are usually keen to show their solidarity with their heavily unionised counterparts in the National Health Service. Third, at UK universities the faith is also maintained, with the possible exception of a few economics departments where the issue of privatisation may be raised and possibly even discussed. Fourth, journalists, having been indoctrinated in schools and universities, are similarly disinclined to question the merits of the National Health Service as compared with a market arrangement, though there are one or two journalists (invariably with an economics background) who occasionally raise the question in a tentative, apologetic manner. Fifth, the fact that people’s payment for health services is largely concealed by being taken from them as part of their taxes creates the impression in many people that the National Health Service provides health services for free, whereas a market solution would mean that people have to start paying for those services. Sixth, there is the idea that the National Health Service is a way of tackling inequality, though negative taxation for the poor would be a more effective way of doing that and would not lumber us with all the disadvantages of a National Health Service. Finally, if the question of the privatisation of the National Health Service ever does get on to the political agenda, it should be obvious that the transition to a privatised service must be phased. The reason is that some people have been funding the National Health Service through their taxes for most of their life whereas those below working age have not been funding it at all. 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