Regina E Herzlinger: My prescription for truly consumer-driven healthcare in the UK

Regina E. Herzlinger is the Nancy McPherson Professor at the Harvard Business School and the author of a new Bow Group paper on healthcare in the UK, Having it all in health care, How to achieve universal coverage, excellent care, and reasonable costs. She advised US Senator John McCain, currently advises other members of the US Congress and is the author of a number of books, the most recent of which was Who Killed Health Care? (McGraw Hill, 2007). Professor Herzlinger has been described by The Economist as "America's leading expert on consumer-orientated health reform" and this is the first time she has devoted a paper exclusively to healthcare reform in the UK.

63 years ago, Nye Bevan set out the fundamental principles of his proposed National Health Service, declaring that it was “intended... to generalise the best health advice and treatment" . 

But it is increasingly clear that by international standards the NHS has faltered. Switzerland, a consumer-driven system, which subsidises individuals rather than institutions, delivers better and more equal outcomes.  A 2007 Lancet article found male five year relative survival rates from all cancers at 44.3 in England and 53.6 in Switzerland. OECD data shows Switzerland outperforming the UK on most other outcome measures. Data on health inequality from an EU working group demonstrate that in England and Wales male manual labourers aged 45-59 are 44% more likely to die than their non-manual counterparts; the equivalent figure for Switzerland is 35%. Other sources tell the same story of the NHS delivering more unequal outcomes than the consumer-driven Swiss model.

However noble its intentions - as my Bow Group paper published today shows - the NHS fails to maximise equity and quality for fundamental structural reasons, which only truly consumer-driven reform will address. It fails essentially because two types of patient choice are needed: choice of provider and choice of insurer. Opinion in Britain has certainly shifted towards the former over the last decade. But results comparable with Switzerland will not be achieved as long as 61 million people all get the same state monopoly insurer, whether they like it or not.

Why care about choice of insurer? There are many reasons, but two stand out.

First, innovation. Choice of provider on its own will motivate individual medical practices to do more for less. But absent choice of insurer, the NHS as a whole will only innovate and offer a better bundle of services at lower cost via the natural benevolence and creative genius of politicians and bureaucrats. Real innovators – the Bransons, Dysons and Dells of this world – won’t touch healthcare in Britain as long as a state monopoly insurer prevails. Without them, cost control will end up being achieved by providing less for less, via the traditional NHS tools of rationing and waiting.

In Switzerland, by contrast, around 85 private insurers compete, and innovate, to offer the most attractive bundle of benefits for the lowest possible premium. Although the Swiss pay more for their health care, as a percentage of GDP, it is a result of their individual decisions to do so. After all, the Swiss - who pay directly for the plan they want - can switch provider if they don’t like what’s on offer, just as the British do for travel, home, or car insurance. 

Second, value for money. Designing health insurance involves a number of tradeoffs between cost and range of treatments offered. In the UK, bureaucrats make these tradeoffs behind closed doors, on behalf of the entire population, primarily through the NICE and PCTs. But we all have an inexhaustible range of preferences in the type and cost of insurance we want. A one-size-fits-all model inevitably leads to a mismatch between what we want and what we end up being given. 

The traditional arguments against private insurance-based health systems are failure to guarantee universal coverage (as in the US), and unfair penalisation of the sick through higher premiums. Both problems are easily avoidable. In Switzerland, coverage is virtually 100% thanks to a government mandate, generous subsidies for the poor, and a reinsurance pool which subsidises those who take on more risky patients – meaning insurers retain an incentive to attract as customers the sick and healthy alike.

To move to a truly consumer-driven model, Britain should take 5 key steps:

1. Require everyone to buy health insurance;
2. Subsidise those who can’t afford insurance, and require community pricing to enable the sick to buy insurance at a fair price;
3. Allow providers to bundle care as they want, and quote their own prices. This enables entrepreneurial providers to innovate freely without asking permission from bureaucrats at the Department of Health. Only by doing this will the health care equivalents of James Dyson or Richard Branson want to enter the industry;
4. Enforce risk-adjusted premiums. Insurers redistribute profits from covering healthy patients to those with losses from covering the sick, so sick people pay the same price for their insurance as everybody else;
5. Require publication of data on the performance of all medical providers.  Consumers can then make informed decisions.

In a 2007 referendum, the Swiss were asked whether they wanted to replace their system of free choice among competing insurers with a “single public insurer”. 71% of them voted against. All of us who share Bevan’s vision of equity and quality in healthcare should reflect on what that resounding preference implies for the NHS in 2009.