My previous articles in the series have examined common misconceptions about what lies behind the many significant issues facing the National Health Service. Here I examine a solution that is often proposed for the so-called overfunded and under-reformed British system: the social insurance model.
Countries such as Germany and the Netherlands provide health care through social insurance – a scheme in which employees contribute part of their income to finance their health care, supplemented by a contribution from their employer. These plans do not provide universal coverage and they generally allow people with high incomes to opt out. However, they generally provide a high level of coverage to all, similar to tax-funded systems.
This model is often touted by critics of the NHS as the obvious solution to our health service’s current problems. Indeed, high-income countries with social health insurance (SHI) models generally have healthcare systems that perform better than the UK on measures such as heart attack and cancer survival. But there are three good reasons to doubt that a move to social insurance is a panacea.
Is social insurance the reason for better performance?
Countries using social insurance models in North West Europe tend to be wealthier, have lower health inequalities and spend more than the UK. There is no obvious link between funding mechanism and health outcomes: NHS-type systems in the same region, such as those in Sweden and Denmark, also work well. New Zealand and Canada (which have tax-funded provincial systems very similar to the NHS) also perform very well.
A further complication is that many social health insurance schemes are increasingly tax funded as the narrower funding base (employee and employer contributions) has become less able to generate the necessary revenue. The actual distinction between the Beveridge and Bismarck systems is becoming less clear than it once was.
What are the direct benefits of social insurance?
An attractive feature of social insurance is that it offers some insulation from national politicians. Countries with social insurance models have less direct government involvement in health care provision and policy. This would be helpful in reducing the chronic short-termism that plagues UK health policy, with politicians and the Treasury cutting back on long-term investments to be spent today. It also insulates these systems from the frequent and damaging reorganizations that have been inflicted on the NHS.
However, it is not impossible to have a tax-financed system that invests more and reorganizes less. For most of the past decade, capital formation in Swedish healthcare as a share of GDP has been nearly double that of the UK.
It may also be that, as people can see what they are paying for, they will also be more demanding, but there is no strong evidence for this – nor that independent payers, whether competing or not, are driving to better quality. Payers in many social health insurance countries have tended to be rather passive and have not used their buying power as much as they could, often simply trying to contain costs.
Finally, social health insurance systems tend to have more competition between providers, which can improve some aspects of performance. However, evidence that this explains significant differences in outcomes is very limited. This, however, implies that providers are not owned by central government and that social insurance systems have hospitals owned by a mixture of private for-profit, non-profit organizations and local government.
Do we have the basics of a fair system in place?
European social health insurance systems are generally quite fair and offer a high level of coverage. But they are also embedded in systems with higher levels of staff, beds and facilities, lower income inequality and a long tradition of mutual governance and social solidarity types. As we have already mentioned, they also have independent suppliers from the government.
Without some of these preconditions, a move to social insurance in the UK – where the gap between rich and poor is very large, and the healthcare system is mainly state-owned and lacks beds and staff – could result in a number of adverse changes:
- the exit of high incomes to private insurers
- insurers try to exclude those with serious risk factors unless there is active risk equalization and regulation (which they are likely to resist)
- tenders by insurers to guarantee access to clinical staff and scarce resources, leading to inflation of medical costs and salaries
- the departure of many NHS staff from areas with high demand for private care
- part of NHS services providing poor services to the chronically ill and less well-off
- if insurers were more like commercial insurers than organizations found in European social health insurance systems, there are risks of a number of bad practices common in the United States, such as a large number of non-comparable plans, bureaucracy, exclusions and high costs.
This is not a theoretical scenario. This is roughly the impact of health insurance coverage reforms in Chile in the 1980s. wrong version of what is happening in the USA.
The best way forward?
Social Insurance won’t provide many of the benefits its proponents are hoping for, and that’s because the problems of the NHS run deeper. But even if that were the answer, the path to get there would be very difficult. This requires capacity expansion, investments in new systems and huge organizational changes, including the privatization of suppliers. This would be extremely disruptive, likely unpopular among staff and possibly the public, and would take many years to complete. Is it possible to capture some of the successes of other countries’ systems, whether insurance-based or tax-based, with a less-consumptive approach?
This is the third in a series of short articles addressing common recent criticisms of the NHS system. The first looks at the controversial claim that the NHS is far too expensive compared to other countries, and the second looks at whether the NHS is really a ‘sacred cow’ that evades reform. The next few articles examine the misconception that competition will solve all ills.
Edwards N (2022) ‘Myth #3: “We should copy other countries and adopt a social insurance model”‘. Nuffield Trust blog, 1 November.