The Politics of Healthcare in Britain

Stephen Harrison, Ruth McDonald

• Publisher: SAGE Publications Ltd
• Year: 2007
• Print ISBN: 9780761941606, 9780761941590
• eBook ISBN: 9781446238387
• Edition: 1
• Topic: Sozialwissenschaften
• Subtopic: Gerontologie

?This is an excellent textbook for which there is currently a niche in the market. The chapters on rationing, professionalism, politics of clinical knowledge and the politics of democracy and participation are particularly strong and will be invaluable to students of health policy, health studies and health service research? - Professor Michael Calnan, University of Bristol

Written by leading academics in their field, this book provides a clear and considered overview of the politics of health care in Britain. Bringing together a wide range of material on both past events and recent developments, the chapters cover issues such as the politics of health professionalism, clinical knowledge and organisation and management.

Each chapter offers a a unique combination of theory, historical detail and analysis of contemporary events. It features case studies to illustrate how policy has evolved and developed in recent years, and the implications these changes have for practice. Written in an accessible style the chapters also include comprehensive introductions, summaries and further reading sections. The final chapter is based on three detailed case studies that illuminate the tensions and debates discussed throughout the book.

The Politics of Healthcare in Britain is a timely and authoritative textbook that covers a key topic of the curriculum whilst also contributing to topical debates. The book will be essential reading for students of social policy, health policy, public policy and nursing. It will also be of interest to policy makers and practitioners in the field of health care.

Chapter 1

The Politics of Healthcare Resources and Rationing

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Summary of chapter contents

• Third party payment in healthcare: what is it and why is it used?
• The consequences of third party payment
• Managing healthcare supply and demand
• Ways of interpreting third party payment: neo-Marxist and public choice theories

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The phrase ‘out of pocket payment’ denotes the manner in which we purchase most goods and services in developed economies. We may literally take cash from our pockets, write cheques on our bank accounts, or employ debit or credit cards. Even if we are using credit cards, the end result is the same; we pay personally from our own resources, now or in the future. There is no necessary reason why health and medical care cannot be purchased in the same manner, and indeed most of us purchase a range of non-prescription ‘over the counter’ remedies from pharmacists, spectacles from opticians and so on, purchases that account for a little over 7 percent of all UK healthcare expenditure. A further proportion of such expenditure (some 3 percent) is accounted for by private (non-NHS) healthcare purchased out of pocket from doctors, other professional clinicians and hospitals. This figure does not include expenditure on private healthcare insurance (almost 4 percent of the total), which is one example of an alternative approach to healthcare purchase termed ‘third party payment’, to signify the involvement of a third party (in this example, the insurance company) in the transaction in addition to the patient and the clinician or hospital. The NHS is a larger example (some 86 percent of the UK total healthcare expenditure) of third party payment in which central government acts as the third party, employing tax revenues (rather than insurance premiums) to fund healthcare for UK residents. Third party payment systems of one type or another are the international norm in the healthcare field and although out-of-pocket payment usually exists alongside it, the former usually dominates in terms of public policy and expenditure. As the above figures (estimated from Office of Health Economics, 2003: Tables 2.1, 2.22) show, the latter is certainly true of the UK. The first section of this chapter examines the concept of, and rationale for, third party payment, together with some of the consequences of its adoption as public policy. The second section is an historical sketch of how these consequences have emerged and been addressed in the UK since the foundation of the NHS in 1948, whilst the third section gives a more detailed account of what might be called the ‘big ideas’ for managing healthcare supply and demand that have emerged in the last few years. The final section of the chapter examines a number of theoretical questions about the basis and consequences of third party payment.

Key concepts in third party payment

The principle of third party payment is that financial contributions are collected from groups, irrespective of the immediate healthcare requirements of the individuals who compose them. Such groups may represent a more-or-less complete national population, or narrower groups such as the members (voluntary or compulsory) of social or private insurance schemes. Contributions are collected by ‘third party payers’ such as government or quasi-independent agencies or insurance companies, which employ the resources thus obtained to resource or reimburse healthcare providers (individual clinicians and/or healthcare institutions such as hospitals) for the care of individuals considered to be sick. Third party payment thus separates payment for care from its immediate consumption, and to varying degrees separates the financial contribution that the individual makes from the volume of care that they actually consume. In a tax-financed system, the government acts as third party payer by employing resources collected through the tax system to pay for citizens’ care. Since the taxation system collects revenues to support public expenditure on a wide range of services, health’s share may not be hypothecated (‘earmarked’), thereby allowing governments to shift their expenditure priorities between different programme areas. In a social insurance system, the third party payers are social insurance funds, the number of which varies between countries (Mossialos et al., 2002). They may be non-governmental bodies whose history lies in trade union and voluntary effort or may be managed by the state, but in either case their resources will remain hypothecated (‘earmarked’) for healthcare and other specified services and not be merged with other revenues. Membership of a fund may be compulsory for some or all citizens. Members make periodic contributions to the fund, typically based on a percentage of earnings. Employers may also contribute, and non-earners may have their contributions to the fund met as a social security entitlement. The fund in turn pays the clinician or hospital for services provided to members, often at rates negotiated annually between organisations representing the various interests in the healthcare industry. A private insurance system treats the cost of healthcare as an insurable risk for an individual. Coverage might be voluntary, or routinely provided as a condition of employment for some workers. In this context, the third party payer is the insurance company, health maintenance organisation, or nonprofit friendly society, to whom the flow of money takes the form of premiums or subscriptions paid by policy holders, which provide the resources to pay for their care. The state may support private health insurance, for instance by allowing employers to provide health insurance as an employment benefit and to treat the premiums as a tax-deductible business expense. Britain and Sweden are typically treated as textbook examples of tax-financed systems (often termed ‘national health services’), with Germany as an example of social insurance and the United States as an example of predominant private insurance (Freeman, 2000; Harrison and Moran, 2000; Moran, 1999). A fourth possibility is that governments with substantial direct revenues, such as the income of several Middle Eastern states from oil production, may simply provide healthcare facilities from these revenues.

There is no necessary relationship between a particular funding mechanism and the ownership of hospitals and other healthcare providing organisations. Public funds can be used to purchase care in private hospitals (as in Germany and, as we note in Chapter 4, increasingly in the UK) and private insurance could be used to purchase care in public hospitals (as frequently occurs in Britain). Nor is there any necessary relationship with the manner in which clinicians are remunerated; fee-for-service, capitation or salaries may be used either singly or in combinations. The characterisation of countries in terms of particular types of third party payment can conceal important similarities. For instance over 40 percent of US healthcare expenditure is accounted for by tax-financed public programmes such as Medicare (for older people) and Medicaid (for poor people). It might also be argued that the more compulsory social insurance becomes, and the fewer the different funds involved (as in contemporary Germany), the more it resembles tax financing. Moreover, the categories are not discrete; contemporary France retains many of the institutions of social insurance but increasingly funds them via general taxation (Jacobzone, 2004: 81–2). The most important similarity between these various systems is the underlying principle that third party payment detaches the act of payment for healthcare from that of receiving it when considered necessary.

Uncertainty and equity: rationales for third party payment in healthcare

Third party payment separates the individual’s financial contribution from the volume of care that they consume though, especially with private insurance, there may be a relationship between the amount required to be paid and the volume predicted to be used by an individual. Third party payment pools (or ‘socialises’) resources to smooth out the uncertainties of individuals’ health states requiring more expenditure than they are able to make, either as income maintenance (Lewis, 2000: 91) or, more usually, in the form of healthcare. Though judgements about their relative merits may be made, all third party payment systems socialise at least some of the financial risks of ill-health across a group that is distinct from current patients. Unlike out-of-pocket payment, third party payment never limits the value of benefits provided to the sum of an individual’s contributions. Indeed, all things being equal, it would be better to save the money in one’s own bank, thereby receiving interest and avoiding administration costs, than to participate in a scheme that limited benefits to the value of past contributions.

Third party payment is therefore a partial answer to the problem of an individual’s uncertainty about their future healthcare needs (Barr, 2001). None of us can be certain of such needs; even those with ‘good genes’ and healthy lifestyles may walk under the proverbial bus. It would therefore be difficult for anyone to be confident about being able to afford future necessary healthcare from income or personal savings. Third party payment has the rationale of insulating individuals against unknown risks of both illness itself and of unaffordable costs of treatment. Third party payment can also be a partial answer to the problem of equity, that is to the empirical tendency for the poor and the sick to be the same people, as clearly demonstrated by the existence of wide social class differentials in both mortality and morbidity (Population Trends 86, 1996: 15–20). Despite having the greatest healthcare needs, under out-of-pocket payment such people would be least able to afford to have them met. However, the extent to which this is ameliorated by third party payment will depend upon how widely the risks of ill-health are spread and it is clear from the descriptions above that different variants of third party payment achieve this to different extents. Tax-financed systems pool the risks across a whole national population and, other things being equal, spread the risk most equitably. Private insurance, and any system of social insurance which employs a multiplicity of third party payers, are likely (other things being equal) to be less equitable since there exists the probability that poorer, sicker people will be found in some risk pools and richer, healthier people in others. The former group may therefore receive a poorer range of benefits than the latter. Moreover, any type of third party payment system (including, as we shall see below, the NHS) might in practice make charges for, or impose access restrictions upon, certain treatments.

Although these matters seem technical, they are also deeply political in that they manifest different normative assumptions about what risks should be pooled. A private insurance system seeks to compensate for the relatively narrow range of uncertainties related to the individual’s health over his or her own lifetime and within his or her own social group. In contrast, a tax-financed system, in socialising risk across a single national population, additionally seeks to compensate for a broader range of socioeconomic inequalities. The latter has a universalist rationale, implying a notion of citizenship which includes social rights (Marshall, 1950) in which effective participation by individuals in society is to be secured by state action (Flynn, 1997).

The policy consequences of third party payment

Third party payment systems risk the inflation of demand over time. Such demand increases may be conceptualised in terms derived from the economic concept of ‘moral hazard’. Consumer moral hazard arises only where some or all of the costs of care are met by the third party payers; it encourages a higher rate of use than would occur if full costs had to be met at the point of use (Pauly, 1968), since the demander assumes that the cost of their usage will be spread over a large number of taxpayers, fund members or policy holders. However, if large numbers of people behave in this way, then total demand (for healthcare and hence for the resources to provide it) will rise. Consumer moral hazard in third party payment systems for healthcare is the consequence of divorcing payment for services from their use. Third party payment makes it easier for people to obtain care than would otherwise be the case, but at the same time tempts them to increase their demands. An important qualification to this is that cost and price are not synonymous; the non-money costs of obtaining care can be significant. At the minimum the user must take steps, such as telephoning for an appointment, rearranging a working day, travelling to the surgery or hospital, and perhaps sitting for some time in a crowded waiting area, in order to gain access. Costs can be higher. We may react adversely to the drug which is prescribed or the needle may hurt as it pierces the flesh and the prospect of gastroendoscopy or sigmoidoscopy is hardly pleasant.

Provider moral hazard (or ‘supplier-induced demand’) arises from information asymmetries; the consumer’s lack of knowledge of a highly technical service coincides with a provider’s interest in increasing provision and allows the latter to affect demand. Whilst patients do make generalised demands in the sense of arranging a visit to the doctor or being taken to the Accident and Emergency Department, it is typically (though not invariably) the physician or other clinical professional who translates it into a specific demand for antibiotics, pathology tests, a specialist appointment, or a surgical operation. Some accounts cast such professional motivation in material terms. If the clinician is remunerated on a fee-forservice basis, there are clear incentives to maximise supplier-induced demand unless the total fees are ‘capped’ in some way. The same incentive may exist if the institution which employs the clinician is itself remunerated by the third party payer on any basis which is sensitive to the volume of patients or treatments. From such a perspective, a system in which clinicians were salaried would have the opposite effect of ‘underprovision’, since there would be no economic incentives to perform beyond the level necessary to retain one’s job. However, this seems an unnecessarily narrow perspective on incentives; Donaldson and Gerard (1993: 33) have argued that where providers are salaried and do not themselves have to bear the costs of treatment, simple ignorance of costs may lead to overprovision. There may be professional ethical incentives to provider moral hazard; even if the hospital’s budget is not volume related and clinicians are remunerated by salary or capitation fees, demand might still increase as a result of the clinician’s desire to behave ethically, that is to do the best possible (according to their own imperfect opinion) for his or her patient. Supplier-induced demand does occur in out-of-pocket payment systems, but might be limited by the patient’s inability or unwillingness to pay; in a third party payment system such limitations are attenuated by the patient’s and clinician’s mutual knowledge that a third party will meet all or part of the money costs of care (Reinhardt, 1985). Thus, demand in a third party payment system might be expected to increase over time since neither consumers nor providers have the incentive to moderate it. This does not imply the assertion that healthcare demand in such systems is infinite; it is unlikely that demand for healthcare could escalate to the point where all other demands were excluded. It is rather that no real-world third party payment system as yet seems to have experienced an autonomous levelling off of demand.

Whilst the two forms of moral hazard provide the immediate basis for the inflation of demand in third party payment systems, there are a number of secondary factors which may affect the propensity of patients and clinicians to increase their demands. One obvious candidate is the constant invention and development of new medical technologies, many of which are extremely expensive. The pharmaceutical and medical equipment manufacturing industries are important sectors of the economies of the UK, USA and Germany and significant exporters. The term ‘technology’ encompasses ‘drugs, devices and medical and surgical procedures used in medical care and the organisational and supportive systems within which such care is provided’ (Office of Technology Assessment, 1978: 2). New approaches to psychotherapy, new packages of care for the elderly, and new multi-professional approaches to the care of stroke victims are therefore new technologies, and indeed may carry costs just as high as new drugs. The mere existence of technologies does not create a demand, which depends upon patients and/or clinicians perceiving that they might be beneficial. Moreover, the inventors and manufacturers of medical technologies have an economic interest in maximising their sales which, if it can be linked to public and professional perceptions of a condition as a ‘disease’, leads to the ‘medicalisation’ of conditions not previously thought of in such terms. In the words of Moynihan and Smith (2002), ‘many of life’s normal processes – birth, ageing, sexuality, unhappiness and death – can be medicalised’, including pharmaceutical treatment of male baldness on the grounds that it might lead to panic, mental health problems or poor job prospects, and the transformation of personal shyness into the condition of ‘social phobia’, treatable by antidepressants.

Another secondary source of demand for healthcare is demographic shift; many countries have an ageing population in both absolute and relative terms, brought about by increasing life expectancy and a falling birth rate. Indeed one major study has suggested that although policy makers have tended to assume that further increases in life expectancy (currently a little under 76 years for British males and 81 for British females: Wanless, 2002: 42) can only be modest, there is apparently no absolute limit to life expectancy (Oeppen and Vaupel, 2002). Older people currently consume greater amounts of hospital care per capita than do younger people; the 75–84 year age group consumes four times as much NHS resource per capita as does the 16–64 group, a comparison that rises to seven times for the 85 and over age group (Glennerster, 2003: 58). However, there are disputes about whether increases in the older groups as a proportion of population necessarily imply continuing increases in demand. Policy makers in the UK have tended to assume that any such increases will be modest (see, for instance, Wanless, 2002: 42–3) and recent evidence suggests that proximity to death is a much more important determinant of hospital usage than age per se (Dixon et al., 2004; Seshamani and Gray, 2004). On the other hand, there is likely to be a very substantial increase in the demand for ‘long-term care’...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• Preface
• 1 The Politics of Healthcare Resources and Rationing
• 2 The Politics of Health Professionalism
• 3 The Politics of Clinical Knowledge
• 4 The Politics of Organisation and Management
• 5 The Politics of Democracy and Participation
• 6 The Politics of Healthcare Policy Making
• 7 The Politics of Contradiction: Three Case Studies
• Glossary of abbreviations
• References
• Index