Privatisation vs Nationalisation: the case of healthcare


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On 14 February, the IEA and the Vinson Centre – ever the hopeless romantics – organised a conference for teachers of A-level economics on the theme of “Privatisation vs Nationalisation”. One of the speakers was the IEA’s Kristian Niemietz. The article below is based on his presentation.  

 

The leitmotiv of today’s conference is “privatisation vs nationalisation”, and I am going to apply that to the field of healthcare: I am going to talk about privatised health systems. I will focus on two systems in particular: the system of the Netherlands, and the system of Switzerland. This is not because there is anything unique or unusual about those two systems; it simply because these are two fairly clear-cut, unambiguous cases, whereas some systems are hybrids, or just difficult to categorise.

I will start with a simplified overview of how those two systems work.

On the healthcare financing side, the main actors in both systems are private health insurers. Healthcare is not paid out of general taxations, but insurance contributions. In the Netherlands, health insurers can be non-profit or for-profit companies. In Switzerland, health insurance has to be offered on a non-profit basis, even if it is done by a for-profit company.

On the healthcare provider side: in the Netherlands, most healthcare is delivered by private non-profit organisations, in Switzerland, healthcare providers can be owned by local governments, by private for-profit companies, or by private non-profit companies.

Health insurance is mandatory in both systems, and it is mandatory for both contracting parties: the individual and the insurer. Individuals cannot opt out, and health insurers cannot turn down an applicant. They have to accept everyone.

In Switzerland, health insurance premiums are simply a flat fee, a list price expressed in Swiss francs. In the Netherlands, they have a flat-fee component, and an income-dependent component. In both systems, the premiums are independent of individual health status: insurers are not allowed to discriminate on that basis. People in bad health do not pay more than people in good health.

Insurers that end up with a disproportionate share of good risks have to compensate insurers that end up with a disproportionate share of bad risks. This eliminates incentives to cherry-pick, and it makes it economically viable to cover the bad risks.

Both systems also have safety net components, for those unable to pay their premiums. In Switzerland, this is done through a means-tested premium subsidy, which works more or less like Housing Benefit in Britain. In the Netherlands, such as subsidy exists as well, but since a proportion of the insurance premium is income-dependent, this already constitutes an inbuilt safety net. Poor people automatically pay less than rich people.

So while both are private systems, they are not pure market systems. That’s why I don’t usually describe them as ‘free-market systems’, I describe them as market-oriented or market-based systems, in which the state still plays a major role.

The free-market element, however, is that you can freely choose your health insurer, your healthcare plan, and your healthcare provider.

There are systems which are more or less like what I’ve just described, but where the healthcare plans are all virtually identical, so that there is notional choice, but it does not mean much in practice. In those two systems, however, healthcare plans can be meaningfully different from one another.

In the Swiss case, the standard healthcare plan gives you unlimited and direct access to any healthcare provider of your choice. That standard plan is, however, also the most expensive one. You can choose plans under which you waive some of that freedom of choice, in exchange for a lower premium. One of those reduced-choice plans is the so-called ‘General Practitioner model’ (Hausarztmodell), an option which a British expat in Switzerland would immediately intuitively understand. It means that, like here, you have to register with a GP surgery, and if you need anything beyond primary care, you need to get a referral from your GP first. You no longer have direct access to specialist care.

Then there’s the ‘HMO model’, which is similar in principle, but even more restrictive. Under that option, you have to register with an integrated multi-specialty health centre, an then they would be your first port of call. If you want to see an external provider who is not part of that health centre, you need to get a referral first, unless it is an emergency.

And then there’s the ‘TelMed model’, where you cannot just show up at your GP: you have to get a telephone consultation first.

In the Dutch case, you can choose between two basic options. One gives you unrestricted provider choice, but you have to pay your healthcare bills out of pocket first, and then send them to the insurer for reimbursement. Under the other one, healthcare is free at the point of use: your healthcare provider directly bills your insurer, not you. But under that option, you cannot just go to any healthcare provider: it needs to be one that is part of your health insurer’s network.

Healthcare outcomes, in both systems, are usually very good. One measure of that is treatable avoidable mortality amendable to healthcare, which is an estimate of the number of avoidable deaths per 100,000 people, where ‘avoidable’ means ‘could have been avoided through better or timelier healthcare’. There are 71 such avoidable deaths for every 100,000 inhabitants in the UK per year, compared to 48/100,000 in the Netherlands, and 39/100,000 in Switzerland.

The Health Care Access and Quality Index, published by the Lancet, ranks the Dutch system as the third-best in the world, the Swiss system the seventh-best, and the UK system only the 23rd-best.

The only ranking of health systems which, seemingly, comes to a different conclusion, ranking the UK ahead of the Netherlands and Switzerland, is the one done by the Commonwealth Fund. But this is simply because they don’t pay much attention to outcomes. If we look at the one category in that study which does look at outcomes, Switzerland ranks third-best out of 11 countries, the Netherlands fourth-best, and the UK ninth-best.

Waiting times are a lot shorter than here. In the Netherlands, they are between half an a third of what they are in the UK, or at least, that was the situation before Covid. In Switzerland, waiting times are such a non-issue, they do not even bother to collect data.

So, good medical outcomes, plenty of choice, fast access – what’s not to like?

There are some things. In privatisation-vs-nationalisation debates, those on the pro-privatisation side usually claim that costs are lower in privatised systems, because of price competition. That is not generally true in healthcare. It’s not that there is no price competition, but it is not the dominant factor, and costs are generally no lower than in other systems.

More generally, if you are looking for a dynamic market, with frequent entries and exists, where well-informed, price-conscious and quality-conscious consumers shop around for the best offer – this is not it. Healthcare markets are fairly static. Switching rates between insurers are low, and market exits and entries are rare: most market participants have been there for ages. This is why, particularly in the Netherlands, some pro-market reformers have ended up somewhat disappointed. It is not that marketisation has terrible side effects, it is more that most actors in the healthcare system do not make full use of the freedoms they have. Healthcare consumers are cautious, and conservative. They do not necessarily reward innovators, and therefore, innovators are rare.

Market-based healthcare systems are a far cry from the Wild West that socialists fear. But they do not quite live up to the expectations of pro-market reformers either.

 

Head of Political Economy

Dr Kristian Niemietz is the IEA's Editorial Director, and Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).


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