Dr Andrew Lilico: A plea for the demand-side in health

Dr Andrew Lilico is Managing Director of Europe Economics, a member of the IEA/Sunday Times Shadow Monetary Policy Committee, and author of more than forty articles, pamphlets and reports on political and economic questions.

The nineties and noughties have seen extensive reforms in the NHS.  Such reforms have been overwhelmingly on the supply-side — that is to say, they affected the way that healthcare was supplied to patients, rather than the way it was obtained by patients.  They have included reforms of the organisation of GPs, of hospitals, of the nature of ancillary service provision, of the use of private sector doctors and nurses, the use of central targets, and so on.

These supply-side reforms have often been contentious, and have tended to create political difficulties for those implementing them.  The reason, I suggest, is as follows: the public at large is vastly indifferent to the precise mechanism by which it receives its healthcare.  All it cares about is that treatment will be available when it is needed, and that it will be free.  The details of internal markets etc. are quite inaccessible to the public and it is difficult to explain why one system will deliver higher-quality healthcare than another.

This means that when doctors and nurses complain about the changes to their existing procedures and attest that they will make their lives more difficult and/or impair service provision (as is almost invariably the cry of public sector workers facing reforms) the public must choose, in the absence of any obvious personal gain either way, between siding with noble life-saving expert-sounding medical professionals or with nasty half-informed tax-grubbing politicians.  Unsurprisingly, they often choose the medics.

I propose that the Conservatives should give such supply-side reforms a rest for now.  Let the New Labour reforms, with all their obviously and unedifying imperfections, alone for the moment.  Instead, focus on the demand-side — where the public cares directly, rather than via a choice of whose side they are on.

There have, occasionally, been discussions and even policy reforms on the demand-side. The discussions typically belong to one of four broad classes.

1. The use of user charges — so, perhaps people pay a small fee to attend the doctor; or pay for food in hospital; or pay more for NHS dental care (note that I include here reforms that have gone through as well as some that have not).
2. Increased choice within the NHS — e.g. an option to choose treatment at a number of local clinics or hospitals, rather than at just that designated to a particular postcode.
3. Voucher schemes, whereby the money notionally allocated for NHS treatment might be taken to the private sector (or even abroad).
4. Compulsory private insurance schemes — whereby people are permitted to opt out of the NHS into private sector insurance schemes (though there is no option of being uninsured).

Option (a) was rather more popular during the 1980s; the government has implemented a version of (b); a version of (c) was offered by the Conservatives from 2003-2005; option (d) is often the darling of the British right and US Democrats.

Cameron’s people seem to have learned a strange lesson from the 2005 General Election — as if, somehow, it was public scepticism about grammar schools or vouchers that led voters to consider us right wing, rather than our policy interest being dominated by asylum seekers and Europe to the exclusion of well-thought-through public service reform proposals.  Because of this, he appears to have eschewed all possibility of material demand-side reform in healthcare, declaring, for example, that the Conservatives would “never” introduce any insurance-based model into the NHS under his leadership.  George Osborne has gone further, eliminating whatever wriggle-room may have remained, and clarified that this was meant to exclude social insurance models as well as private insurance models.

This is quite obviously a mistake, but, never mind.  Politicians often backtrack when it is convenient.  So let me offer the following broadbrush proposal for an important-albeit-modest demand-side reform.

I suggest the following two-step procedure.

Step 1

• First, under Step 1, we should formally codify the treatment level that we will receive from the NHS, specifying for example our minimum waiting time for various classes of operations, what drugs will be available, and so on.  This treatment entitlement should be re-stated each year by the Secretary of State and subject to a Commons debate and a vote.
• Next, still under Step 1, we should buy entitlement from the NHS with an identified line on our tax slips — so, these should say “Tax Paid”, “National Insurance Paid”, “NHS treatment entitlement paid”.  This entitlement should confer on us a litigable right to that treatment, just as, in the case of car insurance, we have a litigable right to the level of cover and associated services that we have purchased.  So, instead of writing to my MP if I don’t get the treatment from the NHS that I want, I should consult my lawyer or the relevant ombudsman, just as I do for any other service

This would already represent a considerable advance.  The involvement of politics in healthcare is an outrage.  Formalising it into commercial transactions where I own a right to receive treatment, rather than do so because of someone’s benevolence or charity, would represent a gain in itself.

Step 2

• Once the above scheme has been piloted we should (having pre-announced the intention at the time of introduction of Step 1) make available, through the NHS, the possibility of purchasing higher levels of care than those under the universal scheme.

Step 2 would allow us to offer the opportunity for the aspirational and thrifty to obtain levels of healthcare that are currently the preserve of the super-rich, by enabling them to build on the service level that is offered universally.

I note that my recommendation is that this is all done through the NHS.  We purchase NHS, not private healthcare.  And we purchase add-on healthcare, likewise, through the NHS, not through private providers.  This is because I believe that the question of who provides is a supply-side question that is irrelevant to the merits or otherwise of the scheme I propose, and I don’t believe that we should allow the scheme to be caricatured as some form of privatisation (which it manifestly is not).

Because of its clear and direct connection with people’s lives, I believe that a scheme of this sort will have much more direct public appeal than discussions of vouchers or foundation hospitals or public private partnerships.  And it would allow us to offer something material to improve public services in a Conservative way, recognising the merits of property rights and the power of private consumption decisions.