With PMI comes the reality that a policyholder is in fact paying for medical care twice. Mike Hall looks at how the private and public sectors could collaborate
In 1948, Clement Atlee's Labour Government turned healthcare in the UK on its head. The establishment of the National Health Service (NHS) was a landmark in the creation of the Welfare State - providing care from cradle to grave.
The NHS was intended to provide a comprehensive package of care delivered in state-owned hospitals by doctors whose salaries were paid by the Government. Since then, the NHS has provided most of the healthcare for most of the people in the UK. With around one million people treated every 36 hours and a budget approaching £90bn, the NHS is one of the largest employers in Europe.
Clearly, the NHS is the dominant player in healthcare given the scale of its ambition and the depth of its resources. However, there is also a thriving market for private healthcare. According to healthcare analysts Laing & Buisson, around 11% of the population are covered by private medical insurance (PMI). Many people assume that PMI exists in opposition to the NHS - a complete alternative to the State sector. In fact, PMI complements NHS provision and patients often benefit from public and private care during their treatment.
Cost pressures
However, there is an uncertain future for state health systems across the developed world and the NHS is no exception. Cost pressures will make it difficult for the NHS to meet patient expectations - the industry needs to improve the working relationship between the public and private sectors to make sure that people get the care they need.
There are certainly inefficiencies in the current system that could be removed to increase the amount of money available in total for healthcare. At the moment, some people argue that it is unfair for private patients to make a double payment for their healthcare. Everyone pays for the NHS through their National Insurance payment and can be treated within the health service if they become ill. However, private patients opt out of the State sector and pay for healthcare themselves, either through insurance premiums or directly to the hospital at the point of treatment. This benefits the NHS and NHS patients because every patient treated privately means one less person on a waiting list. The private sector treats around half a million inpatients each year - a total saving of around £700m to the NHS.
Paying double
So, is it fair that private patients pay once through their taxes and then again through insurance for their healthcare? Is this an efficient use of resources? Several solutions have been put forward to mitigate the effects of this double payment. However, none has proved popular so far.
At the 2005 general election, the Conservatives proposed a 'Patient Passport' that would allow patients who opt to be treated privately to receive up to half the NHS cost of their operation. The Conservatives argued that this would encourage people to fund some of the cost of their own healthcare and relieve pressure on the NHS, as well as removing some of the double payment penalty. However, others argued that the Patient Passport was simply a subsidy for people who are already treated privately and would only take money out of the NHS.
This is a real challenge for the private sector. While, in an ideal world, the double payment for private healthcare would not take place, the financial reality is that governments do not want to reduce the amount of money available to the NHS and have political problems with subsidising the private sector. the Conservative party is currently rethinking its health policy.
However, it is clear that the NHS benefits from a thriving private sector to help reduce demand for scarce health services. It is therefore frustrating for providers that health insurance premiums are subject to taxation having been exempt until Labour came to power in 1997. If this disincentive was removed then insurance would become more affordable, with more people able to take control of their healthcare rather than relying on the State.
The counter-argument rests on the need for the Government to maximise tax revenues and some people argue that removing tax on PMI premiums would not substantially increase take-up of the product. It is unlikely that Gordon Brown will relinquish PMI tax revenues in the near future.
However, there are examples of public and private sectors working closely and successfully together. The Labour Government has shown real political courage to bring private providers into the NHS - reducing waiting times, increasing capacity and encouraging innovation as a result. There are now dozens of Independent Sector Treatment Centres (ISTCs) across the country that provide services such as cataract operations in particular areas. Because ISTCs are dedicated units that do not have to deal with the complexities of a general hospital (such as emergency admissions) they can treat patients faster with excellent results.
Private provision in the NHS is here to stay - with 93% of people saying they do not mind private involvement if it means patients are treated more quickly at no extra cost.
Private investment
Private providers are working successfully with the NHS to treat patients, and 2007 will see a range of private companies helping to purchase care too. The NHS has been split into purchasers (Primary Care Trusts (PCTs), GPs) and providers (hospitals and other treatment centres). Soon private companies will support PCTs in purchasing care in a local area. This may be through negotiating deals with hospitals, carrying out analysis to put together the best package of care, or social marketing to find out the views of local people. The barriers to private involvement in the NHS are truly breaking down and this can only be good for patients.
However, there are challenges ahead. The UK has an ageing population and a shrinking tax base - in the future there will be far more retired people relative to taxpayers. Add to this new and expensive drugs like herceptin and it is easy to see why many people are concerned that the NHS may not be affordable in the future. And there are problems caused by preventable ill health too. A major Treasury report on the future of health funding concluded that the NHS may cost an extra £30bn by 2025 if we do not get much healthier. Poor diet, lack of exercise and smoking all result in increased costs for the NHS.
To deal with these cost pressures it will be necessary to bring more private money into the UK health service. A recent survey of European countries found that the UK has an unusually high proportion of public financing for healthcare. Most other countries have a more balanced mix of public spending from taxation and private spending from the individual. The UK spends a higher proportion of public money than even the former Communist members of the EU.
There needs to be a proper public debate about the right way to introduce more private money into the health system. A starting point may be to help employers to provide healthcare for their employees. Many companies now invest in health and wellbeing at work, helping to combat the public health problems the Government is so keen to tackle. Why should they not be rewarded for doing this? For example, Standard Life Healthcare's corporate customers have access to health and wellbeing services, as well as knowing that they can access private care when they need it. This has benefits for the whole of society - we all need to get healthier. The Government should act to reward companies who promote health in the workplace.
Looking to the future, the Health Select Committee of the House of Commons reported in 2006 on NHS charges. It suggested that, in the future, the NHS may provide a core package of care rather than trying to do everything as it does now. Private insurance could cover treatment outside this core package - helping to bring a sustainable mix of funding into our health system. This is only one of many possible options but one worthy of proper consideration.
To guarantee a healthy future for all, Britain needs a proper public and political debate about healthcare funding. Currently, it is difficult for politicians to talk about alternatives to the NHS. The current model is not always efficient, although there are positive examples of greater public/private co-operation. However, this will not be enough to avoid the impact of an ageing population with ever increasing demands for healthcare. The only sustainable future will involve a greater degree of private funding - now we need to talk about how to do it.
Mike Hall is chief executive of Standard Life Healthcare
