Our State‐​Run Healthcare Model Makes Winter Crises Inevitable

In the UK, we have a socialised NHS rationing system that is delivering poor healthcare outcomes, in large part due to basic economic phenomena.
January 9, 2018 • Commentary
This article appeared in City A.M. on January 9, 2018.

The Daily Mirror claimed “our NHS is dying”.

The Sun reported on “third world A&E”. The Daily Mail saw the “A&E crisis worst for 10 years”, while the Daily Express lamented “hospitals just can’t cope”.

No, these were not last week’s newspaper headlines, as Britain’s ailing health service cancelled thousands of operations, and large queues developed at accident and emergency again.

In fact, they appeared on Facebook as a “memory” from this same date in 2015.

Can a healthcare system in perennial crisis like this really be the “envy of the world” as politicians claim? Each year we hear the same old cliches.

Those with blind faith in the abilities of the NHS point to other major countries spending more on healthcare. The issue is merely “underfunding”, they claim.

For those who acknowledge that healthcare outcomes here are worse than in other countries, technocratic tweaks are suggested, or cop‐​outs advocated. The most popular is the creation of a cross‐​party commission which will supposedly come up with all the answers.

For all the talk of the need for an “honest conversation about the NHS”, people do not really want to hear the basic economic problems associated with a taxpayer‐​funded, state‐​run, socialised healthcare system. And if the scope of any commission makes such a model sacrosanct, what is the point?

Basic economics tells us that if you set the price of something at zero at the point of use, demand for it will always vastly exceed supply.

The implicit “price fixing” of an NHS delivered “free” to users will mean that there is always a “shortage” of healthcare. Absent prices, the only way of allocating such care will be queuing and rationing.

Demand for healthcare is rising, exacerbating this problem.

As people get richer, they tend to want more healthcare (mainly preventative care). An aging population increases the “need” for healthcare too. Yet the demographics also mean that the main tax paid by working‐​age adults is shrinking relative to the retired population, where demand is highest.

So demand for healthcare is rising in a system where demand already exceeds supply by construction, and where it’s getting harder to raise tax revenue to fund new supply.

Add to this the “planning problem”. At this time of year, there tend to be spikes in demand for healthcare, due to cold weather. In an ordinary market, unforeseen surges in demand would raise prices, encouraging other providers to enter the market or to alter where they put resources to serve the waiting customer base.

In the NHS, unforeseen demand simply results in more queuing and rationing. Given that budgets are largely fixed by the political process, and resources are allocated to different parts of the service based on highly speculative demand estimates, deviations in demand can lead to acute shortages.

Of course, on the margin, having more resources can help. An NHS awash with cash would no doubt be under less pressure than it is today. But no reasonable amount of funding would solve these structural economic realities entirely.

There is a reason the NHS has these winter crises regularly, and other countries do not

In fact, the NHS model creates other problems. Since healthcare in the UK is provided free at the point of use, and providers rely on the government for funds, there is little pressure for harnessing technological innovations for improving efficiency.

ONS data showed this clearly last week. NHS productivity essentially flat‐​lined in the years from 1997 to 2010, when healthcare officials knew Labour intended to hugely increase funding. It has only seen significant improvement in the years since 2010, when its funding diet has been relatively lean.

This point is missed by those who think all our current problems stem from “underfunding”. That the NHS spends less than other countries on healthcare does not mean the NHS is more efficient, because efficiency is the outputs you get for given inputs, not just the inputs themselves.

And most other countries get better treatment and health outcomes per pound invested than we do.

We are therefore left with this quandary. All major western countries face healthcare spending pressures as populations age. But other systems allow individuals to spend more themselves and provide market‐​based incentives for innovation and adaptive provision.

In the UK, we have a socialised NHS rationing system that is delivering poor healthcare outcomes, in large part due to basic economic phenomena. Yet all political parties support the current model.

Absent a change in the political consensus, more money will eventually be thrown, no doubt providing a sticking plaster for a while. And then the sensationalist headlines headlines will reoccur next winter.

About the Author
Ryan Bourne

R. Evan Scharf Chair for the Public Understanding of Economics, Cato Institute