Healthcare in the UK:

Should it still be in state hands?

The NHS was launched on July 5th 1948.

Aimed to create, “ comprehensive health and rehabilitation services for prevention and cure of disease”.

Initially funded through general taxation of the residents as well as National Insurance as part of the introduction of a wider Welfare State.

Some prescription charges were introduced soon after in response to economic difficulties.

“The NHS was created out of the idea that good healthcare should be available to all, regardless of wealth”

When launched, it was based on three core principles:

• that it meet the needs of everyone • that it be free at the point of delivery • that it be based on clinical need, not ability to pay

These three principles have guided the development of the NHS for more than 60 years and remain at its core.

History

The Problem

The Funding Problem

How have the demands placed on the NHS changed since it was established in 1948?

Why do these demands cause a funding problem for the NHS? Why is the problem likely to continue to worsen?

Increase in Population

The greater the population, the more people there are to treat

Puts strain on the NHS due to the increased population

Unable to deal with patients’ needs effectively

Unable to satisfy demand placed on them

Increase in elderly population (65+)

Due to advances in technology & better awareness

Over 65s represent 17% of the population

But take up 68% of emergency bed use in A&E

Health-Related Issues

Though the general population are healthier and living for longer,

There is an increase in the number of preventable illnesses

E.g. obesity – leads to high blood pressure, heart attacks etc.

24% of men and 36% of women were obese in 2011.

Drug & alcohol misuse is still very high

Private Benefit: Enjoyment of food

Social Cost: Increase in demand for healthcare due to illness caused

General costs incurred by the NHS

The average visit to A&E costs the NHS an average £117.

Delivering a child without any complications costs on average £1200

A hip-replacement surgery costs around £6000.

Funding Problem Funded through taxation

Under-funded and unable to deal with the number of patients

Understaffed or excess demand due to closures of hospitals to save money (eg A&E department in Chase Farm)

Unnecessary demand placed due to illnesses caused by obesity and other preventable illnesses.

The problem is likely to worsen if nothing is done about this. Population growth is inevitable and there is not much that can be done to slow the rate of growth down.

Market Failure in Healthcare

Two types of healthcare in the UK – NHS & Private Healthcare

Most use NHS healthcare because it is free (though paid for by their taxes)

Demand for private healthcare has decreased, due to the recent recession and loss of income to spend on healthcare

Private healthcare has a number of

advantages compared to NHS, but has its own issues

that cause market failure

Market failure is when the price mechanism fails to deliver efficiency and results in a misallocation of resources

Positive externalities – Positive third party effects external to an exchange and ignored by the price mechanism

Negative externalities – Negative third party effects external to an exchange and ignored by the price mechanism

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Private Healthcare

Private healthcare is healthcare provided by another party other than the government. In the UK, any healthcare provided apart from the NHS would be private healthcare.

Benefits Include:

. A greater choice (choice of consultant etc.)

. Better continuity of care from diagnosis to treatment

. Private rooms

. Shorter waiting lists

. Modern facilities

. Some treatments offered by private hospitals and clinics are not available on the NHS.

. Flexible appointments

Existence of Market Failure in Private Healthcare

The existence of private healthcare has both positive and negative externalities

These externalities cause market failure;

Private healthcare allows for the public to be treated quicker (avoiding waiting lists) and leads to a healthier workforce

Asymmetric information can lead to patients being exploited by doctors and medical staff

Inequality

One of the biggest challenges of imposing private medical healthcare is that it can be expensive.

Insurance schemes are available so you are covered by insurance if you need treatment (monthly/yearly premium)

However, not everybody can afford private healthcare.

If private healthcare was imposed for all, many would be unable to afford treatment.

The social optimum of those going to hospital would be lower is the NHS was providing it

Market failure is therefore created

The Solutions

Solutions

There are various solutions to solve the market failures associated with UK healthcare

Change in government spending

Measures to improve efficiency in the NHS

Direct payments (user charges)

Provision of healthcare through private insurance schemes

Expansion of the Private Finance Initiative

Government Spending To support the NHS in the short term, the Government has made an extra £500 million funding

available over the next two years. The Health Secretary set out how £250 million would be used by 53 NHS Trusts this winter.

Of the £250 million:

Around £62 million for additional capacity in hospitals

Around £57 million for community services

Around £51 million for improving the urgent care services

Around £25 million for primary care services

Around £16 million for social care

Around £9 million for other measures – for example to help the ambulance service and hospitals work better together.

£15 million of this money will also be spent on NHS 111

However, this is for the short term only. More must be done to permanently allow the NHS to work more efficiently.

Findings from recent Government policy

There have been improvements in transactional aspects of care (access and waiting times) but concerns remain about relational aspects of care (emotional support, dignity and empathy).

Levels of public satisfaction with the NHS have fallen.

Smoking rates continue to fall and obesity among children is stabilising, but excess alcohol consumption continues to rise, as does adult obesity.

Mortality from cancer and cardiovascular disease has fallen but the United Kingdom still has higher levels of avoidable mortality than other countries, and health inequalities persist.

Measures to improve efficiency in the NHS

This chart shows the tasks set out by the NHS in order to improve efficiency.

This will also include toughening up on doctors and other medical staff to ensure that they perform their duties to their highest of their ability

However, judging the quality of healthcare is very difficult and hard to put a value on.

Direct Payments (User Charges)

On top of the NHS, patients could be charged for medical treatment (eg. £15 per A&E visit)

This could deter some from going to A&E because they would have to pay

So more people would be tempted to use the 111 non-emergency service and find alternative methods of treatment (e.g. several are known to go to A&E for having the common cold

However, this may put off some people coming to hospital due to the charge and they may have a serious medical issue

Health also has inelastic demand. Even if charges were brought along, it may not bring down the numbers visiting the NHS by a significant amount.

Provision of healthcare through private insurance schemes

This would ultimately solve the funding problem.

However, could lead to the emergence of monopoly powers in the industry.

Monopoly powers could be inefficient and go against the consumers’ interest with high pricing

Would be a major deterrent of those unable to pay for private insurance schemes.

Income inequality is introduced and leads to a marginal social cost.

Would bring the social optimum visiting hospital down compared to NHS

Expansion of the Private Finance Initiative

The private finance initiative (PFI) is a way of creating "public–private partnerships" (PPPs) by funding public infrastructure projects with private capital.

However, it is very difficult to manage and has led to dozens of hospitals falling into large amounts of debt

It costs the government approximately £1bn over the duration of the contracts to keep the hospitals open by bailing them out.

The cost efficiency case for PFI is weak because public finance is always cheaper than private finance. In lending to government, creditors are not taking very high risks with their money – governments, unlike private companies, are unlikely to go bankrupt and default on their payments.

Therefore, the PFI is not well-suited for the NHS environment, but has been successful in other sectors (eg. Housing and roadway maintenance).

Recommendation A valued judgement suggests that direct payments (user charges) would be the most effective.

Efficiency must also be improved in order for the solution to work

This is because:

Government Spending will continually increase but the NHS must be run efficiently. Simply pumping money in will not solve the problems at hand.

Provision of healthcare through private insurance schemes will ultimately cause market failure as income inequality is created and those unable to pay will not have any access to healthcare whatsoever

Expansion of the private finance initiative has proved to be ineffective and could potentially lead to high amounts of debt for the government to repay out of taxpayers’ money.

If the government can implement fair user charges for basic treatments, it will reduce the demand placed on the NHS. Efficiency must also be met as strict guidelines should be followed in order for the scheme’s success.

Patients should receive the best care possible, and with an ever-increasing population, the NHS must stay on top.

Therefore, the state should still be in charge of running public healthcare.

Thank You