With the Covid-19 pandemic now into its third year and with case numbers still high, the challenges facing the NHS as it seeks to recover from the crisis are significant. Over six million patients are now waiting to be treated, and the numbers waiting more than two years for routine NHS treatment in January this year were more than eight times what it was last April.
In some of the commentary on how to deal with the waiting list, the idea has been raised of offering tax breaks to people who opt for private treatment. The thinking is that providing incentives to people who can afford to exit the NHS waiting list and be treated privately will create more capacity for those that need it.
Apart from the political risks involved in this idea, as articulated by Isabel Hardman, there are a number of other problems with this as an effective policy.
Less activity than expected
The idea seems to be partly premised on the idea that the problem the NHS faces is a shortage of capacity. This is true to an extent, but the main capacity constraint in NHS planned care is not beds or theatres, but staff. Using the private sector does not increase the availability of staff, and may actually reduce it. If the policy is successful and there is a significant increase in activity in the private sector, it is quite possible that this will be achieved by consultants reducing their NHS commitment in favour of better paid work in the private sector.
Generally, more patients are treated by systems where doctors are paid on a fee-for-service basis, as clinicians tend to be more productive than those paid a salary. However, there are limits on how many hours consultants can or are willing to work, and there is a scenario in which the total amount of work falls.
It is quite likely that the majority of consultants are not income maximisers (otherwise they would work exclusively in the private sector). Instead they ‘satisfice’ within the constraint of having an interesting mix of work. This means that other goals, and the time off to pursue them, are traded against pay, so once their required income level has been achieved, the individual will not be incentivised to carry on working.
Any productivity gain from a shift to the private sector (which is not guaranteed) could therefore be offset by reductions in the amount of work done due to this effect.
Unexpected price effects
A tax break could increase demand for private treatment and therefore price, since there is a relatively fixed supply of consultant staff. This risks a bidding war for consultants and nurses in areas of high demand. This means that private hospitals and consultants are more likely to reap the benefits of the tax cut than patients. The NHS can set a price it pays, but in a scenario of tax breaks for private treatment, the NHS is not the purchaser, so unless there is some price regulation, there are inflationary risks.
Allocative inefficiency and equity issues
To have an effect on private sector treatment, any tax rebate would have to cover self-pay patients, as new insurance policies would be very unlikely to cover an existing condition for which the patient is already awaiting treatment. Offering tax breaks to new or existing policy holders would have a minimal impact on the waiting list, and much of this would be subsidising people who were already willing to pay, with the added potential for the price effects mentioned above.
There is also a risk that tax breaks would be provided for people who were always intending to self-pay or who would not have been a priority for NHS treatment – possibly not even on the waiting list at all. It seems likely that a system of tax breaks would carry a significant administrative cost to address this problem. All of this represents a potentially substantial deadweight cost to the public purse, which would reduce the value of the policy significantly.
Offering to subsidise those who can afford care via tax breaks is obviously highly inequitable, but it’s also likely to be allocatively inefficient because ability to pay up front is unlikely to correlate well to need and the priority that would be given to patients based on their clinical need. As waiting times are long, there is a need to ensure that those with the highest risk and need are prioritised, which would be made more difficult by the dynamics described here. A further issue is that more risky patients (those with serious underlying health conditions) may not be suitable for treatment in some private hospitals, creating even more inequity.
Inequitable and of questionable effectiveness
From a government perspective, a tax break is equivalent to increasing spending. The question is whether this is the best way of spending extra money. As a policy, it is inequitable and of very questionable effectiveness. More direct action to solve the problem is likely to be better, such as removing the current disincentives for consultants to do additional NHS work related to the rules on pensions, or to create separate surgical centres to allow more efficient working. The capacity constraints facing the NHS lie at the heart of the problem of long waits and cannot be made to easily disappear, and certainly not through mechanisms like this.
This blog was originally published by the BMJ on 5 April and is reproduced with permission.