Kristian Niemietz talks to Chris Seekings and Ruolin Wang about his controversial ideas for reforming the UK’s National Health Service
Kristian Niemietz sparked a Twitter storm earlier this year when he declared that the UK has “no reason to be grateful” for its National Health Service (NHS), describing its performance during the COVID-19 pandemic as “nothing special”.
As head of political economy for the Institute of Economic Affairs (IEA), a free-market think tank, Niemietz has long argued that the NHS is lagging behind international counterparts, potentially costing thousands of lives in preventable deaths, and has called for extensive reform. He believes it should be replaced with a universal private insurance system like those in the Netherlands and Switzerland, but doubts he will live to see these changes due to the likely political fallout.
A familiar story
Following the storm his report induced, Niemitz said: “This happens every time I write something on the NHS – it always triggers these hysterical responses, so in that sense, it wasn’t unexpected,” he says. “It was, of course, overwhelmingly negative, on a bigger scale than normal, but if you talk about healthcare systems in Britain, there isn’t really much of debate, which is part of the problem.”
Niemietz argued that there was “no rational basis for the adulation the NHS is currently receiving” as the UK weathered its second wave of COVID-19. He highlighted how other countries had fared better during the pandemic, regardless of whether their healthcare systems were public or private.
“Healthcare is the thorniest issue in Britain because there’s a massive, quasi-religious cult around the NHS,” he says. “You can’t talk about alternatives without everyone freaking out, even though we do this in every other policy area. Saying that there are better educational outcomes in Finland, and that we should have a system more like theirs, is not remotely controversial. People may disagree, but you wouldn’t get this storm of outrage.”
Despite the backlash, Niemietz explains that some sections of the public agree the NHS is not as effective as it could be, and are interested in how a new healthcare system might look. “There are people who do realise that this hysterical defensiveness around the NHS is extremely irrational, and who are just a bit curious about alternatives.”
System change
Niemietz believes people should be able to choose between competing health insurers and that insurance should be mandatory, with the government covering the costs of the poorest. This differs from conventional private insurance, as the premiums paid do not depend on individual health risks, such as family history, individual history, or certain other risk identifiers. “If an insurer offers a policy for a particular price to one person, they have to offer it at the same price to everybody. It would be community-rated premiums.”
This would be made economically viable through a risk-equalisation fund, which would redistribute finance from insurers that have taken on a lot of good risks to insurers that have a lot of bad risks. “From the insurer’s perspective, they have no reason and no incentive to discriminate. So if you are 85 years old and have multiple chronic conditions, you are no less lucrative,” Niemietz says. “If I sign up that person, I would also get a transfer from this risk-equalisation fund, which will take into account all the risk factors that lead to higher healthcare costs, and I will get compensation.”
How this compensation is calculated would depend on the number of high-risk individuals that insurers choose to take on, rather than outcomes or unintended costs. “That’s what insurance is about – dealing with random variation.”
Healthcare is the thorniest issue in Britain because there’s a massive, quasi-religious cult around the NHS
Freedom of choice
Niemietz says that insurance must be mandatory to prevent those in good health from ‘gaming the system’ by opting in and out when they see fit. This would ensure it’s not just people with health risks who are forced to buy coverage, as would be the case in a truly private free market. Individuals would then be able to choose between different healthcare plans. “You could pick a plan where you can go to any healthcare provider, you don’t need a referral and you don’t have to register with any one GP, as you currently have to in the UK,” Niemietz says. “But you can’t sign up for the ‘Ryanair Hospital’, you don’t have freedom of choice in that sense. The choice isn’t about quality, it’s about amenities and convenience.”
He also believes that restructuring the NHS wouldn’t necessarily involve much disruption. Local NHS organisations and clinical commissioning groups would be converted more explicitly into insurers and opened up to the private sector, while patients would receive a letter explaining how they now have the choice to opt out of their current arrangements. “Initially, nothing would change, but it would just give people the freedom to diverge from the way things are. If people are inexperienced with having a choice, and have low levels of financial literacy, then you can always adjust the system accordingly.”
Moreover, he insists that countries with similar approaches, such as Switzerland and Germany, have better health outcomes because competition is hardwired into the system. “They have better cancer survival rates, better stroke and heart attack survival rates, fewer avoidable deaths, better survival rates for people with respiratory illnesses. They are just superior in terms of outcomes across the board.”
Counting costs
However, these types of systems are generally more expensive, with countries such as Switzerland spending more public and private money as a percentage of GDP than the UK on healthcare.
For Niemietz, that is not necessarily a problem. “If spending is higher because people are prepared to pay more, then that’s absolutely fine. It’s a question of individual choice, and whether you want things like a single room accommodation in a hospital.”
Some may also be uncomfortable with governments handing profits to insurance companies, which they would be doing when subsidising premiums for low-income individuals. However, Niemietz says profit margins in social health insurance markets tend to be very low, and that the capital needed to build new hospitals and buy equipment comes with a cost in any system. In a public system, governments may raise capital by issuing bonds, which they would pay interest on. In a private system, companies may raise share capital, and would then pay profit to shareholders. “It’s not clear to me that capital costs are lower just because you don’t call them ‘profit’.”
Competition acts as an incentive to be more efficient
Having multiple actors in the system, rather than a top-down NHS that does all the budgeting and planning, would also create administrative costs. The risk-equalisation mechanism between insurers would need managing, too, which would involve salaries. “But at the same time, the competition between insurers and providers acts as an incentive to be more streamlined and efficient internally – that’s the general trade-off,” Niemietz explains. “If we gave supermarkets a fixed pot of money each, for example, and then people had to take what they’re given, you could have lower administrative expenses, but it would surely lead to a less efficient system overall. So for efficiency, we do need competition.”
Adjusting the formula
There is also a danger that the risk-equalisation fund would make insurers less incentivised to manage their risks, which they could do by, for instance, encouraging customers to adopt more healthy lifestyles. “But if you find a way to keep the costs of managing diabetes very low, for example, then you can make a short-term profit. Eventually everyone will do it, and that’s the way market competition generally works.”
The formula for determining compensation via the risk-equalisation fund may have to change from country to country. In a country such as India, where care providers may be attracted to the megacities at the expense of remote villages, geography would be an important consideration. “Rather than just basing the compensation mechanism on medical characteristics, you could include geographical remoteness as a factor,” Niemietz suggests. “If you live in a very remote area, we could count that like a health risk. Insurers could then offer higher pay to doctors operating in those areas.”
He believes that his proposals would work in countries with high income inequality, too, just requiring more government subsidies. “If you have a fairly egalitarian income distribution, such as in Sweden, very few people would need the subsidies, as even low-paid people could afford the premium,” he says. “In somewhere like India, which has a much more dispersed income distribution, more people would get it, so you would adjust the formula for premium subsidies.”
Niemietz is also keen to stress that he is no fan of the US healthcare system, pointing out the barriers to entry and the fact that doctors over-treat patients because they’re afraid of getting sued. More importantly, the US system is not universal – a fact that has been brought into focus during the past year.
Political suicide
Shifting back to the NHS and its performance during the pandemic, Niemietz highlights the fact that other countries using private insurance systems, such as the Netherlands and Switzerland, have had more COVID-19 cases than Britain, relative to population size, but considerably lower death rates. “Whether that is specifically because their health systems are better, I don’t know. I would be reluctant to say outcomes would have been better if we had their systems because the pandemic is a black swan event – there’s lots of different factors to disentangle.”
He admits that it would take a “massive shift” in public opinion for his proposals to come to fruition, with any politician suggesting such a change committing “political suicide”. “Even if you were 100% convinced that what I am saying is the better solution, you just wouldn’t go there,” he says. “You would treat healthcare as a lost cause, talk about how much you love the NHS because, as a politician, that’s what you’re obliged to do.”
As a free-market liberal, Niemietz will continue to argue for an alternative approach to healthcare, even if he believes it is a lost cause. “Rather than dishonestly pretend that I love the NHS as much as everyone else, I say very clearly, ‘this is the kind of system that I want, and this is how it would work’. I know it won’t happen in my lifetime, but I want to be clear that there is an alternative.”
Author: Chris Seekings, senior reporter for The Actuary
