Financing Health Care in the UK: A Discussion of NERA’s Prototype Model to Replace the NHS

There is little doubt that throughout the world there is a growing concern about health services and the provision of health care. It is of interest that the worry seems to be independent of the precise structure of health services, the form of provision, and how it is paid for. This suggests two things. One is that the causes of the problem (or problems) are fundamental, and are not entirely, or mainly attributable, to the precise position in any individual country. The second is that each country may have something to learn from the others. It was this kind of thinking that underlay, at least to some extent the original NERA international study of health care and finance (Hoffmeyer and McCarthy, 1994). It was certainly why OHE organised the conference of which this booklet is the outcome. It should be said immediately that the purpose of the present contribution is to offer a balanced introduction to the work done by NERA and to the field in general. It is not a substitute for the NERA volumes themselves. They contain a mass of important information that experts, in particular, must acquaint themselves with. That is not, of course, to say that everyone will agree with NERA’s approach or their conclusions. The central questions appear to be simple, perhaps deceptively so. What are the causes of the rise in demand? What determines the supply response? Does the former always outstrip the latter, and, if so what is the significance of that? What are the optimum policy responses, and, in particular, what are the best future roles, respectively, for public and private finance? On the latter, it ought to be borne in mind that while the rhetoric often seems to suggest that the latter is that of individual household choice, in practice, especially in the US experience is anything to go by, it really means business finance. (As a historical comment, before the NHS, health care in the UK also had a tendency to be based on the workplace, either from the firm itself or from trade unions.) NERA itself emphasised technical progress increased expectations of life, and rising expectations as causes of the underlying problem. To the layman this may seem a strange use of language since all of these seem prima facie to be good things rather than bad. Nonetheless, it must be agreed that the system, whatever it is, needs to respond to them. One topic not covered at length in the report is the so-called relative price effect. In essence as gross domestic product rises chiefly as result of productivity improvements in some sectors, relative prices in labour intensive sectors rise. In terms of health care, which despite its own technical progress, is inevitably labour intensive, this means extra cost pressures. This subject has been dealt with in Professor Baumol’s recent OHE paper (Baumol, 1995), and itself helps to place the present booklet in a useful context. There can be no doubt that the issues discussed in this book are highly controversial. That does not mean that they can be avoided, even though a debate on them may be painful. The fact that health care is so important does not mean that economic questions can be left out. Quite the reverse is true. Because we are all committed to decent health care, we are obliged to look at matters of costs and efficiency. But it must not be forgotten that it is outcomes that matter. Efficiency in economics means relating costs to benefits (including who benefits). It is not solely about cost saving. In the UK we must not be insular. There may be lessons to be learned from what other countries do, although some of them may be to warn us not to make their mistakes! It is hoped that the present booklet in contributing to the discussion will also assist in the eventual decisions to be taken on policy.