Education And Debate

Stakeholder health insurance: empowering the poorest patientsCommentary: Stakeholder health insurance has disingenuous aims

BMJ 2001; 322 doi: (Published 31 March 2001) Cite this as: BMJ 2001;322:786

Stakeholder health insurance: empowering the poorest patients

  1. David G Green, director ({at}
  1. Institute for the Study of Civil Society, Elizabeth House, London SE1 7NQ
  2. King's Fund, London W1G 0AN

    The NHS aims to be universal, comprehensive, equitable, and of a high standard but fails to achieve its objectives. Are there any overseas systems that guarantee all their people—especially the poorest members of society—a higher standard of care than the NHS? An honest observer looking at countries such as Germany, France, or the Netherlands would have to answer this question with a resounding “yes.” Can we learn from them?

    Summary points

    The NHS does not meet its own objectives to be comprehensive, equitable, and of a high standard

    It has three long standing problems: underfunding, lack of competition, and lack of respect for individual choice

    Stakeholder health insurance would use the market to improve care for everyone

    Patients who opt out of the NHS would receive a tax rebate in proportion to their earnings

    Advantages of social insurance

    One advantage of European social insurance is that the standard and range of cover is linked to judgments about affordability made by people who are self sufficient through work. In Germany and France, people can see on their pay slips how much they are paying for health care and form a view about whether the cost is justified. The state guarantee reflects personal preferences to a greater extent than a system financed from taxes. Put another way, the French and Germans have found a way of making the market serve everyone.

    The government's national plan for the NHS dismissed overseas alternatives because they failed the test of equity. But in which European countries would you find the widest gap between the standard of care enjoyed by the poorest people and the standard enjoyed by the rich? The people with most to lose are those who depend exclusively on the government for services. The wealthy can always take care of themselves. In countries such as Germany, France, and the Netherlands, the high standard of care guaranteed by the government narrows the gap between rich and poor; but in the United Kingdom the lower standard of care has its most serious impact on the poorest people.

    What counts as comprehensive care at any moment is in the process of being discovered and rediscovered. The advantage of a system based on insurance is that it allows gradual evolution towards a reasonable standard that reflects consumers' judgments about the type and cost of cover they want. The allocation of funds by the Treasury is crude by comparison. It is what the government can afford or chooses to spend and bears little or no relation to medical demand. In addition, it is a global amount with no room for individuals to pay for more or less.

    Managed competition

    Opponents of insurance typically highlight two main problems: the exclusion of people with pre-existing conditions and the related tendency of some insurers to select customers in order to avoid those most likely to make large claims. Over the years, many different solutions to these problems have been attempted, but perhaps the most promising have been schemes based on group insurance with a “sponsor” acting as a consumer champion. This system is also called managed competition. Sponsoring agencies, which could be private organisations (including large employers) or statutory bodies insulated from the political process, facilitate consumer choice by offering comparative information about quality and price and by filtering out bad insurers. Such schemes have been championed for more than 20 years by the economist Alain Enthoven.1 Originally called consumer choice health plans, the latest name is the health insurance purchasing cooperative. Such systems capture the strengths of European social insurance without some of the weaknesses.

    There are four main elements. Firstly, each year consumers choose a comprehensive care package for one year. Secondly, they do so through agencies whose task is to facilitate choice by providing comparative information about quality and price and by weeding out unsatisfactory insurers. Thirdly, the consumers' choice should be cost conscious—that is, part or all of the cost of the premium should be met by all individuals except those who are very poor. And fourthly, providers should compete in structures that integrate provision and insurance, either by establishing a single system, such as a health maintenance organisation, or by creating schemes based on contracts between insurers and independent providers.1 Schemes based on managed competition have been found to work. There are examples of such systems in operation in California and Minnesota, but I will mention only one: the Federal Employees Health Benefits Program.

    This programme began operation in 1960 and now offers nearly 400 insurance plans to some four million policy holders covering about nine million people. Every year in November/December people choose their insurer for the next year. Insurers must accept all applicants regardless of pre-existing conditions and the federal government typically pays 75% of the actual premium of each person's chosen plan. Employees pay the difference.2

    Application in United Kingdom

    How could such a system be implemented in the United Kingdom?3 Existing health authorities could establish stakeholder health insurers in their areas. We would all continue to pay taxes as at present, and health care would continue to be provided through primary care groups without further charge. People who prefer to be covered by insurance would opt to receive care through their local stakeholder. In return for assuming responsibility for part of the cost, they would receive a tax credit representing the part of the tax they had paid towards the NHS.

    The stakeholders should be independent of government, and preferably be mutual organisations run by boards which represent members. Each year, stakeholders would invite private insurers to submit tenders for a comprehensive package of cover for anyone within the stakeholder boundary. All insurers should be required to price a standard contract so that consumers can compare value for money; to guarantee that there are no hidden gaps in coverage; and to prevent selection of low risk patients, which reduces incentives to produce value for money. This standard package should be defined by each stakeholder to reflect members' preferences and to facilitate comparisons.

    Hospitals, NHS or private, would charge insurers for their services. Private hospitals, whether for profit or not, would compete on equal terms. All hospitals would be free to enter into contracts or arrangements with insurers as they believed best. Similarly, general practitioners functioning through primary care groups would charge insurers or offer prepaid services.

    Initially the scheme would be based on existing health authorities, but, as under Enthoven's scheme, it should be possible to establish mutual purchasing agencies other than area based stakeholders. A common objection to small scale purchase of health insurance is that the administrative costs tend to be high. However, the RAND health insurance experiment found that groups of 10 000 or more have administrative costs of 5.5%, whereas for smaller groups it can be 40%.4 Thus, groups of 10 000 are large enough to secure the relevant economies of scale.

    How might a system of tax credits work? For each person opting to receive insurance cover through the stakeholder rather than the NHS, a sum of money would be paid by the government to their stakeholder. There would need to be an interim arrangement until enough experience had been gained of the evolving insurance market. Two years would probably be sufficient, and during these two years the Treasury should apportion an age weighted amount per person based on the previous year's NHS expenditure (about £800 per head). In subsequent years, the Treasury allocation should be based on the market price for the standard package defined by each stakeholder. The exchequer subsidy should be a percentage of this market price.

    Embedded Image

    (Credit: LIANE PAYNE)

    There would be an individual policy and a family policy. Based on expenditure in France and Germany, the cost might be £1300 for an individual and £2600 for a family. Let's assume that the cost of a standard insurance package for a husband, wife, and two children is £2600 a year. For people on benefit the government would pay the full amount to the stakeholder. The tax credit for people with earnings would taper away at 25p for every pound of tax liability above each family's tax threshold. The taper could stop when the amount of credit was equal to 50% of the cost of the standard plan. No one would receive more than a 50% subsidy.

    For families with no tax liability the stakeholder would receive £2600 from the government and there would be no out of pocket payment. For a family with a tax liability of £1000 the stakeholder would receive £2350 from the government and £250 from the family. For a family with a tax liability of £2600 the stakeholder would receive £1950 from the government and £650 from the family. A family with a tax liability of £5200 would pay £1300 to the stakeholder and the government would pay £1300. At this point the tax credit would be 50% of the standard plan, the maximum subsidy.


    The result of this system would be universal access to a guaranteed standard rather than universal access to a politically determined standard that bears little relation to national wealth, medical need, or personal demand. There would be competition to create room for experimentation and the discovery of new and better ways of meeting human needs. Above all, the poorest people in the society would have been empowered. They would be free to receive care from the NHS as at present. If they preferred to switch to an alternative insurer, they would enjoy the same power to do so as anyone else.


    • Competing interests DGG received expenses for speaking at the NHS confederation conference in 2000 and the organis-ation of which he is director has received some research funding from private health insurers.


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    Commentary: Stakeholder health insurance has disingenuous aims

    1. Jennifer Dixon, director, health care policy (jdixon{at},
    2. John Appleby, director, health systems
    1. Institute for the Study of Civil Society, Elizabeth House, London SE1 7NQ
    2. King's Fund, London W1G 0AN
    1. Correspondence to J Dixon

      In this election year, expect several bodies to come up with ideas to improve health care. Wherever the plans come from, it is important to try to review each objectively, using empirical evidence (if it exists) to support or refute the claims made. We have applied a simple evaluation scheme (box) to Green's proposals.

      Simple scheme for assessing ideas for improving health care

      What's the problem?

      Does the proposed solution match the problem?

      What effect would the proposed solution have on efficiency, equity, and responsiveness of care compared with now?

      Who gains from the solution?

      What's the problem?

      Green highlights four problems with the NHS: underfunding; lack of competition; lack of respect for individual choice; and failing care for the poorest people. Although the term underfunding is essentially a value judgment,1 there is evidence that UK spending is lower (as a proportion of gross domestic product) than that of other countries we like to compare ourselves with. But NHS funding is strongly linked to the country's wealth. Since 1948, real NHS spending has grown slightly more than the real rise in gross domestic product. The most sustained period when spending grew less than gross domestic product was between 1981–2 and 1988-9. Green presumably believes that this reflects government failure to match the public's preferences for increased spending. If so, the current government's decision to increase funding over the next few years indicates that politicians are getting into step with public opinion. So, although the levers available to the public to influence NHS spending may be weak, there is evidence that they work, and, given the way the NHS is used, the poor will benefit most from extra funding.

      Competition is instrumental, so a lack of it is not itself a problem. Green is really arguing that it is the lack of individual choice that is the problem and that choice is one of the benefits of competition. It is true that individuals have little choice about purchaser in the NHS—the government is the purchaser and local choice is largely determined by geographical location. But it is much more debatable whether there is a lack of choice on real decisions about treatment—for example, whether to have it, when, where, how it will be carried out, and by whom. Private patients have more choice in some of these areas, especially the when, but are likely to have a limited range of options about where and who.

      The fourth and surprising problem cited was that the NHS fails the poorest of society. Regardless of income and ability to pay, the comprehensive benefits of the NHS are available to all. Resources for most services are allocated across the country according to increasingly refined measures of need, although there is some evidence of poorer quality of primary care in deprived inner city areas and lower access to some treatments—for example, investigation and treatment of coronary heart disease.24 This, however, may not amount to “failure” given the overall egalitarian way of planning and financing the NHS.

      Would the proposed solution solve the problem?

      Green's solution comes in three parts: financing through a tax credit from government and extra payment from individuals; competition among insurers on a standard package of benefits; and competition between providers.

      The method of financing would allow individuals to opt out of the NHS and use their taxes and extra contributions to buy non-NHS insurance. The maximum tax subsidy for those in work, Green argues, would be 50% of the “standard premium.” Individuals would have to pay at least £1300 per family a year. If a third of the UK population in full time employment could be persuaded to choose this option, then a maximum £8bn extra could be raised for health care. Compare this with the £14.5bn extra cash to be allocated to the NHS between now and 2003-4. But the assumption that one third of employees will opt for stakeholder insurance is generous. Currently, only 11% of the population is covered by private health insurance, and half of these people have their cover paid for by an employer. So Green's plans would be unlikely to boost healthcare spending greatly.

      Would competition between purchasers and independent providers result in more individual choice than at present? Evidence from the 1991 reforms, which produced an internal market in the NHS and encouraged competition between providers, was equivocal. 5 6 Similar modest benefits were seen across most countries in the Organisation for Economic Cooperation and Development in the 1990s.7 The reason? In almost all cases governments fought shy of letting the market rip because it would be politically unpopular. Competition was manacled.8 And in the United States, where the market rips more than anywhere else, tighter controls on spending—for example, by managed care organisations—have greatly reduced individual choice.7

      Finally, would stakeholder insurance competition “fail” the poor any less than now? It is difficult, from Green's description, to understand what the incentives would be for people to opt out of the NHS into stakeholder insurance. People with lower ability to pay top-ups would be excluded. It is hard not to believe that stakeholder insurance is a way to allow the well off to opt out of tax payments that, through the NHS, are redistributed to the less well off, who tend to be sicker.

      Equity, efficiency, responsiveness

      The effect of stakeholder insurance on equity and responsiveness to individual choice is largely dealt with above. What about efficiency? Green cites evidence that suggests that administrative costs for an insurance scheme would be as low as 5.5%—not much more than current administration costs in the NHS. But it is hard to see how stakeholder insurance transaction costs could be kept to this level given the scale of annual tendering and contracting outlined.

      Who wins, who loses?

      Plans for reforming health care are often little more than thinly disguised attempts to redistribute resources by socioeconomic class.7 What is the right balance between, on the one hand, individual choice in health care consumption, and on the other, equity of access to health care by those most in need, is fundamentally a question of values and political belief. Green wants to tilt the balance towards choice, and therefore towards those who can pay. It is clear who the losers are intended to be—Green's aims are disingenuous at best.


      • Competing interests None declared.


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