The dangers of magical thinking on health policy

The UK has been suffering from an identity crisis, a growth crisis and a health crisis. The identity crisis lies in the lack of a consensus on its place in the world. The growth crisis lies in the stagnation in real incomes. The health crisis lies in the plight of the National Health Service.

Alas, the response of the government and many supporters has been magical thinking. Brexit and tax cuts are magical thinking for the identity and growth crises. Changing funding of the NHS from general taxation to health insurance is the equivalent for the health crisis.

Magical thinking is perhaps the worst feature of populist politics. Politicians tout simple solutions to complex problems. They fail, further undermining the trust on which democracy depends.

So, let us consider whether a change in the funding model might fix the health system and, if so, how.

The most important points in the economics of health are that it is both a public good and a private risk. The former means that everybody benefits from living in a healthy society. The latter means that all but the richest need insurance. But if healthy people who like to take risks are not in the pool, insurance becomes prohibitively expensive and insurance companies expend huge effort on excluding those most likely to need it. That way lies the US disaster — the world’s most expensive and least effective health system. The solution lies in compulsion: everybody needs to be in the insurance pool.

This is the UK’s solution, where the pool is funded by taxation. In many other high-income countries, it is funded by something called “social insurance”. But payments for this are compulsory. If it walks like a duck and quacks like a duck, it is a duck. If it is compulsory to pay a charge for something, it is a tax. Such charges are included in standard calculations of tax revenue. Indeed, they are a big part of tax revenue in many countries.

At first glance, then, a shift from a tax-funded to one funded by compulsory social insurance is no more than a relabelling exercise. When one looks at our current plight, it is hard to believe that such relabelling can be more than magical thinking. One would still have mandatory charges coming out of earnings. These would feel like (and be) taxes. Moreover, there is no reason to expect spending to be less overall: France and Germany, for example, spend much the same share of GDP on health as the UK.

There are three arguments against this dismissal of social insurance as a solution to funding UK health.

The first is that people would see a clearer link between revenue and spending on health and so would be happier about paying for it. Yet spending could not sensibly be set in this way. If it were it would have to be slashed merely because there was a recession.

The second argument is that it would allow decentralisation and depoliticisation of decision-making in health. What is special about the NHS, in comparison with most other systems, is that it is a nationalised industry under tight political control. It is not hard to see that some of the decisions that have been taken as a result — such as that it is “efficient” to have few empty beds — undermine resilience in a system subject to big fluctuations in demand. The parallel decision to underinvest was a classic example of the “penny wise, pound-foolish” approach I have long associated with the Treasury.

Yet even if one believed in some abstract way that the UK’s health services might work better with a radical reorganisation of the supply side, the upheaval, both political and organisational, would be colossal and probably catastrophic. One has to start from where one is. Revolutions usually fail. Conservatives used to understand that.

A third argument is that the shift might allow greater choice. It might also be possible to add co-payments to the system, introducing an element of material incentive. But both can, if desired, be introduced into the NHS. It is perfectly possible, for example, to introduce means-tested charges. Indeed, they already exist — for drugs, for example. Whether charges would be a good idea is another matter: they would discourage both unnecessary and necessary trips to the doctor. And they would hurt some far worse than others.

Moreover, it is also clear that the biggest failure lies not in the NHS itself, but in the underfunding of social care. This is why so many people are blocking beds in the NHS. The solution to that lies not in changing the health system, but in spending more elsewhere.

Is magical thinking the only thing this country can now do? Why not try coherent thinking on the goals, structure and organisation of caring services, instead?

martin.wolf@ft.com

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