Why not! The illusion of social and supplemental health insurance as solutions to NHS funding – Cam Donaldson 

Last year, in this series, the case was made for a publicly-funded National Health Service (NHS) on grounds of both equity and efficiency.¹ In the UK, this public funding takes the form of taxation. Yet, as the current NHS and social care crises continue, we observe politicians and others suggesting ‘solutions’ that, despite making apparent sense on the face of it, do not address the fundamental issues of managing our tax-funded resources better² and facing up to the need to spend more. Such suggestions were raised again at a recent Enlighten event hosted by the Royal College of Physicians of Edinburgh, which has prompted this blog.

Are there not solutions to be offered by switching to a social insurance system of the sort they have in countries like France and the Netherlands? Surely even supplemental health insurance will help the NHS or a hypothecated tax would take the politics out of health care and the NHS, wouldn’t it? The short answer to all these questions is ‘no’, the aim of this paper being to explain in more detail as to why, in my view, that is the case.

Why not social insurance?

We now know that continuous health care reform, often intended to promote greater market discipline, and a constant feature of the NHS throughout its existence, has led to little gain at the cost of significant disruption.^3-5 So, too, I would predict, with the oft-lauded switch to the social insurance systems of some of our neighbouring countries. Examples of particular forms of care are often quoted as being better in countries like France, Germany and the Netherlands. Table below gives a clue as to why such systems might seem to do better than here in the UK; they spend significantly more, the pattern being similar if we measure spend by percentage of gross domestic product. This also gives them capacity to focus more on care out of hospital, in general practice and public health; things that have been eroded here in the UK and could be restored without much disruption. rather than relying on the unevidenced and unrealistic expectations of prevention and social care ‘saving’ the NHS, the main lesson to learn from these other countries is that these things are complements to and not substitutes for each other. Perhaps this is why, in the Table, we see the UK coming last in two of our three health outcome measures, and second-to-last on the other.

The fact that some countries operate social insurance schemes and others taxation-based funding is more a product of history than anything else. The UK had Beveridge, Germany had Bismarck and other countries their versions of the visionaries who helped establish their welfare states in different ways. These systems share more similarities than they have differences, especially the deductions from payroll of the man source of their funding. Change from one to the other – whether from an NHS to social insurance or vice versa – would, at best, be futile and, at worst, lead to high costs of disruption.

Why not supplemental health insurance or hypothecation?

Supplementary health insurance is often promoted as having the ability to relieve pressure on the NHS. Again, there is very little evidence to back this up. Most of the evidence shows the impact to be detrimental with respect to waiting lists in the public part of the system.  The reasons for this are obvious. At any one point in time, there are only so many doctors available to provide treatment. If their attention is diverted to the private part of the system this must be at the expense of the public part. Likely, too, patients left in the public part of the system will be in greater need of care.

Total health expenditure per head and health outcomes, selected OECD countries (2022)

Notes:

Sources: *OECD, Health at a Glance 2023 (https://www.oecd-ilibrary.org/social-issues-migration-health/health-at-a-glance-2023_13bdff54-en). Public funding is calculated using spending by government schemes and social health insurance. + Covid-19 Excess Mortality Collaborators⁶

$PPP (Purchasing Power Parity) is a form of currency conversion making spends across countries more easily comparable.

Indeed, it could be argued that the most likely policy direction of government with respect to health care financing is along these lines, and that we may be at a tipping point in this regard. In 2024, the Joseph Rowntree Foundation reported that a majority of people in the UK now expect to pay privately for many common treatments.⁷ This alone is problematic in the sense of those willing and able to pay purchasing the ability to ‘jump the queue’ for treatment whilst, at the same time, taking resources in the form of medical time from the publicly-funded part of the system where the needs are likely to be greater. The tipping point arises whereby, if enough people are doing this, and the myth continues to be peddled that it relieves pressure on the NHS, such groups are likely to begin to demand tax rebates to support them in their apparently altruistic, but actually selfish, endeavour. This would begin to mimic the Australian health care system, where such inequities, sponsored by government via tax rebates, have been known about for some time.⁸ Further political controversies and headaches would arise over the extents to which public hospitals can sell bed space to privately-insured patients and to which even private hospitals themselves might receive support from the public purse. Once embarked upon, it would be difficult to reverse such a policy which would only enhance two-tierism and inefficiency; the latter in the sense of less need being met for resources spent on health care.

Hypothecated taxes – that is money collected by taxation for a particular purpose – are often put forward as a way of taking the politics out of health care. But, again, if this was the solution, many more governments would have tried it. Inevitably, a tax reserved only for the NHS and/or social care would itself become the subject of great political debate. The recent supplement to National Insurance introduced by the Johnson-led UK Government shows the volatility of such taxes. The supplement was meant to provide the funding for proposals to ease burden on those deemed to be paying too much for social care. The main point here is that, due to fiscal pressures, this hypothecated tax was subsequently withdrawn.

Conclusion

There are many in government, who, as with other goods once thought to be the preserve of public financing and provision, would divest themselves of the NHS if they could. Experience of recent decades with respect to the stagnation in plans to reform social care would also back up this observation. For the NHS, the reason they cannot abandon is due to it being the best system on offer. this lesson also needs to be learned for social care. In the end, the answer will centre around more cash being made available. As early as 1952, the UK Government proposed an enquiry into the cost of the NHS, with a view to dismantling it. This backfired when the subsequent Guillebaud Report of 1956 declared the NHS as value for money and that more should be spent on it.

Despite all health care systems being different in terms of their public-private mix of financing, it is the similarities that are striking; universal coverage is sought, ‘insurance’ is based on groups rather than private individual transactions and the vast majority of funds are deducted from payroll.

Cam Donaldson PhD FRSE is Emeritus Yunus Chair at Glasgow Caledonian University and Professor of Health Economics at Australian National University. In July 2025, Palgrave MacMillian published Cam’s latest book ‘Financing Health & Social Care: Bringing Health Economics Back into Public Policy available at: https://link.springer.com/book/10.1007/978-3-031-86769-9

References

1. Donaldson C. The equity and efficiency of a free NHS. Enlighten, 22^nd May 2024.
2. Donaldson C and Noble A. Gain with least pain: using economics thinking to advance population health in a budget-neutral world. enlighten, 8^th May 2024.
3. Donaldson C and Gerard K (with Mitton C, Jan S and Wiseman V).  Economics of Health Care Financing:  The Visible Hand (2^nd edition). Palgrave/Macmillan, London, 2005.
4. Donaldson C. Credit Crunch Health Care: How economics can save our publicly-funded health services. Policy Press, Bristol, 2011.
5. Maynard A and Bloor K, Introducing a market to the United Kingdom’s National Health Service. New England Journal of Medicine 1996; 334: 604-608.
6. Covid-19 Excess Mortality Collaborators. Estimating excess mortality due to the Covid-19 pandemic: a systematic analysis of Covid-19-related mortality, 2020-21. Lancet 2022; 399: 1513-1536.
7. Davis A, Blackwell C, Ellis E, Padely M, Stone J and Balchin E. A minimum Income Standard for the United Kingdom in 2024. Joseph Rowntree Foundation, York, 2024. (https://www.jrf.org.uk/a-minimum-income-standard-for-the-united-kingdom-in-2024#about-the-authors)
8. Smith J. How fair is health spending? The distribution of tax subsidies for health in Australia. The Australia Institute, Paper Number 43, October 2001. (https://australiainstitute.org.au/wp-content/uploads/2020/12/DP43_8.pdf)