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The Actuary The magazine of the Institute & Faculty of Actuaries
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Health and care insurance and the NHS plan

Health and care insurances have flourished in the UK since the mid-19th century and precede the national health service (NHS), which was introduced in 1948. The NHS plan (July 2000) sets out government plans to significantly increase public expenditure and modernise the NHS, meaning some healthcare insurance products will become antiquated and redundant. Whether this aim will be achieved, or whether the public will continue to regard health insurance benefits as a necessity in spite of a modernised NHS, is difficult to predict. However, it is likely health actuaries will have an increasingly important role to play as the NHS plan is implemented over the next few years.

The NHS plan
‘The NHS plan: a plan for investment, a plan for reform’ and ‘The government’s response to the Royal Commission on Long-Term Care’ were issued in July 2000. Several additional NHS plan reports and policy announcements followed, on subjects such as dentistry, pharmacy, cancer, and patient safety. A modernisation board is now overseeing the implementation.
The NHS plan objectives are primarily to increase investment and patient choice, to encourage diversity in service provision, and to enable local providers to have greater freedom from central government control. It is hoped that NHS waiting times will be reduced, primarily by allowing patients to choose from a wide pool of providers who have incentives to offer timely, high-quality treatment. The health and social care concerns of older people were given special mention, since older people consume the majority of NHS resources:
People over 65 account for two-thirds of hospital patients and 40% of all emergency admissions. Too often they are treated in inappropriate acute hospital settings because there is nowhere else. Older people also worry about the prospect of deteriorating health, and can be anxious that they do not receive the care they need, sometimes simply because of their age. They are also distressed when service providers fail to respect their dignity and privacy a problem which can occur at home or in a nursing home, as well as on the hospital ward.
although it was recognised that older people may spend their terminal years in poor health:
people want to enjoy their extra years as healthy active years. At present, men’s average life expectancy of some 75 years will on average include nearly eight years of poor health. For women the picture is similar: they will spend nearly 11 years out of 80 in poor health.
and ageism that discriminates against older people must no longer be tolerated:
The NSF (national service framework) will ensure that ageism is not tolerated in the NHS, with the elimination of any arbitrary policies based on age alone. Major concerns have been expressed about ageism in the NHS, and especially with respect to resuscitation policies.

A tax-financed NHS plan?
The Wanless Report ‘Securing our Future Health: Taking a Long-Term View, Interim Report’ (November 2001) and the NHS plan rejected a role for social insurance, private voluntary insurance models, or user charges to provide funding for healthcare:
This part of the NHS plan analyses alternative funding models against the twin tests of efficiency and equity. It concludes that the NHS remains a fair and efficient way of funding healthcare, and that it is the right choice for our country.
However, the gap between the healthcare treatment choices that would ideally be made by patients and the ability of the NHS to meet increasing patient expectations is likely to widen. This in turn should lead to innovative product development and an increasing role for health actuaries.

NHS to match EU spending
The UK government aims to raise UK public expenditure on healthcare as a percentage of GDP to match the EU average, from 6% to 8% of GDP, which implies 10% per year increases from 2000/01 to 2004/05 to achieve parity by 2005/06. However, NHS funding increases without structural changes might not achieve the desired results, and of course there are the unintended consequences of many political policies.
Patient choice
Patients are becoming more demanding and less deferential, although most still want their GP or NHS consultant to oversee decisions about their care. NHS plan initiatives to put patients ‘in the driving seat’ may succeed in levelling up standards of care as providers compete for patients. Health information is critical to choice, as is improving its quantity and quality. Research indicates some NHS patients are prepared to trade shorter waiting times for treatment closer to home. More NHS patient choice can also result from investment in new facilities (for example the new diagnostic and treatment centres currently being built), greater use of independent hospitals, and allowing patients to receive treatment abroad. Private patients have even more choices via healthcare insurance products, provided they are affordable.

Primary care trusts
Primary care trusts are set to become the agency responsible for purchasing care on behalf of their populations, using funds allocated to them by the Department of Health. They are distinct entities separate from NHS trusts, and are accountable for achieving performance targets. For these reasons, primary care trusts face a clear structural and economic incentive to select providers on the basis of performance. In short, the economic environment in which the NHS operates looks set to develop into a competitive market (albeit one with particular rules, regulations, and constraints).

NHS foundation trusts
Foundation hospitals are set to modernise the NHS hospital sector, via not-for-profit organisations with assets in public ownership and local freedom from the Department of Health. They will be accountable to local purchasers and audited via inspection. Purchasing contracts will incorporate national priorities, such as reduced waiting times and improved clinical outcomes. The Commission for Healthcare Audit and Inspection (CHAI) will ensure national standards on service and quality are met.

Community pharmacies
The NHS plan envisages more community pharmacies. Research indicates some NHS community pharmacists are already providing more services than required, such as nicotine replacement therapy, advice to care homes, health screening, prescription collection, and delivery. However, community pharmacies tends to be marginalised by primary care trusts and have severely limited resources, which may indicate a role for pharmacy-based healthcare insurance benefits.

Dentistry, podiatry, ophthalmology, and complementary therapies
Consumer demand is increasing for rapid access to services that can ease disability (such as podiatry or chiropody) and services not easily available from the NHS (for example, a wide choice of spectacle frames). Patient demand for early interventions may result in healthcare insurance product innovation and a role for actuaries.

Pharmaceutical companies
The NHS plan provides opportunities for pharmaceutical companies to participate in disease management programmes for selected chronic conditions, such as cardiac problems, antiviral, Alzheimer’s, and respiratory-, obesity-, and smoking-related disorders. NHS funds for disease management programmes will be limited, which may lead to a general public demand for innovative healthcare insurance products.

Long-term care
Government responsibility on long-term care needs is being tested and redefined via interaction between the NHS, local authorities, charities, and the judiciary. The impact of recent litigation on retrospective claims for NHS continuing care may lead to greater clarity and consistency in the NHS provision of continuing nursing care. This may help the development of next-generation long-term care insurance policies that address older people care needs, such as home care support services.

Private medical insurance
NHS secondary and tertiary care is expensive and has in the past been rationed using NHS waiting lists for consultation, diagnosis, and treatment. In the event that the NHS is modernised and NHS waiting lists become a matter of historical interest only, private medical insurance may become increasingly redundant. However, it could be argued the NHS will always need to set priorities inconsistent with patient choice, and that this inconsistency will cause many to choose private treatment.

Healthcash plans
Healthcash plans seek to complement NHS services by providing insurance cover for the incidental expenses associated with ill health. However, as average incomes increase, health cash plans will need to offer more care and treatment services to remain relevant. The NHS plan is neutral on healthcash plans, which may lead to market growth at the expense of private medical insurance.
Care not cash
Health and care insurance products that complement NHS services need to be tangible and relevant. For some products, such as private medical insurance and long-term care, the monetary benefits need to be converted into tangible health and care services, rather than just cash benefits. Other products, such as health cash plans and critical illness insurance, may need to develop additional care components, as the cash is only a means to an end, not of intrinsic value. ‘Care not cash’ is a guiding principle that can help health actuaries to discriminate between meaningful and confusing health and care insurance benefits.

A role for actuaries
Health actuaries need to consider their position in the light of the NHS plan and its practical implementation over the next decade. New product developments must complement NHS services. Social policy issues may come to the fore, as politicians respond to public demands for equitable health and care insurance products. Actuaries will need to become politically aware, and to maintain a professional objective view of the social policy issues that may arise as the NHS plan unfolds.

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