How to pay for the NHS

Britain's health service is underfunded. More money is part of the remedy--but only part

MOST people in Britain think that the National Health Service is on its knees. This view goes far to explain the Tories' unpopularity: the NHS is the part of the welfare state that Britons care most about. Its perceived deterioration is something they find hard to forgive. The trouble is, when it comes to improving the health service, voters may will the end but they do not will the means.
People appear to share Labour's scepticism about the government's "internal market" in medical services: using competition to squeeze more out of given resources hasn't worked, they reckon. But they are also unwilling to see their taxes go up. Hence, Tony Blair has promised to stick to the Tories' public-spending plans for at least two years. These plans entail an even tighter squeeze on cash for the NHS than the service has endured up to now. So what is to be done?

More is less
The Tories persist in arguing that all is well: since 1979 spending on health has risen from £25 billion to £43 billion at today's prices. True--but beside the point. The demands on the NHS have risen, and will continue to rise, much faster than that. What makes health care unique among public services is the way an underlying trend of rising expectations interacts with new technology. As people get richer, they want better. Then, in health care, new technology tends to raise costs not lower them, because new treatments are usually dearer than old ones. On top of this, the more the NHS succeeds, the dearer it becomes: extend a life this year and you create a new patient to be treated in due course. People are anyway living longer (thanks not only to the NHS but also to better diet and housing); they need more health care as a result. All of which explains why, relative to demand, the resources devoted to health care in Britain have indeed been falling.
     A strategic choice will have to be made. One course is to let the NHS wither, delivering an ever narrower set of services to an ever poorer clientele, as increasing numbers take up private medical insurance. This process, despite Tory denials, is already well under way. The government announced this week plans to subsidise private insurance for long-term care of the elderly: another step in that direction. Labour objected, but none too loudly. If what Mr Blair says about taxes and spending is to be believed, his government may actually have to accelerate the trend towards privatised health care.
     Ultimately, that may be the only way to bridge the gap between ends and means. But such a course is worth resisting. The goal of high-quality health care for all regardless of income is a noble one, worth defending. And the full-blown private-insurance alternative, as adopted in the United States, is hardly inspiring. It resolves the political dilemma, to be sure, reconciling ends and means. But it leaves millions without adequate access to health care, and the majority who fare well under the system are obliged to pay an extraordinarily high cost for the privilege.
     The alternative is to revive the NHS. If there is to be any hope of this, the Tories' management reforms will need to be consolidated and extended--not reversed, as Labour says it intends. Then the task will be to bring demand and supply into line. More resources will be needed, but demand must be checked at the same time.
     Two ideas commend themselves. One is to make greater use of charges. Patients could be asked to pay for such things as hospital rooms with greater privacy and better "hotel" facilities, and for a variety of non-essential procedures such as cosmetic surgery, treatment for varicose veins, fertility treatment and so forth. New technology, in most ways the enemy of health-care cost-control, could help: smart-card technology will soon make it possible to apply means-testing to such charges, and to vary the cost passed on to patients according to the price and/or urgency of the treatment.
     The other approach, which would work best alongside charges, is to introduce a hypothecated health-care tax. In the current year, the cost of the NHS will be equivalent to roughly 60% of the yield from income tax--far more than most people suppose. Designate that sum as a health tax (in effect, a parallel income tax, with future rates to be set independently) and spend the proceeds solely on the NHS. In the past we have argued against earmarking taxes in this way: it raises a host of budgetary difficulties. But in health care there is a benefit that has come to seem overriding: it would force governments and voters to confront the question of ends and means. To plead that more must be spent on health care without specifying where the money is to come from would henceforth convince no one. A demand for more to be spent would be seen as a demand for higher taxes--which is what, as a rule, it is.
     Greater use of charges would reduce the demand for resources and increase their supply simultaneously. What would be the effect of a hypothecated health tax? So confused are people about what they require of government in this area that it is difficult to say. Perhaps they would call for a big rise in taxes, given the assurance that the money would be spent on the NHS. Conceivably, they would call for a cut in health spending, once they saw on their paycheck how much it was already costing. In either case, they would begin to think hard about the demands that the NHS can reasonably be expected to meet. That would be new--and long overdue.