Democratic control should not be dismissed

EDITOR—The editorial by Mossialos et al on the funding of the NHS effectively dismisses the false panaceas of private or state insurance.1 But their arguments against hypothecation are less convincing.

Firstly, the comparative power of Britain's Treasury is set to decrease anyway, under the influence of British devolution and the growing power of the EU.

Secondly, if hypothecation were to increase the demand for expenditure on the NHS, is that necessarily a bad development?

Thirdly, it does not necessarily follow that increased expenditure on the NHS will reduce that on other (more beneficial) areas of public expenditure, such as transport and the environment.

Finally, it is not clear why hypothecated tax should be more vulnerable to economic fluctuations than is the current system.

The core issue here is one of democratic control, informed by “grown up” debate. Discussion in the United Kingdom on the future of the NHS seldom rises beyond the level of the nursery because politicians have not trusted the public with adult choices. Allowing the electorate to have a more direct say over how their taxes are spent—whether by hypothecation, referendums, or other methods—is a bit scary for control freaks and somehow seems “un-British.” But the experience of the past few years has shown that there is really no alternative. People will continue to moan about the NHS when they are excluded from any real decisions about it, and those who can afford to do so will eventually vote with their feet and take out private insurance, thereby creating a two tier service by default.

Arguably the greatest change introduced by this government has been to devolve some of its power to Scotland and Wales. It should now keep faith with the electorate and trust people throughout the United Kingdom to make some of the big choices for themselves. In this way, we can achieve an element of the discipline of the market—allowing people to choose what to buy—while retaining social justice.

Author's reply

EDITOR—Longley's points on hypothecation are largely entirely true and, no doubt, would be accepted by the government were the relative powers of the Treasury and Department of Health to be reversed. We see no evidence that this is likely to happen. Hypothecation would bring some benefits to the health department but, as Longley notes, would severely weaken the power of the Treasury.

We do, however, take issue with his comments about the economic cycle hitting both hypothecated and general taxes equally. Tax revenues can fluctuate quite markedly over the cycle, especially where they are derived from direct taxation rather than, as with the overall tax take, from an increasingly wide range of sources. If the NHS was dependent on a fixed proportion of direct taxation there would be no scope to protect it at the expense of, say, expenditure on defence. It would thus be more vulnerable over the cycle.

The point about devolution is interesting and raises issues that are extremely poorly understood. The United Kingdom, unlike federal or confederate states, does not have any formal devolution of sovereign powers to its constituent parts. In Germany, for example, the federal government is prevented by the constitution from instructing the Länder (state) governments on what do in certain areas, such as many aspects of health policy. Although, formally, responsibility for certain matters has been devolved to the Scottish, Welsh, and Northern Irish assemblies, this is always subject to the power of Westminster to overrule them where their decisions might clash with British policy as a whole. It will be interesting, for example, to see the nature of the debate over the forthcoming Scottish Freedom of Information bill.

Some of these issues are already emerging in relation to university fees. Consequently it is important not to overestimate the impact of devolution.

What about health needs?

EDITOR—We read with disquiet the editorial by Mossialos et al, which explains how economists approach funding the NHS.1 They say that the United Kingdom faces three separate issues—how much money does it need to run a health service that is at least comparable to that in neighbouring countries; what should the health service spend the money on; and how should the money be collected? Their conclusion is that it is more important to answer the first question than the last.

We believe that the second question is the most important. Although we agree that incremental increases in NHS funding are likely to improve healthcare provision, this is far from certain. Disparities in funding levels between the countries of the United Kingdom do not seem to have a direct effect on health outcomes.2 It is important first to determine an ethical framework for allocation of resources among competing priorities in public health. Failure to do so will negate the government's commitment to improved participation of patients and the public in defining health needs and will instead serve to reinforce the primacy of the acute sector over population based approaches to health gain. As to the method of funding, the only system that is consistent with the principles on which the NHS was founded and is the least expensive to administer is progressive direct taxation, whether hypothecated or not.

Spending should be decided by public and politicians

EDITOR—In their editorial on financing the NHS Mossaiolos et al ask how to pay for the health service and how the funding is collected, but they omitted another important question: how should the money be spent?1

Current expenditure on “health” is done in a disproportionate manner. The “health service” spends most of its money on the management of disease. Professionals with titles such as “reader in child health” are disease specialists. It is logical and obvious that more money should be concentrated on preventing disease. Politicians have said that this is important, but I have not heard them assert that they will allocate more money to prevent disease; under 5% of the United Kingdom's medical research budget is spent on researching the genesis of disease.

Holgate, in his article on allergic disorders, lists among his predicted developments the identification of the principal environment factors underlying the rising trends in allergic diseases to enable preventive strategies to be implemented.2 Researchers complain about lack of money, as do experts in other occupations. The amount spent in the United Kingdom on medical research is less than that spent by a successful industrial firm with a long term vision. Obtaining money for a research trial that tests if a manoeuvre will reduce the incidence of a disease is more difficult than raising funds for projects to accrue knowledge. Yet a controlled trial of disease prevention may show the mechanisms of disease genesis. Pharmaceutical firms, which may fund pure research, will not usually support disease prevention trials. Also, if the project crosses the boundaries of several disciplines—for example, applying molecular biology to a trial to reduce the incidence of a disease—it is more difficult to raise the money. A long time is needed to prove that a manipulation is effective even in common diseases. When an application for such a grant is sent to a charitable British funding source this causes difficulty for the management—namely, in deciding what is its field. This is required for the hierarchical management systems that devolve judgment to expert committees. The trial may not be funded because the wrong component is chosen as the focus for assessment; individually, this may be judged “not worthy enough” and the project rejected. If it was viewed in entirety on value and probity, it might have been accepted.

The potential value to the public should be included in appraisal. Spending should be decided by the public and politicians, with generalists providing an overview and specialists giving scientific appraisals.

People covered by private health insurance will not reduce consumption of NHS services

EDITOR—Dykes, in his rapid response to the editorial by Mossaiolos et al on funding the NHS,1 is right to point out the potential value to debate of assessing the balance of advantage from giving tax relief for health insurance premiums,2 especially since the figures needed for an outline estimate are on the internet and in the public domain.

We may start with two simplifying assumptions—that all private medical treatments would otherwise have been equivalently required to have been provided by the NHS, and that people covered by insurance do not increase their consumption of NHS services not covered by their policies.

Then we strip out from premiums the overhead and administrative costs and the profits of the insurance companies. In 1997 the British insurance industry paid 79% of premium income in claims (Association of British Insurers, http://www.abi.org.uk/), but, at this rate, insurers were incurring serious losses, and a long term claims proportion of 75% is more realistic.

We should strip out the equivalent overhead costs and non-treatment extras (single rooms, etc) from provider prices. The best way to do this is to match published tariffs for private procedures, including consultants' fees,3 with equivalent average figures in the published schedule of reference costs.4 A cataract extraction and lens prosthesis, which would be priced at £1950-£2600 when charged against health insurance, would cost the NHS £847; and a hip replacement, charged to an insurer at £5800-£7500, would cost the NHS £3678.

Having reviewed all the top dozen private procedures, 4

5 I can state as a general rule of thumb that the reported average NHS cost is consistently around half the private insurance tariff.

It follows that £1 of premium income may be expected to permit some 75p in treatment claims, and this would equate to around 37p in NHS costs. Hence, although there is a margin for debate around specific figures, it may be safely concluded that, if tax relief were to be allowed at the higher rate of income tax (40p), the British Treasury would invariably lose.

Whether there might be a case for offering a restricted rate of tax relief would depend on how far our two initial simplifying assumptions may be contradicted in practice. Unfortunately, the evidence is not hopeful—there is little direct evidence that people who are covered by private health insurance are disposed to reduce their consumption of NHS services, nor is there any reason why they should. It is highly likely that their consumption of some NHS services—for example, consultations with their general practitioner—will increase.