Reforming the funding? It's an (in)sure thing

by Andy Cowper, editor, Health Policy Insight

“For every problem, there is a solution that is simple, neat and wrong.” – H L Mencken

‘Follow the money’ isn’t a bad motto in health policy. It was even the slogan of a conference I chaired and programmed a few years back. And Making the NHS the best insurance system in the world, the very latest report from the pro-market think-tank Reform (www.reform.co.uk) has come up with the proposal that the funding system of the NHS needs a fundamental reform – specifically, to switch to an insurance-based model.

Reform have produced some interesting things in most of their reports, particularly around the NHS’s comparative performance to neighbouring developed world counties’ healthcare. For all that, they do make the odd surprising betise, such as in their recent paper NHS reform: national mantra, not local reality (2008), which implied that flexible labour markets would see directly-employed NHS staff willingly decamp from the generous NHS pension scheme to create or join for-profit businesses on the same wage rates so as to facilitate genuine competition – which I don’t think is going to be happening any time soon. No, it is stranegly silent on what would happebn to all the PCT-employed staff, who wuld have to be hived off to turn PCTs into Health Protection Providers (HPPs).

But they suggest that the NHS funding should be replaced by a £2,000 “healthcare protection premium” voucher funded from central taxation for every individual, to be invested by a choice of Health Protection Providers (HPPs), who would compete for market share and offer incentives such as gym membership or rebates for healthy eating and not smoking. A core range of services would be offered, ending debates about the postcode lottery. The Government’s involvement would extend to providing the funding and to regulating the HPPs to ensure they meet minimum standards. A&E services would be guaranteed by the insurers en bloc, along the lines used in the Netherlands.

The paper also proposes that top-ups will become a de facto policy reality.

Reform suggests that insurance systems:
> provide reasons for individuals and authorities to value long term improvements in health and wellbeing
> define exactly what individuals are covered for, ending the postcode lottery and empowering individuals to demand their rights from providers
> achieve greater value
> de-politicise healthcare

There is some truth in all these statements. However, insurance systems also:
> add significant transaction costs (currently absent from the system)
> may incentivise ‘cream-skimming’ through risk selection
> require serious regulation
> may not prevent cost-inflation (as in the USA)

On, then, to the report’s specifics. Its musings on the intrinsic nature of insurance systems are interesting but incomplete. It correctly sees the mutual benefit to insurer and insured of aligning incentives with reducing individual risk, but wholly ignores the broader determinants of health that the less well-off individual – the bigger net users of healthcare over a lifetime - cannot greatly alter, such as housing, employment and education.

It also asserts that insurance systems drive down costs. This is not automatically the case in other fields – since the report’s authors repeatedly turn to the car insurance industry for examples, it’s instructive to consider the scenario of taking your car to an independent garage to get a quote for a relatively small repair. You may well be asked, ‘is it an insurance job?’ – as garages know that an individual paying out of their own pocket will be more price-sensitive than an average insurer.

The other thing to note with the car insurance industry is that premiums have been rising in recent years, despite the UK’s roads becoming safer – according to the AA (www.theaa.com/services/insuranceandfinance/insuranceindex/). The AA stats also show that despite a falling crime rate for burglary (www.homeoffice.gov.uk/rds/soti.html) over the past decade, the costs of home buildings and contents insurances have risen.

Various references are made in the report to the success of the Dutch insurance system reform. However, since this began in 2006, there’s a distinct risk of premature congratulation here.

Regulation – more or less?
The report is all over the place on regulation. Its executive summary suggests that the government role in the proposed system would be restricted to regulating HPPs to ensure that they meet minimum standards. (Only towards the very end do they mention that government must also retain the role of overseeing universality of provision through taxation to an appropriate level). Yet elsewhere, the report suggest (p. 17) that “the complexity of financial services – in part due to government regulation – makes it difficult to compare (financial services) products, and reduces consumer confidence. Nevertheless, some price comparison websites … have emerged and are widely used.”

Eh? Now the report does not suggest competition by price for the core service – which, looking at what happens to consumers when a budget airtline, for example, goes bust is eminently sensible. They would, of course, be able to compete in incentives and freebies, and the report cites PruHealth on page 13 in a case study. Yet their original deal has now been altered, giving consumers less (http://www.guardian.co.uk/money/2008/aug/03/healthinsurance.fitness). Is this what we want?

Moreover, the desirability of ‘light touch’ regulation is in serious question after the Financial Services Authority’s ‘asleep at the wheel’ performance over collateralised debt obligations which led to the credit crunch that's currently tipping us into recession – see for example www.dissentmagazine.org/article/?article=1229 http://blogs.ft.com/maverecon/2007/09/page/2/

The information deficit
No, the biggest problem facing the NHS is not really the funding system at all. It is the information deficit, in use and in value. The Kings Fund’s excellent new report by John Appleby and Sarah Gregory, NHS spending – local variations in practice: an update (http://www.kingsfund.org.uk/publications/kings_fund_publications/nhs_spe...), notes the wide variations in PCT expenditure over the past three financial years. Even when these figures are weighted to take into account of need, population age and profile, they find a difference between the highest-spending and lowest-spending PCTs per head of population that ranges 2.9 fold on mental health; 2.5 fold on cancer; and 2.2 fold on circulatory diseases.

Now, if we were to accept Reform propose that regulation should be the government’s principal role (after tax-raising), what’s quite worrying is that these vital figures were not produced by the Department of Health. They weren’t produced by the NHS quality regulator, the pre-op Healthcare Commission (who are presumably all worrying fairly hard about their next job), nor by the SHAs (though I see they’re all advertising for economists now).

No,, it was the Kings Fund, a very lovely and highly useful think tank. But a think-tank nonetheless, whose existence we owe to Prince Eddy of Wales’ charitable concern for the health (or at least, the hospitals) of Londoners back in 1897. Interesting bloke, Eddy - see http://en.wikipedia.org/wiki/Edward_VII_of_the_United_Kingdom.

So the evidence for government as a body likely to be an efficient and effective healthcare regulator is not great. They’ve appointed a couple, in the shapes of Monitor and NICE.

Help! We need new IT!
Confidence in the report does not increase as we find on page 27 they call for “electronic payment cards to giove patients ful control of resources for treatment once a diagnosis is made”. Oh dear. It’s ‘an IT system will solve the problem’ syndrome. It’s as if Oyster cards had never been hacked (http://news.bbc.co.uk/1/hi/technology/7516869.stm)

From A to B, not A to Z
Nor do matters improve in the ‘From A to B’ section, where the report states that following insurance competition being introduced, “it would be expected that the number of PCTs will consolidate, following the example of the Netherlands and Germany”. This suggests a disconnect from the realities of organisations that survived the cull from 300 to 149, and who are in London, concertedly resisting NHS London SHA’s firm pressure to merge. Turkeys are not noted for their propensity to vote for Christmas.

Let us pray for faith in competition
This section also asserts that “competition drives efficiency and quality of services for patients”, which is in contradiction to the repeated findings of Woolhandler and colleagues from the USA (Competition in a publicly funded healthcare system - BMJ 2007;335:1126-1129 (1 December)), or the complex findings of Propper and colleagues from the University of Bristol on competition in the NHS internal market (www.bristol.ac.uk/cmpo/publications/papers/2003/abstract77.html or www.bristol.ac.uk/cmpo/publications/papers/2000/abstract27.html) which not only find a negative relationship between competition and quality but find that greater competition is associated with (slightly) higher death rates. Yet still what’s needed is more competition. It’s a faith-based thing, I guess (see Uwe Reinhardt’s ‘Faith based health policy: the urge to privatise ‘ (BMJ 2007;334:1193 (9 June),) and indeed ‘US health care stands Adam Smith on his head’ BMJ 2007;335:1020 (17 November))

In this light, the report’s assertion that “International companies could enter the market, increasing innovation” is even more interesting. It is, I suppose, theoretically possible that could happen. But firstly, they will not do it unless they can make a profit. Secondly, there’s no evidence for it. In the case of treatment centres, we should remember that the first purpose-built diagnostic and treatment centre was an NHS institution: the Central Middlesex Hospital NHS Trust’s Ambulatory Care And Diagnostic (ACAD) centre. I heard Lord Darzi speaking about it in 2001. It later closed, due to under-use – see (www.publications.parliament.uk/pa/cm200304/cmselect/cmhealth/1114/410281..., and in particular “Q: What is the current unfunded spare capacity in NHS treatment centres, including NHS Elect? (Dr Taylor, Q74) A: In the financial year 2003-04, for the four treatment centres which are members of the NHS Elect network (Central Middlesex ACAD; Ravenscourt Park; Kidderminster; Weston-super-Mare) management information shows that they were working at 81% of their planned activity. So far in this financial year (to August), management information shows that they have working at 78% of their planned activity”).

It’s quite hard to find details about its closure online, even searching under fairly precise terms. It’s also useful, and shocking, to re-read the Commons Health Select Committee report on ISTCs /www.parliament.the-stationery-office.co.uk/pa/cm200506/cmselect/cmhealth/934/934i.pdf How did nobody lose their job?

Debate
I attended the event put on by Reform today at the magnificently flash Bloomberg HQ in London, and will post a rough transcript of it up later if time alows. The news aspect was that Nick Clegg became the first party leader at Wesminister to firmly commit his party to top-ups (though Norman Lamb's hints to us were pretty clear – see www.healthpolicyinsight.com/?q=NormanLamb)

But what was striking – if not surprising, given the venue – was the incredulity in some of the debate about the NHS’s failure to behave like a market in its response to incentives. Nobody with any sense thinks that the NHS does not need to change. Equally, it is unintelligent to criticise the NHS for not behaving like a market. You wouldn’t expect it to, because the NHS isn’t a market. It isn’t a golf course either.