Healthcare reform has aroused fierce debate in Congress and in the US press, but what of the UK’s situation? A creaking NHS, coupled with an ageing population, demands change sooner rather than later. The insurance industry could be well placed to step in, but finding a balance of affordability and profitability will be key

The question of healthcare reform continues to fuel fire on both sides of the Atlantic.

In the USA, president Barack Obama is trying to steer the country’s oft maligned system closer to a state-funded model, similar to that of the NHS. Conversely, the debate appears to be coming full circle in the UK, as many believe we may need to edge closer to an American model and demand greater support from the private sector.

Both directions face strident opposition and an uncertain outcome if they come to pass. But as problems in the UK system escalate, calls for the insurance industry to step in and play a greater role in healthcare provision are growing.

In July, the Insurance Industry Working Group (IIWG), a collaboration between the government and the insurance sector, published its report ‘Vision for the Insurance Industry 2020’. The report broadly hinted that greater take-up of private health insurance was required to ease the pressure on the state. The recession has taken its toll on public funding and, as the NHS creaks past its 60th year, question marks over the funding of both the health service and long-term care for the elderly loom large.

According to healthcare think-tank, the King’s Fund, the NHS will struggle to meet people’s healthcare needs even under the most optimistic funding scenario. The report ‘How cold will it be? Prospects for NHS Funding 2011-2017’ shows that the NHS would need to make gains within that timeframe of between £23.5bn (£3.9bn per year) and £48.9bn (£8.2bn per year) to meet the gap in required funding. This is equivalent to improvements of 3.7% to 7.7% per year. (Currently, NHS?productivity is measured by dividing outputs, such as ambulance trips and operations, by inputs, such as people and capital.)

Such a spurt is highly unlikely, however. The Office for National Statistics estimates average NHS productivity between 1997 and 2007 has fallen an average of 0.4% each year. Put simply, the NHS is not good value for money.

Meanwhile, the UK’s ageing population has intensified the debate surrounding long-term care for the elderly. The system is already widely perceived as unfair and restrictive. Means testing for care provision is currently set as low as £23,500, forcing thousands of people to sell their homes each year to ensure they are provided

for in old age. Long-term forecasts offer little comfort. According to the IIWG report, the number of workers funding people on retirement benefits is set to fall from a ratio of 4:1 to 2:1 by 2050, creating a massive burden on the state.

The industry’s input

Think-tank Reform’s chief economist, Dr Patrick Nolan, believes such trends demand the intervention of the insurance industry. “We really have to think about ways of bringing more money into the NHS. That has to be through greater individual contributions,” he says. He points out that, in the UK, contribution to private medical insurance to top up health provision provided for the state falls far below other countries.

“The UK is unusual in that it requires so little personal contribution to be made to people’s own healthcare,” Nolan adds. “I think the insurance industry should play an increasingly larger role because, if you look at health systems internationally, they combine universal health coverage with a strong insurance element. They have a core set of entitlements so that people have that certainty about what they will receive.”

Jelf Corporate Healthcare’s employee benefits business development director, Wayne Pontin, believes the UK should gravitate towards a tripartite health system similar to Australia’s. “Healthcare has three mechanisms; it doesn’t rely totally on taxation. It relies on a contribution from tax, corporate entities and also on a contribution by the individual themselves. It is a situation that is fairer and is probably able to provide greater funds than from a taxation situation alone, which we currently have in the UK.”

But Pontin argues that tax relief needs to be introduced to encourage people to take up private healthcare packages. Under such a system, he explains, current PMI market players such as Aviva, AXA PPP Healthcare, Bupa, PruHealth UK and Standard Life could boost profit substantially.

“I don’t think there is a PMI insurer that is making an underwriting profit. They are just about breaking even, with perhaps the exception of Aviva, but even if they are making profit it is going to be a point of a per cent rather than double digits,” he says. “I think they want to make an underwriting profit of 4 or 5 points. I think they might achieve it if we can make PMI more affordable through tax relief.”

AXA PPP Healthcare’s commercial director, Fergus Craig, agrees that the provision of affordable schemes to top up NHS care is both feasible and potentially profitable.

“It would be a completely different ball game … you would be looking at a mass market, the premium would be much lower and the game would be more about how you access millions and millions of people, rather an expensive way of targeting small numbers of people, which is what PMI is at the moment.”

But political reluctance to outline the limitations of the NHS is proving a barrier to market growth. Nolan says: “I think one of the best ways the government can encourage greater use of insurance is to make clear what people are entitled to, so they know when they need to get insurance and when they don’t. There is a great uncertainty about what the state will provide and what it won’t provide.”

Craig adds: “It is quite important that the NHS clearly delineates what it does and doesn’t give to people. Then we would be in a much stronger position to say ‘here is a private alternative’.”

But, as he points out, the looming election in 2010 is unlikely to prompt such frankness. “Unfortunately, the first health secretary who says that is going to get rammed down,” he says.

Both Labour and the Tories have continually skirted around the issue of top-ups in front of a fickle electorate. Craig believes that the beleaguered Labour party is more likely to embrace radical reform, however, rather than the Conservative party.

“It would be easy to say ‘oh, it is same old heartless cost-cutting Conservative government’, and that is not a headline they want to see. They might be pretty aggressive in other areas, but not the NHS because they fear the backlash.”

Age-old problem

When it comes to plans for long-term care for the elderly, the main political parties have been a little more forthcoming. The government has proposed a National Care Service, to help people aged 65 and over who require assistance with day-to-day tasks, such as cooking and cleaning. It would not apply to those already in residential care, but in principle would help people to remain in their homes.

Under this scheme, the government would put forward a basic package and individuals would pay the rest, either by covering the cost themselves, taking out insurance or paying a compulsory fee.

Meanwhile, the Conservatives have put forward proposals for a voluntary one-off fee of £8,000 at the age of 65 to meet the cost of residential fees for life. The scheme would be operated by branded insurance products, with the government setting out safeguards to ensure it remained financially viable over the long term.

These proposals have already attracted much hole picking. Many pundits have pointed out that the Conservatives’ £8,000 fee is unlikely to cover the entire cost of residential care, especially as life expectancy continues to rise, while charities are up in arms over Labour’s suggestions of compulsory fees. The King’s Fund’s chief economist on health policy, John Appleby, says: “In outline, things can sound quite good, but it is only when you start looking at them in detail and start focusing on the numbers that you find it is actually extremely difficult.”

Effectively, the insurance industry is faced with the daunting task of creating affordable packages that are also able to generate profit. Appleby points out that, historically, insurers have performed poorly in this market. “The industry has failed to come up with anything that is affordable to a significant number of people.

I don’t think they need compelling by the government. I think they would like to do it but they can’t make the figures add up.”

Many believe that an engrained cultural mindset about the provision of healthcare is part of the problem. After 60 years of the welfare state, UK consumers believe the provision of healthcare lies solely in the hands of the government.

Broker HealthCare Partners’ managing director, Glen Smith, thinks the time is ripe for a rude awakening. “People are sticking their head in the sand. The average life expectancy will soon arrive at 90 plus. People are going to be spending 30% of their life beyond retirement age. They need to be aware of the statistics. In France and Germany, almost everybody pays top-up insurance.”

Craig points out that there is a different perception about private medical healthcare in other countries, such as the Republic of Ireland and Australia, compared to the UK. “There is a moral pressure to buy PMI,” he says. “The NHS doesn’t do what the Irish system does, which is to encourage well-off people to make provisions for themselves. We always think of it more in terms of queue jumping instead of queue leaving.”

Attitudes are similar when it comes to long-term healthcare. A recent ABI survey found that only 13.3 million people – or 47% of the workforce – saved enough for their retirement provision, while a paper published by Aviva in 2008 showed that 61% of UK consumers believed it was the duty of the state to provide for the elderly.

Legal & General’s Longevity Science Advisory Panel chairman Sir Derek Wanless agrees that people in the UK tend to prioritise other investments over long-term healthcare. “People want to make their own choices. The problem is that none of the insurance companies has come up with policies that people have much appetite for. People under 40 find it very difficult to make it a priority against normal pension funding.”

He also points out that insurance companies find it increasingly difficult to assess the risk correctly with the continual improvements in life expectancy. So adjustment is required on both sides, it seems.

While most agree that a US model where voluntary health insurance is the dominant system is best avoided, they also likely feel that the current health system is in need of a makeover. “We can learn that a system that purely relies on voluntary insurance isn’t going to work but [the NHS] is going to need to get some coverage,” Nolan says. “The key issue is that it is about the best of both worlds.”

While the NHS was once lauded worldwide, it is now a ticking timebomb when it comes to funding. It seems that most bets are on the insurance industry to defuse the situation. But as Craig points out, both the government and Joe Public need to face harsh reality before insurers can provide a solution.

“It is frustrating that we have not got to a situation where we recognise that we can either live with significantly higher taxes or with a health service that is good but has certain limits,” he says. “We don’t seem to have got to the point where we can accept that choice.” IT

How they do it over there...


A typical French citizen has compulsory and supplementary insurance. They pay for compulsory insurance through their pay packets, with payments split near equally between citizens and employers. They join social insurance funds based on their occupation. Premiums are collected via salary deductions to a social insurance fund, the majority of which covers healthcare. A typical citizen also pays for supplementary insurance, whether provided by private insurance companies, mutual societies or provident societies. This is typically taken out to reimburse the individual for co-payments made, as well as for additional dental or optical care. The unemployed and those on low incomes are covered through the Couverture Maladie Universelle. This covers the full costs of complementary insurance for these individuals, in addition to the standard coverage of Social Security. Co-payments are an accepted part of French healthcare. French people pay one euro per consultant consultation and a flat-rate fee of E18 for any treatment costing more than E91.


The German social insurance system offers a greater degree of choice than the French system. The typical German citizen can choose between 292 insurers for their statutory health insurance. Individuals’ contributions to statutory health insurance vary according to their income. The cost of contributions is shared between individuals and employers. Every insured person has the right to choose an insurance fund, while every fund is obliged to contract with an applicant. The benefits of statutory health insurance are clearly defined by a joint committee of the federal government. Patients are free to select physicians, psychotherapists, dentists, pharmacists and hospitals of their choice. Nine per cent of the population takes out supplementary health insurance, which typically covers the costs of more comfortable rooms and additional services in hospitals and services not covered by statutory health insurance (such as certain dental procedures).


The typical Australian will have healthcare cover from both public and private sources. All Australians are covered by the taxpayer-funded health system, Medicare, which is funded both by the general tax pool and a Medicare levy, which varies according to individual economic circumstances but is typically about 1.5% of taxable income. Under Medicare, residents of Australia do not have to pay for GP services at the point of use. They do, however, typically contribute 15% of the schedule fee for other out-of-hospital services and 25% of the fee for in-hospital services. Australians are also covered by the Pharmaceuticals Benefits Scheme, which subsidises medication. Over 45% of Australians are covered by private health insurance. Anyone who purchases private health insurance is entitled to a 30% rebate from the government. The rebate for 65-69 year-olds rises to 35% and to 40% for the over-70s. Health insurance is community rated, ie insurers cannot vary premium by the age or medical profile of their customers.


The USA has a voluntary private insurance system with some back-up from government. Most Americans (60%) receive their health insurance coverage through an employer. Government health insurance programmes, funded by income taxes, also exist. Medicaid provides healthcare for low-income Americans and Medicare for elderly and disabled Americans. Veterans, Native Americans and government employees are also covered by the state. Nearly 16% of the American population was without health insurance in 2005. Over 60% of those uninsured were from households that earn less than $50,000.

Source: Reform