Their Hands in Our Safe

A critique of right wing proposals on financing the NHS

This is the first of two reports on health service funding by the Socialist Health Association. In this crucial NHS Anniversary year, the report dem­onstrates that the NHS is far from safe in the hands of the Conservative Gov­ernment and its supporters. The re­port offers a critique of the right’s approach to funding health care in Britain, and sets the scene for a clear socialist alternative.

The report is by Paul Brotherton and Roger Harris, with contributions by Karen Buck, David Mathieson and Geof Rayner. We wish to thank Rose­mary Ross and Paul Martin for the pro­duction of the report, MSF for their support, and NHS Unlimited (a Com­mittee to combat private medicine, chaired by Frank Dobson MP) for its contribution.


It is fitting that there should be a contribution at this time to the debate about the future of the NHS from the Socialist Health Association. It was, after all, the SHA, then the Socialist Medical Association, which played such an im­portant part in the process of educating, agitat­ing and organising that brought about the formation of the NHS in 1948. Forty years later we remain committed to the ideals which gave birth to the NHS and are proud of its achieve­ments. It was a bold experiment in socialist planning and it has worked. It has provided everyone with opportunity of getting the best treatment available when they need it and nothing Mrs Thatcher can devise even touches this as an extension of individual liberty.

But we must not be content with congratulat­ing ourselves on the success of the NHS, nor is it enough to defend the past. We must also win the future. I welcome this contribution from the SHA to our discussions on how we should de­velop the NHS to meet new needs and chang­ing demands. I hope it will stimulate those who read it to join the debate.

Robin Cook MP Shadow Social Services Spokesman September 1988


Introduction: Extra Resources for the NHS?

No Government in history has given the health service more resources boasted Mrs Thatcher, quite correctly, in December 1987. The Tories are now determined to put an end to that record and to boost the private sector at all costs. Be­fore we examine the way in which the NHS is being dismantled in its 40th anniversary year, it is worth looking at the apparent contradiction between record spending and the cuts which are all too familiar to patients and health workers.

It is quite normal for Government cash spend­ing to increase each year, given the context of inflation and economic growth. It is no great achievement that various public services are at ‘record levels’ of spending. More important is the extent to which public services are able to meet people’s needs. Here we have a very dif­ferent story. In evidence to the Prime Minis­ter’s Review of the NHS in 1988, the National Association of Health Authorities argued that:

In no year, from 1980 onwards, were the real increases in Hospital and Community Health Services expenditure high enough to cover the combined effects of a population which is grow­ing older, of medical advances increasing the range of conditions that can be treated, as well as the need to fulfil important central govern­ment initiatives.

(The Nation’s Health – A Way Forward, NAHA 1988)

In the same vein, the House of Commons So­cial Services Committee calculated that from 1980-81 to 1987-88, the NHS was given £1.9 billion less than it needed for meeting growing needs. The effects of this underfunding are only too real – wards are closed to save money and, particularly for ‘non-urgent’ conditions, people have less chance of getting treatment or care now than they had previously.

International comparisons also show how little funding the British health service is receiv­ing. Again, figures from the Social Services Committee demonstrate clearly that our neigh­bours in France (6.7% of Gross National Pro­duct), West Germany (6.3%) and Italy (6.2%) all spend more on public health care than the UK (5.2%). Rather than the demand for health spending being ‘out of control’, as the right likes to think, a careful increase in spending would do much to tackle many of the problems facing the NHS today – but the Government does not have the political will to do it.

Instead, the trend is towards privatisation. Al­ready many vital hospital services have been privatised, and quality has suffered. More ‘col­laboration’ between private and public hospi­tals is urged by the DHSS, and people are being encouraged to use the private sector rather than the NHS. The Prime Minister’s Review of the NHS has specifically examined ways of bring­ing a cash relationship into health care. The Government is bringing its tired old privatisa­tion policies into the NHS – one step ahead of  ‘selling the family silver’, it is now selling the jewel in the crown. The excuse is that private services are more ‘efficient’ and ‘consumer re­sponsive’ than the public sector. This is a sad admission of failure by a Government which has been managing public services for nine years. Ironically, it is the influence of the pri­vate sector which is eating away at the NHS and making it less able to maintain its high stand­ards of efficiency and responsiveness. This re­port shows the ways in which the right wants this process to carry on. It examines five dif­ferent but related aspects of their approach to health funding, and looks forward to a socialist alternative.

  1. Encouraging the Private Sector

Whilst under-funding the NHS, the Govern­ment have simultaneously been encouraging private health care in a number of ways and it is a trend which Ministers are now eager to quicken. Their strategy appears to have two features.

Individual Insurance

The first is to encourage people to take out their own private medical insurance to pay for their treatment in private hospitals. The whole process is then completed without any apparent contact with the NHS. In fact, private medical insurance is subsidised by the tax payer. Tax relief is available on private medical insurance premiums paid by an employer on behalf of an employee who earns less than £8,500 per year. A Parliamentary Answer to Sam Galbraith MP (13.7.88) revealed that this subsidy costs the country some £ 10 million every year. The same answer estimated that if this subsidy were ex­tended to all those with private medical insur­ance, the cost would be £250 million. In fact it is likely to be very much higher than this be­cause the Government have based their esti­mate on out of date figures.

Extending tax relief on private medical insur­ance would cost the country at least £250 mil­lion in payments to those who already have cover, without providing a single extra penny for health care. Moreover, all the evidence sug­gests that tax relief would encourage only a limited number of new policy holders. On aver­age, people of working age (16-65) use less than £150 worth of health care each year. Accord­ing to health insurers a far greater rebate than this would be needed to encourage people to opt out on any significant scale. Any rebate of more than £150 would, therefore, be an addi­tional subsidy completely unrelated to any real costs or savings. As with the sale of public as­sets, the Government would sacrifice sound fin­ancial considerations for the sake of ideological dogmatism. As the all-party House of Com­mons Social Services Committee reported in July 1988: “In our judgement the creation of a new tax subsidy on all private health insurance cannot be demonstrated to extend the total avai­lability of health care. It would reduce the total public expenditure from which health care re­sources are drawn, while at the same time nar­rowing the tax base further.”


The second feature is to encourage NHS man­agers to make deals with local private hospitals. A set number of NHS patients, usually needing straightforward surgery such as hip operations, are referred to the private hospital and an agreed price is paid by the local health authority for their treatment. Ministers seem particularly eager to engage the NHS in a ‘partnership’ with private hospitals and as the then Social Services Secretary John Moore told the Conservative party conference last year (1987): “We want this co-operation to continue and grow, and we aim to encourage it.” Even more recently, the former Health Minister, Tony Newton, argued that antagonism within the NHS towards pri­vate medicine was restraining Government ef­forts to clear waiting lists (sic) and concluded that more partnership deals are needed. (Daily Telegraph, 15.7.88)

Apart from the cajoling, the hints and the threats, the most potent weapon deployed by Ministers has been their cuts to the NHS itself. Since Mrs Thatcher came to power in 1979, more than 300 NHS hospitals have been closed and another 126 partly closed. These and other cuts have resulted in the loss of some 20,000 acute beds (ie those used for operations and emergencies). It is manifestly absurd for min­isters now to claim that the use of private hos­pitals by health authorities is a voluntary partnership, freely entered into. It is a develop­ment which has been forced on them by a Gov­ernment whose overall strategy has been to underfund the NHS whilst building up the pri­vate sector.

There are strong reasons to show that colla­boration with the private sector may benefit commercial medicine, but will further damage the NHS.

Need for Government Support

Commercial medicine needs government sup­port to maintain its profitability, either by en­couraging people to take out private medical insurance or by contracts with health auth­orities. The anarchic growth of commercial hospitals in the early 1980s was not matched by an increase in the numbers of people taking out private medical insurance. In addition there was a diminution in the number of patients fly­ing into the UK for treatment – especially from the Middle East. It rapidly became clear that there were too many beds in the private sector and not enough patients able to pay for them. In 1986 the health economist William Fitzhugh analysed company balance sheets and found that the new, mainly American-owned, ‘for profit’ hospitals had actually made a loss of £5 million in the UK market. As Marketing Week (29.7.87) commented: “Private hospitals, par­ticularly in London, are proving to be some­thing less than a goldmine.” Most owners were prepared to sustain these losses on the assump­tion that a Thatcher Government would, in the long term, be good for trade. Although the mar­ket has picked up slightly, it can still be buffeted from unexpected directions. The giant corpor­ation, American Medical International (AMI), which recently floated shares in its UK hospi­tals, estimated that the recent nurses pay award will cost it more that £ 1 million and complained that this would have a “significant impact on short term profitability.”

Loss of NHS-trained Staff

Commercial medicine uses staff trained by the NHS, but contributes nothing towards the cost. Apart from a couple of token schemes the pri­vate sector does nothing to help with the clini­cal training of staff. The Government has no idea of the numbers of nurses who leave to work in acute private hospitals, but according to studies done at Sheffield University’s Depart­ment of Community Medicine, about 1,500 nurses leave the NHS to work in the private sec­tor every year. In a letter to Frank Dobson MP (12.11.87) they commented: “… the private acute hospitals appear to recruit from a specific section of the NHS workforce – the under 30s -with particular specialist skills such as theatre nursing, renal nursing, intensive care and oncology. The evidence does not suggest a flow of nurses and nursing skills back into the NHS on a scale which might compensate for this flow into the private sector.” This observation might well be applied to the many other categories of staff who work in private hospitals, but whose training will have been paid for by the NHS.

Comparative Costs

Commercial medicine is more expensive that the NHS. A Parliamentary Answer to Gordon Brown MP (28.1.88) revealed that a hysterec­tomy in the NHS costs £ 1,200 and a hernia oper­ation costs £650. At a private hospital a hysterectomy costs £1,800 and a herniotomy £890 – an increase of about 50 percent on NHS costs in each case. A hip replacement in the NHS costs about £3,300, whereas a private hos­pital could charge more that £4,000. Should any complications arise from the operation, costs begin to soar. Costs range from hotel/nursing services at between £200-£300 per day, down to the last paracetemol at around 14p.

Lack of Performance Monitoring

Commercial hospitals are excluded from the Government’s Resource Management Initia­tive. This exercise involves the extensive use of ‘Korner’ data and Performance Indicators which attempt to profile the work done by indi­vidual hospitals and District Health Authorities within the NHS. In a speech to the extreme right Centre for Policy Studies, the initiative was described by John Moore as a “crucial step in enabling people to assess how well or how badly they are performing …” Yet recent Par­liamentary Answers to Frank Dobson MP (30.6.88) revealed that information which is ap­parently “crucial” to monitor the performance of the NHS is not even collected from the private sector, so the Government knows very little about how the private hospitals perform, either in competition with each other or in com­parison with the NHS. Whereas it is easy to find out the numbers of patients treated, the mortality rates and length of stays for patients in NHS hospitals, virtually nothing is known about what happens in commercial hospitals. When basic information is requested from com­mercial medical companies, they often hide be­hind ‘commercial confidentiality’. Perhaps it is their death rates they don’t want to disclose.

Lack of Long-term Planning

Co-ordinated, long-term health care planning with the private sector is an impossible task. Their secrecy about their activity rates means that we have only limited knowledge about what they are doing now. It is impossible to in­tegrate commercial hospitals into current assessments of the total national resource base. Without this information it is impossible to plan for the future. Moreover, there can be no guar­antee that commercial hospitals will adhere to any agreed plans if the tasks ascribed to them cease to generate enough revenue. Unlike the NHS hospitals, commercial centres are not con­cerned with the overall health of the nation but are impelled by the need to make profits.

Uneven Distribution

The current geographical distribution of com­mercial hospitals puts some regions at a disad­vantage in terms of partnership. The scope for partnership between the NHS and the commer­cial sector is very limited in some areas. Na­tionally, since 1979, fifty two new private hospitals have opened with an additional 3,533 beds. There are now 201 commercial hospitals with 10,196 beds in the UK. On average there are 18 commercial beds per 100,000 population. Yet only the wealthier areas of the country (the four Thames regions, Wessex and Oxford) are above this average whilst the eight other re­gions are all below. The Northern region, for example, has less than a quarter of the national average (4 beds per 100,000 population) whilst Wales and Scotland cannot boast more than half the national average.

Growing Inequalities

The expansion of commercial medicine undermines and distorts planning and the allo­cation of resources within the NHS. Forty years ago, at the inception of the NHS, there were im­mense discrepancies in the geographical dis­tribution of hospitals and medical services. The wealthier areas were well provided for whilst many regions had far fewer and worse facilities. Since the 1970s there has been a concerted ef­fort to ensure a high degree of equity between those areas which have had, historically, decent provision and those which do not. The expan­sion of commercial hospitals now, at the behest of the Government, could only happen in a mi­nority of regions, which are already better placed than many areas of the country.

Lower Standards

Most commercial hospitals are poorly equipped compared with NHS hospitals. Clini­cal standards in the commercial sector rarely match those to be found in the NHS. Sixty per­cent of commercial hospitals do not have their own pathology laboratory for example, and only thirty percent have a resident on-call doc­tor. At the commercial Ross Hall Hospital in Glasgow, when a 13 year old boy failed to re­cover properly from the anaesthetic during a routine operation, the patient was rushed off to the local NHS hospital where he died in intens­ive care. As the boy’s mother put it on This Week (24.3.88): “They made a profit. We lost our son and they made a profit.” The lack of other staff, equally vital to a successful oper­ation, deters some surgeons from operating in private hospitals. One such, a top neurosurgeon, explained in The Observer (17.7.88): “My nurses (in the NHS) are specially trained. However well the operation goes, the aftercare has a vital effect on whether the patient gets bet­ter.”

  1. The Entrepreneurial NHS

‘Income generation’ is a fast growing multi-million pound business. Egged on by the Gov­ernment, NHS general managers are spending an increasing amount of their time clinching business deals in a scramble to save money for the DHSS. Many of these deals will distort health priorities and reinforce inequalities in health provision.

Some forms of income generation have existed for many years. Until now the main supplements to public spending on health have been donations, NHS charges and income from private patients.


Donations were a major form of income be­fore the NHS was set up. Many pre-war ‘cha­ritable’ hospitals enjoyed massive contributions from wealthy individuals and families. Inevitably these donations were not spread evenly around the country. Prestigious London teaching hospitals gained most, and in 40 years the NHS has still failed to rectify this unequal legacy. Just as the names of ‘philanthropists’ were carefully displayed by many pre-war hospitals, the 1980s NHS is again put­ting a high profile on donations. City & Hack­ney Health Authority has suggested that City firms could ‘sponsor’ areas of clinical work or research. Redbridge Health Authority recently listed donations received, giving Glaxo UK Ltd and other companies’ publicity they welcome. Donations are often specifically earmarked for Intensive Care and other ‘high tech’ specialties, and often leave health authorities with extra revenue costs they cannot meet. Less ‘glamor­ous’ services like psychogeriatric care or preventive medicine are clear losers.

Pay Beds

The scandal of both private and NHS charges has surfaced dramatically in the last few years. Not only have pay beds diverted hospital staff away from NHS duties, but they have also made a financial loss in many areas. Even the DHSS auditors have criticised health authorities, in­cluding Mrs Currie’s South Derbyshire, for fail­ing to make proper charges to private patients. Many of the authorities which made correct charges have been forced to write-off bad debts. Bloomsbury, for example, subsidised private patients by writing-off over £1/4 million in 1986/87! With new freedom to increase char­ges, many authorities are now rapidly expan­ding their private provision. West Lambeth Health Authority this year had the temerity to vote for the closure of 181 NHS beds and the creation of an extra 16 private beds at the same meeting. Local residents will find it hard to see the benefits of this grossly unfair policy.

NHS Charges

Charges to NHS patients have leapt substan­tially under the Tories, with prescriptions going up from 20p in 1979 to £2.60 in 1988. While the increasing number of people below the pov­erty line (and the police force) are exempt, many others are finding hardship and ill-health as a direct result of this policy. Members of the House of Lords recently voted down proposals for charges for dental and eye checks on the grounds that they deter people from seeking treatment and cause even more ill-health. A short-term pre-occupation with charges can only cause higher costs in the long term.

Income Generation – 1980s Style

Newer forms of income generation include the selling of both clinical and non-clinical ser­vices. The DHSS enthusiastically announced late in 1987 that entrepreneurial managers will raise £20 million in 1988/89, rising to £70 mil­lion in three years’ time, and introduced the Health and Medicines Bill to encourage the trade. £70 million may at first seem quite small – the size of one health authority’s budget – but we must remember that this is a net income. To raise this money, the health service has now got to engage in many hundreds of millions of pounds worth of business. Is this what NHS managers should be spending their time on? In­stead of recruiting nurses, domestics and other caring staff, the NHS is now advertising for ‘business’ managers. The DHSS has set up its own Income Generation Unit, with a manager paid at £37,000 a year, to encourage the new fad. In a letter to health authorities in April 1988, DHSS Finance Chief, Ian Mills, asked them “to prepare action plans which will ident­ify and pursue those business opportunities which will enable them to capitalise as quickly and profitably as possible on their local resour­ces”.

Health authorities have already moved a long way from the days when the League of Friends’ tea trolley was a major source of income. Today’s schemes range enormously in scale and impact on patients. Whilst a plan to rent out the roof of Hillingdon Hospital as a satellite tracking centre should have little effect on pa­tients, and the setting up of a free-phone taxi service in South Tees might actually benefit people, schemes that involve selling medical services are a different matter. These include the selling of pathology services in Chelten­ham, the sale of private health care to the police force in Central Manchester, the provision of private breast cancer screening in City & Hack­ney, and proposals to sell pathology and occu­pational therapy in West Lambeth, and medical screening in Islington. Many problems are ap­pearing:

  • The setting up of special screening services for the private sector or particular occupational groups is clearly divisive and rewards the well-off and those covered by company schemes at the expense of other potential It will widen the already massive gulf in class inequalities in health.
  • Income generation has a severe bias to­ wards major centres of population and will only strengthen geographical inequalities in health care provision.
  • Like the disastrous privatisation exercises, income generation will swallow up a dispro­portionate amount of management time which could be used to improve services.
  • Income generation will favour high profile, fast turnover general hospital sites at the ex­pense of hospitals for people who are elder­ly, mentally ill or who have learning diffi­culties.
  • Where NHS staff are in short supply, in­come generation schemes divert health wor­kers away from caring for those who need it
  • Income generation involves financial risk and uncertainty. NHS finance is difficult enough to plan already without these extra short-term ‘stop-go’ schemes.
  • Because the profit on income generation schemes might only be 5 or 10 percent of turnover, income generation is a very ineffi­cient way of collecting money in comparison with taxation.

Selling medical services is a further step away from the principles of the NHS being free at the point of use, and threatens its in­tegrity as a service.

Perhaps because of these problems, income generation is unpopular. In a Health Service Journal opinion poll earlier this year, only 30% of the public felt that lotteries should be used to raise funds, and a tiny 13% thought that other forms of income generation should be intro­duced. Unlike the Government, the British people know that this form of privatisation is no answer to the NHS crisis.

  1. Internal Market

The ‘Internal Market’ is a system by which health authorities would buy and sell medical services from each other. Each service would be costed individually, and bought and sold at negotiated prices. Health authorities could choose not to treat certain categories of patients locally, but instead to send their local residents away to another district for their care. Patient referrals to other districts would therefore be the result of management negotiations, rather than as a consequence of GP referrals. A further de­velopment of the internal market is the ‘pro­vider market’, which includes buying services from the private sector as well as from other NHS hospitals.

One of the principal advocates of the internal market is an American economist, Alain Enthoven, who argues that the NHS could learn from the United States’ system of competition in the provision of health care. He, and such ‘home-grown’ supporters as the Centre for Pol­icy Studies and the Institute of Economic Affairs, believes that the NHS is inefficient and wasteful, and that an internal market would act as a spur to greater efficiency.

Amongst the claims put forward for such a scheme are the following:

  • An internal market would encourage greater efficiency in the use of resources. Hospitals would be forced to cost their services and to control their costs – or they would go out of ‘Wasteful duplication’ would be avoided, as hospitals would increasingly seek to specialise their services – especially those which require a high investment in technology. Variations in costs between Districts would be eliminated, since no hos­pital could afford to be out of line with its competitors.
  • Standards would rise – also from the press­ure of competition. Hospitals would have a financial incentive to monitor and improve the standards of service they offer in both clinical and non-clinical activities. If they fail to do so, they will fail to attract referrals and the ‘price’ that accompanies each pa­
  • Hospitals would be free to use their ‘spare capacity’ and to eliminate waiting lists by drawing in patients from other Districts.
  • Patients would be given more ‘freedom of choice’ as to where they wish to be treated -instead of being at the mercy of a paternalis­tic doctor or faceless bureaucrat. In Mar­garet Thatcher’s words, “the money would be allowed to go with the patient”.

However, none of these claims for internal markets are backed by any evidence. The ad­vantages are purely theoretical, and in some cases positively undesirable. The disadvant­ages are, by contrast, all too real and obvious.

It is clear that in America, competition drives down standards of care. Hospitals have a fin­ancial incentive to reduce the length of time people stay in hospital, since it is this variation which accounts for so much of the variation in cost. Hospitals with a long average length of stay would lose patients to those where the length of stay was short – regardless of the needs of the individual patient. Similarly, hospitals having to cut costs will often only be able to do so by reducing nurse or doctor staffing levels. Of course nobody has yet answered the most fundamental question: “What would happen if a hospital goes bankrupt?”

The NHS was created as a national, compre­hensive health care service. An internal market will turn it into a patchwork of competing inter­ests, within which no District will be able to af­ford to provide a comprehensive range of services. ‘Specialisation’ will mean patients having to travel further and further for care, even for such basic services at ENT and oph­thalmology. This will not only hit the poorer and less mobile patients (and their visitors) hardest, it will make back-up services even har­der to arrange. Liaison between hospital, com­munity health and social services is inadequate at the best of times. An internal market would make the discharge of patients from hospital into community health services more difficult, and would create an administrative nightmare.

The very pattern of services is likely to be dis­torted, as hospitals seek to develop those which may earn income. At a time when we are sup­posed to be giving priority to community health services, it will be the acute specialties where attention will be concentrated. Neither would it be possible to work towards the greater equality of service provision between regions, which is the aim of the RAWP process, since patients would be directed to where the service was cheapest, not where there might be a need for new facilities to be developed.

An internal market is not the solution to the problem of ‘spare capacity’. Where health authorities genuinely do have staff or facilities that they cannot use, this is not because there is no demand for their services – it is because they are under-funded. Lack of money, and rigid ‘cash limiting’ of health authority budgets, re­stricts the amount of work that can be done and leaves patients in desperate need of treatment to languish on waiting lists.

Patient choice will be limited – not expanded -under an internal market. It will be up to the local managers to decide what services are pro­vided locally and what is to be ‘bought in’ from hospitals in other areas. Patients will be di­rected to wherever the local management has arranged a deal – in most cases, the cheapest deal. As Ray Robinson, author of an IEA pamphlet on internal markets admitted:

The introduction of an internal market would represent a considerable restriction of the GP’s existing freedom of referral… and would mean a substantial departure from the concept of con­sumer sovereignty.

Under the present system, patients can be referred anywhere in the country, according to the GP’s clinical judgment. Under the internal market that right will be removed. Instead, GPs will be directed where to send their patients, and presumably will be kept up to date as to the con­stantly changing arrangement for each spe­cialty.

The NHS is relatively simple and cheap to run, with administrative costs that are lower than any private system. An internal market will re­quire an army of accountants to set it up and to keep the bills going backwards and forwards between hospitals. That is also supposing that the method of determining costs is accurate, which has not been found to be the case in America. And all this will be for only a frac­tion of the total cost of the health service, since the ‘elective’ or ‘cold’ admissions (which are all that an internal market can cover) account for a much smaller proportion of a hospital’s costs than its emergency work.

The present method for sharing out NHS re­sources has much wrong with it, even setting aside the major problem of chronic under-fund­ing of the service as a whole. For example many health authorities are not adequately compensated through the RAWP formula for the amount of work they do, either on local pa­tients or on patients referred into the District.

There is, therefore, a need for socialists to con­sider how best to share resources so as to ensure that patients are treated well and quickly wher­ever they live; that the distribution of health care resources is equitable; and that the com­munity services are not continually oversha­dowed by the more acute surgical developments in the hospitals.

But an internal market for health care offers no solution to these questions. It is a distraction from the real issues – a complex, expensive, un-proven experiment that will undermine the NHS and pave the way to the right’s real goal: the wholesale transfer of health to the private sector.

  1. Health Maintenance Organisations

Few people a year ago would have even heard of Health Maintenance Organisations (HMOs). However, today hardly a debate goes by or an article is written on NHS funding without HMOs being proclaimed as the saviour for the financial crises facing the health care system in this country.

Because of this lack of knowledge, HMOs have been able to have a very easy ride during the current debates and there has been a relative critical silence from all quarters. This has allowed HMOs to get an undeserved respect­ability, to receive little critical scrutiny, and it has obscured some of the very real problems that have been encountered in the home of HMOs – the United States.

What then are these strange creatures? HMOs have really taken off in the US. Today nearly 30 million Americans are covered by HMOs, with growth rates averaging 18% a year. HMOs took off in the States in the mid to late 70s, when there was increasing concern at the escalating costs of US health care, and concern about how the ‘pay as you use’ system was operating and denying access to effective health care for a lot of people. Some HMOs in the US are enormous businesses. Maxicare, for example, is active in 25 states and has 2.3 mil­lion registered members.

An HMO is essentially a form of pre-paid medical care. There are two basic models :

  • In the first model, patients enrol on an an­nual basis, paying a set fee, usually paid by an employer. In return the HMO will pro­vide all the health care that is deemed The HMO will have its own health centres and will either contract with hospitals for in-patient care or, in the case of some larger HMOs, will provide the fa­cility itself. HMO doctors are salaried and usually employed on a full-time basis.
  • The second model is the Independent Prac­tice Association (IPA). Under this form the HMO contracts with an existing group of doctors, and they agree to manage pa­tients who enrol in the HMO on agreed

What are the advantages claimed for HMOs ?

Clearly the main advantage claimed for HMOs is keeping costs down. It is argued that they possess economic incentives to maximise the efficient use of resources – only enough doc­tors are employed as are needed; expensive specialist medical care is rationalised; treat­ments which produce few, if any, benefits are minimised, and care is delivered in a less cost­ly setting.

Doctors are more fully involved in the overall management of health care. In particular they are involved in the management of resources. Because they are directly employed, their clini­cal freedom is restricted, and they have to give time to the HMO in accordance with their con­tract.

Increased competition has again helped, so it is claimed, to reduce the costs of health care and improve standards. If you are unhappy with the service you are receiving, it is argued that you can leave one HMO and go and join another. This then provides an incentive for the HMO to keep costs down and so have lower fees, but also to ensure that there is a high level of care so that patients do not feel the need to leave and join another HMO.

It is argued that because of this form of fund­ing, there is less emphasis on institutional care in the US health care system. There is far greater priority given to getting people dis­charged from the hospital and back into the community.

It is clearly the case that in some parts of the US, HMOs have proved to be a major advance on the previous system. They have opened up a more comprehensive health service to people than was available under the ‘pay as you use’ system or private health care. However, that has obscured some of the debate as far as ap­plying HMOs to this country, because we are starting from a different situation. What may work in some cases in the US may not in fact work in this country.

The arguments against HMOs can be summed up as follows:

  • As stated above, the UK is not the USA. HMOs were introduced to control health care costs, which were totally out of con­trol, with evidence of totally unnecessary operations being performed and with health care totally unequal in terms of where it was provided, and who was able to benefit from it. We are not in that situation. In ef­fect, we have one HMO operating in this country already – it is called the National Health Service.
  • HMOs have had a mixed reception in some parts of the USA. Despite heavy marketing in New York State, for example, they have met market resistance. In Minnesota, which is noted for its technological leader­ship in health care, they cover more than 40% of workers. HMOs may not do well in central city areas, where there is frequently a sharp divide between poorer populations and the better-off, who may prefer to remain in traditional private doctor arrange­
  • HMOs have been running into considerable financial difficulties in the US, and some of the financial claims made in their name are divorced from reality. Maxicare, men­tioned above, had losses amounting to $60 million for 1987. It is estimated that health insurers across the US lost over $1.25 bil­lion in 1987 – much of this accounted for on their HMO operations. Part of the HMOs’ undoing has been their high overheads. Ac­cording to one Washington consulting firm, around 20% of HMOs’ premium income is accounted for by overheads and profit. Also, because of the large number of HMOs, they increasingly have to spend money on advertising and marketing. All this is a drain on direct patient care.
  • HMOs do not provide a full and compre­hensive service. In the US, the bulk of the work of HMOs is in planned admissions. The problems of dealing with emergency admissions and care for long-stay patients are not catered for.
  • There would be more bureaucrats added to the health service. Managers, rather than trying to plan for health services, would spend an inordinate amount of time nego­tiating with hospitals to provide a service, working out individual premiums, market­ing and advertising their services and all the charging and cross charging.
  • It is difficult to see how patients are ac­tually given any greater choice. It is a man­agement decision as to which hospital the various HMOs contract with. In fact, most people contract with whatever HMO covers their locality, or the HMO which covers their nearest hospital. Also, as it is largely arranged through employers, it is of no use to those who are not in work.
  • HMOs, despite attempts to do otherwise, have become selective in their choice of pa­ Legislation has been in force to pre­vent targetting of high income areas, door-to-door soliciting, or the distribution of in­ducements. However, HMOs have been allowed to advertise freely on TV and to employ ‘personality endorsements’. This, combined with the fact that HMOs could re­strict certain types of patient and the fact that HMOs have been employee-based, has meant that it has been the middle classes that have benefitted from their introduction. Thus, HMOs are not the panacea they are made out to be. There would be more bure­aucracy, higher costs, reduced access to health care and a patchwork of management units throughout the country. They have become a growth industry for right wing health economists who are able to theorise interminably on their internal workings. However there are not the same conditions prevailing in this country as there were in the US at the time that HMOs were intro­duced, and so the the justifications for their introduction just do not exist.
  1. Social Insurance and Opting Out

One of the less talked-about ideas from the right is that of creating a Social Insurance Sys­tem to fund the NHS and, associated with that, the option of opting out.

The underlying rationale for this particular ap­proach is threefold:

  • There is an assumption that we need to find ways of attracting new and different monies into health care.
  • It is argued that what is lacking in the pres­ent method of financing the NHS is any form of personal financial stake and clear financial accountability. Therefore, to feel part of the system, individual people’s spending on health has to be spelt out clear­ly.
  • It is argued that only when people know how much they as individuals currently pay into the NHS will they be in a position to say whether they are prepared to support the provision of any extra resources.

This section will show that none of these three underlying assumptions has any basis in reality and demonstrate that this particular system would be more complex, lead to more bureau­cracy, and encourage the private sector at the expense of the NHS.

What then does the Social Insurance system of financing the NHS mean? It is an idea that has particularly been argued by Leon Brittan in his pamphlet A New Deal for Health-Care. Under this scheme, the NHS would not be funded out of general taxation as at present. In­stead, there would be a separate National In­surance Contribution which would go solely to funding the health service; in effect, a sort of Health Stamp. One would then be able to sep­arate health expenditure from the rest of gov­ernment expenditure, and each individual would be able to see how much they are contri­buting specifically towards the health service. Leon Brittan also argues for the integration of the existing National Insurance Scheme with general taxation, although this does not have to follow automatically.

The National Health Insurance Scheme would be funded through employers’ and employees’ contributions, so only those in work would actually be paying for the scheme.

Leading on from this scheme is the possibility of opting out. Under Leon Brittan’s plans, if someone chooses to join an approved private insurance firm, they would have the option of either fully or partly opting out of the govern­ment scheme.

The arguments used in favour of this approach are fourfold:

  • It is argued that it will increase the overall level of resources devoted to health care in this country. It is argued that quite a num­ber of people will opt out rather than pay twice, and then people will be more willing to pay more into private schemes of their own choice.
  • There would be a direct relationship be­tween the cost of the NHS and the method of raising finance for the NHS. People would be able to see clearly how much money is being paid by them for health care and so be in a much better informed posi­tion than at present to decide whether or not to argue for more government spending.
  • By encouraging the private sector it is ar­gued that it will create a healthy competi­tive environment, which will improve the efficiency of the NHS which is said to suffer at the moment because in the majority of cases it is the monopoly supplier.
  • It is argued that it will encourage the ac­countability of the whole of the NHS. By having a direct, clearly identifiable personal financial stake in the health service, people will become more involved in its affairs and make it more accountable.

These arguments do not stand up to scrutiny and even by their own logic fail to achieve their objectives. They clearly have more to do with the incremental erosion of the principles of the NHS, than any attempt to solve its financial problems. The Tories have realised how popu­lar and efficient the NHS is, and so are trying to find ways of slowly chipping away at its very foundations. The Left must be very aware of this.

There are several objections to the Social In­surance and Opting Out system as highlighted above:

Why just have a National Health Service Stamp? People could no doubt come up with equally good arguments to have a National Defence Stamp, a Transport Stamp, an Envi­ronment Stamp, an Education Stamp. Would we be able to opt out of any of these? Why single out one area of spending for special treat­ment?

What evidence is there that there will be any extra resources for health services as a whole under this proposal? Will people actually spend more on private health care just because they can opt out of the National Health Service? It may actually mean less resources overall, be­cause those people who were previously paying for both National Health and private cover may choose to go only private and NOT bump up their private scheme by the equivalent that they were paying into the NHS scheme!

This scheme will just create more bureau­cracy. One of the beauties of the existing scheme (and this is something the right cannot deny) is that it is simple to collect and simple to allocate (people may always argue over levels and formulae naturally). Under this scheme, there would have to be new layers of bureau­crats: people to check on the various private in­surance schemes to make sure they obtained approval; bureaucrats to keep records of who is in, who is part in and who is not in a scheme; more bureaucrats to sort out any cross-charging that may occur.

It will inevitably lead to a two-tier service, with low income people left within the Na­tional Health Service and better off people using their financial power to opt out. While it would obviously be open to the various private insurance schemes to arrange contracts with NHS hospitals, what is more likely is that they either would develop a network of their own, or put much needed funds into some of the ailing private hospitals, while depending on the NHS for the initial overheads and training etc..

People with private health insurance would still have to use the NHS – for accidents, for example – so how would this be worked out? Would an NHS ambulance refuse to pick up someone who has chosen fully to opt out of the NHS scheme, or would there have to be a com­plicated cross-charging system worked out after the event?

It would be the healthy and those in work who would have the choice of opting out or not. Those people who are unemployed, who are el­derly or who are already in long stay hospitals will have no choice. This is typical of the Tory concept of choice. It really means privileges for the few and little or no extra choice for the rest.

The basic premise of accountability being achieved through this new method of fund rais­ing is false. Just by having a more clearly defined financial stake does not mean that people will be any more able to influence decisions or that they have a greater personal stake in things. The problems of accountability in the NHS are more to do with unaccountable and non-elected health authorities, an unaccount­able and hierarchical medical structure and a general system which makes a patient feel powerless when faced by such a massive bure­aucratic structure. Having a separate Health Stamp will do nothing to solve any of these problems.

We have shown that a Social Health Insurance scheme does nothing to increase resources, does nothing to simplify things, does nothing to increase choice and does nothing to increase ac­countability. It strikes at the very heart of the principles of the way that the NHS is funded at present. That is a system to which we all con­tribute through taxes, in which we all subsidise each other and which is simple to collect and al­locate. A National Health Insurance Scheme and Opting Out cannot beat that.

  1. Towards a Socialist Alternative

This report has demonstrated the weaknesses, fallacies and inefficiencies of right-wing ideas on health funding. Their common aim is to bring a direct cash relationship into the provi­sion of health care. They will increase divisions between services, between areas, and between social groups. They will undermine the morale and working conditions of NHS staff at all le­vels who have a commitment to the service they provide. They will often reduce choice for NHS patients, and move away from the notion of a comprehensive locally provided health ser­vice. By contrast, taxation is an efficient method of raising money for health care. It of­fers the opportunity to provide an equitable distribution of resources, and to plan ahead effec­tively.

A range of interests, including patients groups, health workers, health authorities and the presi­dents of the Royal Colleges, have joined the Left in calling for more resources for the NHS, and demanded that the NHS be funded from taxation. It is important that we do not become trapped by ‘more versus less’ and ‘public ver­sus private’ arguments. One of the features of the Prime Minister’s Review of the NHS was that it started with the simple aim of curbing public spending and expanding the private sec­tor. Socialists on the other hand must begin by looking at social needs, and must seek to build an effective health care system which reduces the burden and waste of illness.

Funding is a tool to improve health care, not an end in itself. It must be used to bring about clear health objectives in a way which is so lacking today. The Socialist Health Association is examining ways of targeting funds in a man­ner which will improve public health and re­duce health inequalities. This has implications for other public services as well as for the NHS, and requires a review of the way resources are distributed within the health service. It is also important that funding is more closely linked to objectives for each care group. The haphazard manner in which regional and multi-district specialties are funded, and conflicts surround­ing the funding of community care, are both examples of a lack of thought by the present Government being reflected by crises at the grass-roots level.

Within Districts, there must be mechanisms for ensuring that services reflect the needs of the local population, and their wish for choice, rather than the personal interests of consultants. Funding of local services must not deter high levels of workload, as it does so wastefully today. Better use of information and more staff and public involvement both have a role in en­suring the effective use of resources and the re­duction of wasteful practices.

Some of the specific issues which must be considered by Socialists include:

  • Should the need for health care resources be broken down into targets for different care groups?
  • Should some funds be raised locally? If so,what proportion and how? How can ten­sions between central policy and local deci­sion-making be resolved?
  • How does health funding and policy relate to local authorities, particularly for com­munity care?
  • What factors should be taken into account in allocating resources between different parts of the country?
  • How should teaching and specialist services be funded?
  • To what extent should hospital, community and family practitioner activities be cash limited? Should funding be more related to actual or notional workload?
  • How should consultants be brought into the management structure and be made more re­sponsible for their use of resources?
  • How can managers and the local com­munity ensure that resources are being used to meet local priorities and not wasted on in­ effective and unevaluated techniques?
  • How should workload be costed and perfor­mance monitored?
  • Should the health service be allowed to bor­row money for capital spending?

These questions have not been addressed by the superficial reports from various right-wing groups. We hope by contrast that this report will help all those involved in arguing against the dismantling of the NHS. We welcome views from individuals and groups, as the Socialist Health Association develops a detailed social­ist policy on financing our health service, based on the principles of funding from taxation and free at the point of use.