Economics of healthcare in England

The UK spends 9.6% of its Gross Domestic Product (GDP) on healthcare . The NHS accounts for 87% of all health expenditure in the UK, with private health insurance (which covers 12% of the population) accounting for 1% of health expenditure, and some paying out of pocket. The NHS budget of £108.9 billion is funded through 90.3% general taxation revenues; 8.4% from National Insurance contributions (which both employer and employee make); and 1.3% from patient charges such as prescriptions (88% of prescription users are exempt from the charge) and dental charges.

Spending on primary care by Primary Care Trusts  from 2003/04 to 2011/12 rose by 22%, compared to a rise of 40.1% in secondary care. Secondary care accounts for 65% of the overall budget. Although spending on GP services has remained static, there has been an increase in pharmaceutical services in addition to prescribing, such as the NHS SmokeFree stop smoking campaign.

In 2011/12 the NHS had an underspend of £1.4 billion, of which £316 million was carried over, but £1 billion, under the Budget Exchange Scheme, went back to HM Treasury.35 Such an underspend is projected to increase, with £2.2 billion set out in the 2013 Budget, with all of the underspend being returned to HM Treasury

The Political Economy of healthcare in the United States

In 2010 the US spent $8233  per capita on healthcare, two and a half times the OECD average. Between the 1970s and 80s, US healthcare saw an “oil price-driven inflation” generally, and an expedient increase in healthcare inflation which resulted in healthcare spending rising from 7.2% of GDP in 1970 to 9.1% of GDP in 1980, and to 17.9% of GDP in 2010. This growth is higher than the OECD average, but does not necessarily equate to greater health resources to Americans. Due to the relative unpredictability with which healthcare is required, such funds are not distributed evenly, with 49.5% of the overall health care spending being used for just 5% of the population. Furthermore, it is projected that by 2020 health spending will be 19.8% of GDP. In 2010, 55% of the total healthcare expenditure was from the private sector, with the remaining 45% coming from government funds.

Employment-based insurance has historically played a significant role in the US, with 98% of companies with more than 200 employees offering some form of healthcare, and healthcare benefits being a prime consideration for potential workers.  This insurance is however in decline, with 68.4% of the population having such insurance in 2000, to 59% in 2009.48 The impact for employers can be demonstrated by Starbucks, where in 2005 it spent more money on healthcare insurance for its employees than on the raw materials for its coffee.

Such a reliance upon private insurance is not only negative for the employer, but for the employee, especially when considering that losing a job does not just mean a lower income financially, but often in terms of healthcare coverage too. Such an impact was seen in the 2007 to 2009 recession where unemployment rose from 5.0% to 9.5%, meaning fewer people were insured through their employer, contributing to the action (in 2012) of 50% of Americans reducing their healthcare spending, and 25% not filing a prescription due to the cost. Comparing this to the flat-fee prescription charge in the NHS of £7.85, there appears to be a stark contrast between accessible healthcare in the US and UK.

The financial impact that healthcare can have upon an individual’s finances is most explicit when considering that 62.1% of bankruptcies cite medical costs as the primary cause. In another example of where reliance upon the health insurance market can fail people, 75% of those who file for bankruptcy based on medical grounds have some form of health insurance.

Medicare, the state’s healthcare insurance plan for those aged over 65 and those with kidney disease, was passed by the US Congress in 1965, and now provides some form of coverage to 47.5 million people. Medicaid, which covers those with lower incomes, and those with disabilities, provides coverage to 58 million people.  18.9% of adults do not have any insurance from either Medicare or Medicaid, or from the wider market. It is those without any insurance that the current US healthcare reforms target.

Contrary to some perceptions, those who are uninsured will not necessarily go unaided in an emergency, but are less likely to have access to many healthcare services. Uninsured children are 60% more likely to die if they require hospitalization when compared to insured children. Whilst this is not due to non-preferential treatment at the hospital, but due to the likelihood that preventative services will not have been consulted prior to a condition developing, it is a serious indicator of where an individual can feel the full extent of the market processes in place within healthcare; it is unlikely in the UK for preventative healthcare to be avoided on the basis of cost.

Whilst there is clearly a significant amount of spending on healthcare in the US, there are varying suggestions that up to 20% of total expenditure could be saved through changing rates of “overtreatment”, and making administrative processes, the costs for which account for 31% of overall spending, simpler. Additionally, there are challenges in coordination across the public and private sector, consequently leading to greater inefficiency.

Given that private insurers influence the price and use of services for people who have private health insurance coverage, there is an apparent reliance upon market mechanisms within healthcare in the US. Such market mechanisms arguably contribute to why the US spends the highest out of all developed countries, and yet does not have the highest health records to show for it.
The notion of the healthcare system in the US as a “lottery” with no real “winners”, merely those who are fortunate enough to not have to claim on their health insurance if they are privileged to have such insurance, highlights a key distinction between the US and the UK. There are two issues here however: the notion that healthcare coverage is seen as a privilege, and not a right by the state; and that even when people do have health insurance, this does not however mean that any medical treatment received will not incur extra charges to one’s insurance. These issues are however  not as distinct as they may seem.

Describing healthcare as both a “business and an essential public service”, is not necessarily a controversial notion in itself; what is worrying however is the role of the market within healthcare; that one’s access to healthcare can be determined by the market. The perceived increase in the role of the market is one of the largest criticisms of the British Health and Social Care Act.

Given that healthcare is provided through the private market, there is large scope for those with no insurance, either private or public, to be “failed by the market”. Such a prospect comes to the heart of the concerns of integrating market mechanisms within healthcare, where rather than providing universal healthcare, the policy is made to ultimately leave citizens to fend for themselves. Such concerns relating to the market are apparent within the Health and Social Care Act.

The prospect of an individual having to either take personal health insurance, insurance through one’s employer, or to be eligible for Medicare and/or Medicaid, leads to personal risk not only for the individual with their wellbeing, but also economically. Such a consumer-driven system of reliance upon private health insurance can be attributed to what Waddan (2011) terms “government imposed collectivisation of risk on the private insurance market”.

Such economic challenges to the provision of healthcare can influence policy decisions towards the levels of healthcare provided. One such option that policymakers have is priority setting as a method for allocating resources in a systematic manner.

Ian has been working with us for the last year and this is part of his undergraduate dissertation submitted to the University of Sheffield.

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One Comment

  1. Very interesting and very clear.Thanks.

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