04 March 2008

Healthcare - the elephant in the policy room

In both NZ and the UK, rational debate about public health care is just about impossible. This is because, as an issue, it is too complicated for the average journalist and average member of the public to understand.

Few would argue that there are not major problems with both the NZ health system or the British NHS. Waiting lists continue to grow and get worse. In short, the demands people place upon both systems often are not met by the supply - whether it being waiting lists for surgery, waiting times at accident and emergency, lack of coverage for necessary drugs, failure to accurately diagnose or supply international best practice treatment consistently, or even simply problems of hygiene in some hospitals.

So the response of both Labour governments in the UK and NZ has been simple- pour more money into healthcare. In the UK it is not far short of a 50% increase in the proportionof GDP being spent on state funded healthcare. The worst example of this extravagance has been the £2.3 billion NHS National Programme for IT, well £2.3 billion was the budget originally - it now is over £20 billion. However, taxpayers are easy pickings. In NZ it has gone up by around a third - yes a third, in GDP and in real terms - $2 billion more per annum, since Labour was elected. $2 billion is $500 per man, woman and child per annum.

So what have you gained from that? Seriously? You see, for example, Southern Cross could offer you the mid range private medical insurance for around $350.

Yes, that's how good health spending is.

The truth is that more money is not going to make a huge difference. Why? Because there are fundamental problems with state funded state provided healthcare:

1. Demand is endless: With no controls on price, and no sense that there should be limits, the public will demand the latest, best and most sophisticated healthcare concerning drugs, equipment, techniques and treatments. Rationing is not done by cost, but by politics.

2. State providers have little cost control: As seen in the 1990s, badly run, in debt hospitals in New Zealand get bailed out, are not allowed to go bankrupt, and so pressures to perform efficiently are poor. Costs increase because administrators simply ask the government for more money, and when it isn't offered, there are claims that it will hurt people's healthcare.

3. State providers have little competitive incentive to perform: As most users have little alternative, queues, poor service and failures to perform aren't subject to much sanction. Money still flows.

4. Increases in funding are largely captured by well organised health workers: Nurses, doctors and all others claim increases in funding, because they can. They public loves them, so they play up to that, they threaten strike action, and almost always win.

5. State healthcare provides little incentive to live healthier: Be a drug addict, smoker, heavy drinker, obese, don't exercise - you'll get treated the same as if you looked after yourself. Not only that, you pay the same and get the same treatment, well unless the bureaucracy starts discriminating against you.

6. Bureaucratic decision making is glacial and unresponsive: By its very nature, government agencies are slow decision makers, and tend to have to make tradeoffs between who is interested in the decision politically and bureaucratically. Multiple objectives and a lack of accountability for delayed investments and approvals means things move slowly.

You see the current model have no relationship at all between those who pay, those who use and those who supply. The incentives to limit demand, to look after yourself, are personal - not financial, and so the budgets grow, performance barely improves and nobody seeks to change this at the fundamental level.


Will you hear John Key this year seeking to radically change health care? No. You wont see it from David Cameron in the UK either. The reason being this- nobody on the right of the political spectrum has the courage or the articulation necessary to win the argument with the public.

The left is absolutely scandalous on healthcare. Dr. Cullen knows only too well that the current health system can't get better with more money thrown at it, but he wont reform it - he can't. The Labour Party writ large can't swallow the truth that the current system is broken - it cannot be made to work better. Its supporters will treat ANY steps to allow private sector participation or some sort of insurance model as being "Americanisation". US health care is the great bogeyman, and whenever it is mentioned there are images of people dying because they can't afford it. Few point out those dying because of failures of state health care. Yes, some in the US undoubtedly die because they don't have health care - but then so do some under socialised health care.

Unfortunately, the nature of mainstream politics is such that the left knows it can push the right emotional triggers on this issue in the media. It simply says "our way" or "American way". The solution to "our way" is always more money. Anything about a more businesslike approach is going the other direction, and the left can command a majority of those in the healthcare profession and hoards of hangers on to protest at will, making a lot of noise, but with precious little debate about how to do it better. Helen Clark can't wait to see if John Key says ANYTHING interesting about health.

The left wont point out how healthcare in many countries with socialised models is insurance based, and how this helps to control costs, demand, and incentivise healthier living. It ignores failures to achieve gains under high levels of additional funding, but will point fingers at those seeking to cut funding.

The call to end "endless restructuring" ignores that such restructuring is, at best, half hearted. What is needed is a fundamental change to how health care is seen, and it means starting to move towards individual responsibility.

There are many ways this could happen, probably the most palatable would be an insurance based approach. Such an approach would have several advantages:
1. Insurance premiums can reflect risk and behaviour, and encourage good behaviour (regular checkups and healthy living) but penalise bad behaviour (smoking etc). This would be far more effective than many public health promotion campaigns.
2. Insurance can invest the proceeds of premiums to get a return and manage risk more prudently than the state in collecting taxes.
3. Insurance creates a direct customer/supplier relationship, as people expect more when they actually seek medical services.
4. Insurance can allow more competition in delivery of health care. People can choose different suppliers, and insurance companies.

Now how could the state move towards this? It could simply offer you back the proportion of taxes you pay that goes towards healthcare, and you could buy health insurance with that money. The state COULD develop its own health insurance company that operates by default as a portion of your income, and you might opt out of it buying private care instead. That was ACT policy, not libertarian but arguably a significant step forward. Which is what I am looking for.

Will John Key propose anything that WILL address the fundamental problems of public health policy? Highly unlikely. You will elect him though, and the problems will persist - again, and Labour will say more money is needed. The best National's health discussion paper says is "The judicious use of public-private partnerships can increase the availability of elective surgery and reduce waiting lists." A toe in the water wont stop someone from continuing to overheat.

and if you think it's hard in New Zealand, in the UK the NHS is sacred - shame so much that is sacred is not subject to close scrutiny!

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