Healthcare UK Style: Can You Have Your Cake and Eat It Too?

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In my last blog post I concluded by noting my decided preference for the United Kingdom’s National Health Service (NHS) over the system we have in the United States. In today’s post I want to clarify these feelings.  Many Americans dismiss UK-style healthcare as a prime example of what it looks like to live in an overbearing nanny state.  I find these criticisms misguided and ill-informed.  That is not to say that healthcare in the UK is ideal or unproblematic.  As with the US system, the NHS illustrates the point of my earlier blog posts about US healthcare reform: you cannot have your cake and eat it too.

Let’s start with the premise upon which the UK healthcare system is founded: access to healthcare is a right for every citizen of the UK.  Every citizen has access to healthcare from birth to death, and most citizens will never receive an itemized bill for the healthcare that they receive.  Individuals will never be faced with the threat of bankruptcy due to catastrophic illness.  If you are a low-income family who has a child suffering from leukemia, your child will be able to receive chemotherapy treatment, and the hospital will never send you a bill demanding payment.  With few exceptions you will never pay a dime out-of-pocket. In this respect the UK treats its healthcare system much the way that the United States treats our police and fire protection services.

Sounds too good to be true, right?  Well, as every British citizen knows the healthcare that you receive in the UK is not free. There is no utopia here.  Just as in the United States, the United Kingdom needs to pay for the healthcare it promises every citizen.  The NHS is funded through general taxation.  Every year British citizens will pay a portion of their earned income via a National Insurance deduction, automatically withheld from their paycheck by the state.  It is this facet of UK-style healthcare that troubles many Americans, who are almost genetically predisposed to react allergically to anything resembling a tax-funded entitlement. However, as a whole the UK public is quite supportive of the NHS. In 2015, 60% of UK citizens indicated that they were “very or quite satisfied” with the NHS according to the most recent report by The King’s Fund. While there is much discussion of healthcare reform in the UK, there is bipartisan consensus that healthcare remains a fundamental right of all UK citizens, and there is virtually no politician Left or Right pushing for a fully-privatized healthcare system.

All of this said, most of my readers are Americans, and as a whole Americans are woefully ignorant of the practical costs of National Insurance and how these costs compare to the costs of our own system.  I am going to make these costs more transparent and concrete, as follows. Stick with me here.  The illustration will allow for easier comparison. How much do you actually pay for healthcare in the UK? I want you to imagine for the moment that you are a British citizen as described below:

(1) You are a 40-year old worker with a spouse and two children who earns £4000/month, or £48,000/year (note: at the conclusion of this scenario I’ll convert final costs to dollars for my American readers). You are the only person employed in your home.

(2) The UK establishes a “lower limit” of your income that will not be taxed for National Insurance purposes. For the 2016-2017 calendar year this amount is £5,824 (Note: the current tax rates that I’m describing in this scenario are available at the UK government website, here). In addition, the UK establishes what is called a “Primary Threshold” above this lower limit, which for the 2016 calendar year is £8060.  The tax rate for income between the lower limit and primary threshold for most workers (including you) is also 0%.

(3) For National Insurance tax purposes, the UK established a an “Upper Earning Limit,” currently £43,000. All income between the primary threshold (£8060) and this upper earning limit (£43,000) is taxed at the same rate.  For the 2016 year, this rate is 12%. This portion of your income will thus require that you pay an annual tax of £4193.

(4) Above this upper earning limit, your remaining income is taxed at a 2% rate. Thus, for your remaining £5000 of annual income you will pay an additional £100 in taxes.

Here is the bottom line: if you are a worker in the UK who earns £48,000/year, you will be required to pay £4293 of your income as a National Insurance tax. Divided over 12 months, your monthly cost for healthcare will be £358/month. Since most of my readers are American, let’s convert that to American dollars.  At the current exchange rate (today, £1=$1.25), a person who earns $60,197 will pay $5384 as a national insurance tax, or $449/month.  UK-style healthcare is not free!

But now I want to try sell you on the merits of this system before drawing attention to some of the problems that worry critics.  Consider that in the UK your $449/month buys you what I described at the beginning of this post. And what does your $449/month buy you? You can visit a doctor, go to a hospital, receive chemotherapy, visit the emergency room when you need to, and you will never receive a bill from the provider. You will never need to negotiate with an insurance company that refuses to pay for a treatment that your doctor says you need. You do not have to worry that you will be denied access to care that you need because of your inability to pay. That’s what your $449/month gets you in the UK.

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Now compare this to what we have in the United States. Here things are more variable. Some people receive health coverage through their employer, and different employers have different healthcare plans. Some individuals purchase health insurance on the market.  Some are covered by tax-subsidized Medicare or Medicaid.  For the purposes of comparison, let’s have the same family above with the individual now employed at Abilene Christian University. I want to use my present employer for this exercise principally because I am intimately familiar with our plan, and also because our plan is typical of where a growing percentage of employer-based healthcare plans in the United States are going. Imagine the same person as in the scenario above, a family of 4 with an annual earned income of $60,000/year (i.e. £48,000/year). Here is a breakdown of healthcare costs for this family (Note: the details I’m describing here are publicly available on the ACU website, here):

(1) Your monthly premium for health coverage through ACU will be $425/month, assuming that you and your spouse have had your annual physical and are eligible for the wellness discount. If you have not, your monthly premium will be $485/month. But let’s assume for the moment that you are health conscious and eager to reduce your monthly premiums.  Your family gets their annual checkups, so your monthly premium is $425/month. We’ll set aside for the moment the optional dental and visual plans that are available to you.

(2) For your $425/month premium , you buy yourself a healthcare plan with a $4000/year deductible for an individual in your family, and a maximum deductible of $8000/year for your entire family.  This means that on top of your monthly premium you are also responsible for the first $4000/8000 of your healthcare expenses before your insurance company will begin picking up the tab. This assumes that you are only using healthcare providers that are within a network of providers that your insurance company has contracted with.  If you want the services of a provider from outside this network the individual and family deductibles will rise to $8000 and $16,000/year, respectively.

(3) For your $425/month premium you also buy yourself yearly preventative checkup from your doctor for which you will pay nothing out of pocket.

(4) Finally, your employer (ACU) agrees to contribute $1500/year into a “Health Reimbursement Account,”(HRA) that accrues from year to year.  This money is available to you to cover your deductible expenses for the year.  If you spend less than $1500 for the calendar year then this money carries over to the next calendar year.  ACU will keep contributing to this account up to the point where the money accrued matches the annual deductible. Thus, if you have 4-5 years of minimal healthcare expenses and experience a sudden, expensive health emergency, the money you’ve accrued in your HRA might end up covering the entirety of your deductible for that year.

(5) Finally, at the conclusion of the calendar year you’ll get a brand new deductible the next year that you will need to satisfy once again before your insurance will begin covering healthcare expenses.

Your $425/month premium is not the only monthly healthcare expense that you will pay.  In addition, your salary will be subject to a Medicare tax that funds the Medicare/Medicaid system. Your employee portion of the Medicare tax is currently 1.45%, and all of your income is subject to this tax.  Thus, on top of your $425/month premium you will also pay a $873/year Medicare tax.  Averaged out over 12 months, you’ll pay $73/month for this tax.  The bottom line: At Abilene Christian University, the same family above will pay $498/month for health premiums and tax.  

It’s not difficult to see the mismatch.  From a healthcare consumer’s perspective, a $449/month tax that gives me access to doctors, hospitals, cancer treatment, and emergency care while never subjecting me to the sticker shock of an itemized medical bill seems much better than a $425/month premium paid to an insurance company coupled to a tax paid to the state, all of which simply buys me a relatively high deductibles that I will need to pay again at the start of the next calendar year. My yearly out-of-pocket cost is less in the UK than in the US, and I get more for my money.

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Given the choice, I prefer the NHS. However, critics are right to observe that systems like the NHS create their own set of problems.  Consider:

  • The number of health trusts in the UK that are operating with financial deficits has increased over the last 6 years.  According to the latest report from The King’s Fund, in 2009/2010 only 8% of health trusts in the UK spent more than they received. As of 2015/2016 this number has jumped to nearly 66%. The collective £1.85 billion deficit shared across all UK health trusts in 2015/2016 is the largest in history. Funding has not kept pace with the increasing demand for healthcare services. For the NHS to be sustainable the UK will need to get costs and revenue in line, either by increasing NHS funding (presumably, by increasing the tax burden on UK workers and employers), by reducing expenses (e.g. by narrowing the range of covered benefits), or through some combination of the two.  Both options are politically unpopular, but as it stands the financial trajectory of the NHS is not sustainable.
  • One way of addressing the problem of healthcare resource scarcity is by simply denying access to care for some.  But the UK does not do this.  In the UK all citizens have access to healthcare as a right.  This commitment does not eliminate the problem of scarcity; it exacerbates it.  The NHS must wrestle with situations where consumer demand outstrips available supply. In the UK if you need non-urgent care there is no guarantee that you will be able to receive this care quickly.  There are queues for non-urgent healthcare, and some will argue that these queues are unreasonably long.  NHS guidelines have established an 18-week waiting time for non-urgent consultant-led referral and treatment. This means that if you are faced with a non-urgent healthcare need (e.g. imagine that you are dealing with chronic hip pain and are in need of hip replacement surgery) you may have to wait as long as 4 1/2 months before treatment can begin, and this is only if the NHS is able to live up to the guidelines that it has established.  The maximum wait time for suspected cancer is just two weeks.  The NHS also observes that wait times vary among healthcare providers and have established a referral site where you can compare wait times before deciding where to setup your appointment for non-urgent care.
  • A system in which consumers experience healthcare as “free”incentivizes overuse of the system.  This is one of the great advantages of market-oriented healthcare systems have over systems like the NHS.  If I know that I need to pay something out of pocket for the care that I’m seeking, I’m much more inclined to consider whether I actually need the care before I go to the doctor. When consumers must account for the cost of healthcare at the point of service, this creates a rational check on overconsumption. In recent years reform advocates in the UK have sought to incorporate more market-oriented mechanisms into the UK healthcare system, as reflected in the Health and Social Care Act passed by British Parliament in 2012. But once again these reforms have been quite controversial and not well received by UK citizens concerned that these reforms resemble the encroachment of US-style healthcare in the UK.

No, you can’t have your cake and eat it too. Whether you prefer a Boston Creme or British scone, you will pay. There is no perfect healthcare system.  Every system faces (and creates) its own set of challenges.  When considering what we want in a healthcare system, maybe the most important question is not, “What system will best embody the values and commitments that I believe are essential to a just healthcare system?” Maybe the better question is “What system will give me the sorts of problems and imperfections that I am willing to live with?” In this regard the NHS wins hands down. Having said this, I don’t think it is realistic to expect that transforming US healthcare into a UK-style system is feasible given what we have: a well-established healthcare system in which the vast majority of doctors and hospitals are private contractors, not employees of the state. Pragmatically speaking, healthcare reform in the United States requires us to work with what we have, however imperfect what we have may be.

 

 

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4 thoughts on “Healthcare UK Style: Can You Have Your Cake and Eat It Too?

  1. Hi Vic and Jeff,
    I have been following your exchanges and enjoying the back and forth. I have thought about commenting a few times, and just decided to comment on this post because I think it was handled well but it misses one commonly misunderstood blind spot regarding U.S. healthcare costs.

    Vic, I like the effort you’ve put forward to indicate the costs to the American and UK consumer versus the benefits. The way that it is presented here, it seems like a fairly even or almost even trade off (all costs paid for in the UK, but possibly somewhat longer waiting times for non-emergency care, vs. a greater financial burden on the US consumer but supposedly greater access, less wait time, etc.).

    However, you have left out one other major cost to the consumer in the US healthcare system. You have laid out the costs that are direct to the consumer (the employees portion of the cost of health insurance) but didn’t factor in the employer contribution. In my workplace, our company pays just over 70% of the cost of premiums, and the employee pays 30%. So, while the costs look sort of equitable between the UK and the US, they are definitely not. The U.S pays 2 to 2.5 as much for healthcare than the rest of the developed world, bu the costs are hidden because a large portion of that is shouldered by the employer. And this hidden cost affects the US consumer. We pay this as a hidden taxes on our wages. Wages don’t rise because as health care costs go up, and as the employer shouldered burden goes up, employers pass this cost onto their employees by not raising wages. Real wages have stagnated for over 30 years. No coincidence that health care costs have risen consistently during this time. This is an invisible tax, as Bernie Sanders tried to make clear during his campaign.

    One last point. Individuals who do not have employer paid insurance, and who don’t have state paid insurance (Medicare, Medicaid, etc.) are mandated to purchase insurance under the Affordable Care Act, or pay a tax. Those individuals who make more than 4 times time poverty level and have to purchase insurance without the benefits of subsidies are the only Americans who are actually directly confronting the full cost of American private insurance health care. And they don’t like it. They hate it. If you have a life threatening or expensive chronic condition, you gratefully pay, knowing that prior to the ACA, there was no way to even obtain insurance. If you don’t have these conditions, you grumble, and protest, “this is too expensive — I hate Obamacare.” In fact, these families want to either not be forced to purchase insurance (very risky) or want the government to do something to make the insurance cover more and be less expensive. They want the GOVERNMENT to step in and find a way to bring the costs down. And here’s the rub. We want to believe we have the greatest health system in the world, and that it is because we have all this private insurance. But what we really have is an incredibly expensive, incredibly uneven system that provides access to some (wealthy and state insured people such as very poor and elderly), constraints on access to the middle class (high co-pays and deductibles, and high premiums) and no access to the uninsured.

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    • Adam, thanks for your comment. I thought about going into more detail about the financial costs borne by employers in the UK, but I was concerned about making the post too lengthy and cumbersome. While I appreciate your comment and am sympathetic, there are actually some parallels to be drawn between the costs you are describing and the system in the UK. As in the US, employers in the UK are responsible for paying a share of the employees salary as their contribution to healthcare provision. In 2016-2017 the employer rate in the UK is 13.8% on employee income about what is called the “Secondary Threshold,” which is currently at £676/month, up to the Upper Secondary Threshold, which is currently at £3583/month. This means that for the imaginary family in the post, the employer will shoulder £401/month as its contribution to the healthcare for this employee and their family. That’s not a bad deal for the employer. I’m sure ACU’s human resource department will relish that cost over what ACU is paying now.

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  2. Good to know. I was unaware that there was an employer tax in the UK, although as you say, it seems like it represents significantly less than the employer burden in the U.S. Here’s the other advantage: it is a fixed, predictable percentage, set by an accountable legislature, not a variable cost that goes up year by year based on a third party corporation that continually raises rates to maximize profits and please shareholders.

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