We already have a 'social insurance model' for healthcare: it's called 'the NHS'!
The rapid deterioration in NHS emergency care in the UK has prompted the predictable comment that it is time for the UK to re-evaluate its overall approach to healthcare and consider a ‘social insurance model’.
I find these outburts very frustrating, because we have a ‘social insurance model’ for healthcare in the UK - the National Health Service.
Calls for a social insurance model often seem not to understand what social insurance is, or even insurance more generally. And the fundamental similarity it has with how we actually operate healthcare in the UK.
To explain. Imagine a health insurance scheme in which there was no opt-out. This helps because private health insurance systems with opt-outs generate what is known as ‘adverse selection’. Those who opt out are those who think they are super healthy and won’t benefit from a payout. So those who are left in are those who think they are going to get ill. The insurance company knows this is likely to be the case, so raises premia. This tips a few more out of the scheme who think they are not going to get that ill, and premiums rise a bit more, and so on. Compelling everyone to join keeps premia down and stops individuals with private information about their health gaming the system, and the providers protecing themselves from the gaming, which can shrink or even destroy the market altogether.
Also, imagine that we vary the contributions according to ability to pay. If you are a child, unemployed, retired, disabled and unable to work, you pay less or nothing. If you are rich, you pay more.
We set the contributions to approximate what we think will be the cost of looking after those who fall ill each year. We allow people to choose how much coverage they get, but only as a collective, in regular research exercises we call ‘elections’. People who want to be in charge of delivering the choices offer different choices and customers choose the person who wants to be in charge that is offering the best coverage.
If you are ‘unlucky’, the state collects your contribution and you get nothing back for it. All the money goes to other people. If you win the health lottery, you get to take money out in the form of time with doctors, nurses and, if you really hit the jackpot, you get time with very valuable surgeons and a ton of equipment.
To simplify things, we can call the conributions ‘tax’; the healthcare insurance plan ‘citizenship’. And the insurance providers the ‘NHS’.
The NHS has all the key components of social insurance. Financing it is a form of actuarial risk management. How many people are going to get sick and what will it cost? How much should we therefore demand as a contribution? How do we combat adverse selection [no opt outs]? How do we pool the risk [in this case we have a single risk-bearer, the state, not multiple providers/risk bearers]? How do we provide the services? [A mix of those employed by the insurance provider [the NHS] and those bought in [all the things the NHS buys and does not make, like paperclips].
When people start intervening to suggest that we have a ‘social insurance model’ for healthcare and scrap the NHS, they are therefore talking nonsense. What such interventions calling for health insurance usually signal - aside from not understanding the economics of health or insurance - is a change in the amount of coverage everyone gets; or more ability to differentiate between coverage people get depending on their income and appetite to pay. And they sometimes mean to suggest that if market forces can only be allowed to penetrate, then some miracle of private secor risk management or service provision can be wrought to lower the cost.
If your real motivation for calling for a ‘social insurance model’ for health is to end universal coverage, or indeed to provide different levels of coverage depending on how wealthy you are, you can obviously just call for that. You could say ‘why don’t we stop providing healthcare to everyone, or have a system in which if you have more money you can get better healthcare?’ [This is kind of how it operates already to some extent, but you can imagine calling for the system to move more in this direction]. But such an intervention would clarify things too much and might attract opposition from people who understand what you are asking for and find it unjust. Instead, if you call for a ‘social insurance model’ it sounds as though you are tapping into a deep knowledge of the problem and nodding to the wisdom of market economics. So such calls are explicable.
In my estimation, there would no miracle wrought in terms of risk management. The best entity to bear the many hard to quantify and sometimes cohort-wide risk is the state. This entity can spread risk out across the generations, using its history of good behaviour, being good for its debt, and standing in international borrowing markets, to cover times when too many people are getting ill and not enough people are paying in.
Private sector involvement in the provision of services is a different matter. Here there is a great a priori case. The same wonders that drive the progress of the entire economy. Incentives, competition. However, in practice, and bearing in mind the long history of abject failure in contracting out across the realm of public services, I would guess that more contracting out of actual healthcare [as distinct from anciliary services and material inputs] would not help at all. Read the experts on this, however, not me. The case for moving in this direction in the very short term, to help solve the emergency care crisis, might be more promising. Some spare capacity might exist in the private sector; other capacity could be requisitioned, which is the same as redistributing care from rich to poor people.
So, next time you see someone - usually from the right, but not always - calling for a ‘social insurance model’, remember they are right! We have a social insurance model! Point this out and they will be happy that the thing they long for already exists. And the debate can move on to the more useful question of how much money we put into it and how we find the staff to make people better.
If you want to really delight them, you could explain to them that not only did we adopt this sophisticated approach for healthcare, but, after a protracted century of radicalism we adopted, step by step, the ‘social insurance model’ for unemployment, disability, flood damage, and a range of other benefits.