Myth #3: “We should copy other countries and adopt a social insurance model”

My previous articles in the series have looked at common misconceptions about what sits behind the many significant problems facing the national health service. Here I examine a solution that is often proposed for the supposedly over-funded and under-reformed British system: the social insurance model.

Countries like Germany and the Netherlands provide health care through social insurance – a scheme where employees contribute a portion of their income to fund their health care, matched by a contribution from their employer. These schemes do not provide universal coverage and they generally allow higher earners to opt out. They do, however, generally provide a high level of cover to all, in a similar way to tax-funded systems.

This model is often held up by the NHS’s detractors as the obvious solution to our health service’s current woes. Indeed, high-income countries with social health insurance (SHI) models generally have health systems that are achieving better results than the UK on measures such as heart attack and cancer survival. But there are three strong reasons to doubt that a shift to social insurance is a panacea.

Is social insurance the reason for better performance?

The countries using social insurance models in north-west Europe tend to be richer, have lower health inequalities and spend more than the UK. There is no obvious link between the funding mechanism and health outcomes: the NHS-like systems in the same area, like those in Sweden and Denmark, also perform well. New Zealand and Canada (which have tax-funded provincial systems very much like the NHS) also perform very well. 

A further complication is that many social health insurance systems are increasingly tax funded as the narrower funding base (employee and employer contributions) has become less able to generate the required revenue. The actual distinction between the Beveridge and Bismarck systems is growing less clear than it once was.

What are the direct advantages of social insurance?

An attractive element of social insurance is that it provides some insulation from national politicians. Countries with social insurance models have less direct government involvement in health care provision and policy. This would be helpful in reducing the chronic short-termism that plagues UK health policy, with politicians and the Treasury cutting back long-term investment to spend today. It also insulates these systems from the frequent and damaging reorganisations that have been inflicted on the NHS.  

It is not impossible, though, to have a tax-funded system which invests more and reorganises less. For most of the last decade, capital formation in Swedish health care as a proportion of GDP has been close to double that of the UK.

It might also be that, as people can see what they are paying, they will also be more demanding, but there is no strong evidence for this – nor that independent payers, whether competing or not, drive higher quality. The payers in many social health insurance countries tend to be rather passive and have not used their purchasing muscle as much as they could, often just trying to limit costs.

Lastly, social health insurance systems tend to have more provider competition, which may help some aspects of performance. However, the evidence that this explains significant differences in outcomes is very limited. It does, however, imply that providers are not owned by central government and that social insurance systems have hospitals owned by a mix of the for-profit private sector, not-for-profit organisations and local government.

Do we have the basics in place for a fair system?

European social health insurance systems are generally quite equitable and offer a high level of coverage. But they are also embedded in systems with higher levels of staffing, beds and facilities, lower income inequality, and a long tradition of mutual types of governance and social solidarity. As already noted, they also have providers that are independent of government. 

Without some of these pre-conditions, a shift to social insurance in the UK – where the gap between rich and poor is very large, and the health system is mostly state owned and lacks beds and staff – could lead to a number of adverse changes:

• the exit of higher earners to private insurers
• insurers try and exclude those with serious risk factors unless there is active risk equalisation and regulation (which they will probably resist)
• bidding by insurers to secure access to scarce clinical staff and resources leading to inflation of medical fees and salaries
• the departure of many NHS staff in areas with a high demand for private care
• rump of NHS services providing poor services to the chronically ill and less well off
• if the insurers were more like commercial insurers rather than the organisations found in European social health insurance systems, there are risks of a number of bad practices that are common in the USA, such as large numbers of non-comparable plans, bureaucracy, exclusions and high costs.

This is not a theoretical scenario. This was broadly the impact of health insurance coverage reforms in Chile in the 1980s. The risk is that in aiming for Otto von Bismarck’s venerable German system, we get General Pinochet’s or a poor version of what happens in the USA. 

The best way forward?

Social insurance will not provide most of the benefits that its advocates hope for, and that’s because the NHS’s problems run deeper. But even if it was the answer, the path to getting there would be very difficult. It requires an expansion in capacity, investment in new systems and huge organisational change, including the privatisation of providers. This would be hugely disruptive, likely unpopular among staff and perhaps the public, and would take many years. Is it possible to capture some of the successes of other countries’ systems, whether insurance- or tax-based, with a less all-consuming approach?