The financing of the UK healthcare system

Since the recession, the UK debt and deficit has been at an all time high, where by the end of 2009 UK debt was reported to be £950.4 billion, equivalent 68.1 gross domestic product (GDP) and the deficit was £159.2 billion, which equated to 11.4% GDP (Figure 1).1 With that in mind it is a fact that all public sectors will be facing spending cuts to reduce the government’s debt and deficit. Since the NHS receives its funding from the government, it is logical that it will face spending cuts too. Therefore, it is significantly important to use economics as one of the determinants in the allocation of already limited healthcare resources.
Figure 1. Shows the UK government debt and deficit as percentage of GDP, from 2006 until the end of 2009.1
Economics is concerned with efficiently allocating the limited available resources, between alternative uses, to achieve maximum effectiveness.2 There is an ever increasing number of different technologies and medical interventions that cannot all be used to treat illnesses. The limited resources in the healthcare services, means decisions on resource allocation have to be made carefully so that maximum effectiveness can be achieved. In order to efficiently allocate resources, one has to consider the economic evaluation of the different alternatives before implementing the one that is the most effective and cost-effective.3

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Health economics is used to improve people’s health, which is how it differs from normal economics, in that it is not about analysing consumers’ demand and supply, but analysing benefits of medical interventions in relation to their costs. In health economics it is also more difficult to measure health outcomes in comparison to financial outcomes in financial economics. Outcomes of healthcare interventions are usually measured in quality adjusted life years (QALY).3
Patterns of financing healthcare
There are two methods of financing healthcare, which are public financing and private financing.4 Public financing of healthcare raises capital through taxation of the public (Table 1). The NHS is funded mainly through public financing. Private healthcare is where the capital is raised through the patients using the health services. The patients either pay themselves or are usually insured, so the insurance company pays their healthcare bills (Table 2). The healthcare system in the USA raises capital through private financing.5
Table 1. Describes the different methods and sources of public financing in healthcare
Sources of Public Financing
Description of Financing
General Tax Revenues
e.g. UK, Italy, New Zealand
Finance is raised by taxation – the cost of raising funds is low
General taxation pays all the bills so patients do not
Low cost per capita
Two types of general taxation
– Falling more on the poor than rich people
– Includes tax on items such as tobacco, alcohol and recreational events etc.
– Falling more on the rich than poor people
– Includes tax on luxury products purchased by the rich
Deficit Financing
Raised by, issuing bonds with long term low interest repayments and bilateral or multilateral aid loans
Borrowing and spending funds that are repaid over a period of time
Deficit financing supplements general tax revenue
It is used on the development and expansion in healthcare infrastructure
Earmarked Taxes
Tax on a particular product such as lottery and gambling for particular services such as healthcare
Social Insurance
e.g. France, Germany and Austria
The state acts as insurer
Financed by employer and employee payroll deduction
Social insurance is based upon collective risk of insurance group
Government might also contribute to social insurance
Public Healthcare Insurance
e.g. Canada, Taiwan and South Korea
Uses private sector providers but payment made by government run insurance programmes.
Capital expenditure are financed from tax revenues
It is cheaper and much simpler to administrate than the American for-profit insurance.
Wealth is transferred only from low to high risk groups, not from those with high income to low incomes
Table 2. Describes the different methods and sources of private financing in healthcare
Sources of Private Financing
Private Health Insurance
Social device in which a group of individuals transfer risk to another party in order to combine loss experienceby :
Risk Pooling
Risk Funding
System of third party payments has the effect of:
increasing demand
Increasing of prices
Inefficient allocation of resources
Employer Financed Schemes
Employers directly finance healthcare for their employees focusing on accident prevention and occupational health.
They pay for private sector health services
Employ medical personnel directly
Provide necessary facilities and equipment
Employees’ families are also covered.
Community Financing
It is voluntary in its nature
Payment for healthcare is made by members of the community
Resources are controlled directly by the community
Direct Household Expenditure
Health expenditure constitutes a large share of GDP through
People buying more health services
People buying higher quality health services
Government services charge fees from users
Raises household costs causing inequity
A study produced by the world health organisation concluded that in healthcare services that were publicly funded, the expenditure was lower. This was as a percentage of GDP and per capita. It also concluded that the population as a whole gained better health outcomes, universal standards were in place and costs of treating illnesses were reduced by increase emphasis on preventative primary care.6
Healthcare systems in UK and USA
In the UK, the National Health Service (NHS) was developed in 1948, where for the whole population healthcare was free and it is paid for by taxation, which means people would pay for it according to their means, not their needs.7
The NHS is wholly funded by the government, through various methods such as taxation and national health insurance (Table 1). Only 1.3% of the total NHS expenditure is provided through charging patients, the other 98.7% is funded by the government, where 90.3% of that comes from taxation and 8.4% comes from national insurance.8 In the UK, only 11.5% of the population purchase supplementary private health insurance, whereas in the USA over 67% of the population have health insurance.9 10
In the USA the healthcare system is not funded by the government but rather by public and private health insurances. Private insurance which is mostly employment based, funds 67.5% of the healthcare budget and the rest is funded by public health insurance. The healthcare system in the USA is funded by the demand for good health, whereas the NHS is funded by the supply of healthcare. There are various programmes of public health insurance that are used to fund healthcare in the USA. These programmes include medicaid which helps the poor, medicare which helps the elderly and the disabled, state children health insurance plan which aims to help poor children and finally other plans such as those that are offered to the military. Although these public health insurances are in place to provide help to the poor, elderly and disabled, 45.7% of Americans do not have health insurance.10
The differences between the healthcare systems in the USA and the UK also differ in terms of health outcomes, availability and costs. In 2009 the total health expenditure in the USA was 15.7% of GDP in comparison to only 8.4% of GDP in the UK. Tables 3, 4 and 5 are demonstrate the differences between the two healthcare systems.11 Also, even though the USA has much higher health expenditure than the UK it still has a lower life expectancy at birth (78.8 years) compared to the UK (79.5).
Table 3. Compares the healthcare expenditure of the USA and the UK healthcare systems in 2007.11
Total expenditure on health, % GDP
Total expenditure on health, Per capita US$ PPP
Public expenditure on health, % total expenditure on health
Public health expenditure per capita, US$ PPP
Out-of-pocket expenditure on health, % of total expenditure on health
Out-of-pocket expenditure on health, US$ PPP
Table 4. Compares the healthcare resources of the UK and USA healthcare systems.11
Practising physicians, density per 1,000 population
Practising nurses, density per 1,000 population
Medical graduates, density per 1 000 practising physicians
Hospital beds, density per 1,000 population
Acute care beds, density per 1,000 population
Psychiatric care beds, density per 1,000 population
MRI units per million population
(e) 8.2
CT Scanners per million population
(e) 7.6
Table 5. Compare health and disease in between the UK and the USA.
Indicators of Health
Life Expectancy at Birth (years)
Mortality Rate Under 5 (per 1000)
Maternal Mortality (per 1000)
Diabetes Hospital Discharges per 100,000
Cancer Hospital Discharges per 100,000
Acute Myocardial Hospital Discharges per 100,000
The comparisons above show that increasing funding does not mean that the quality of health would improve. The USA spends much more capital on healthcare than the UK, but they still have a higher mortality rate for children under the age of 5. The table above demonstrate the fact that in NHS, the funds received are spent much more effectively than the healthcare system in the USA, showing that more effective resource allocation decisions are made and hence better health outcomes are achieved. Also due to the lack of health coverage in the USA, around 45,000 people are killed every year.12 Such figures do not exist in the NHS as healthcare services in the UK are free for everyone.
Other means of showing how the NHS is better than the health service in the USA, is that in the UK, patients are treated in accordance to their illnesses regardless of their social class, whereas in the USA more income means better treatment, which of course only benefits the rich. Also administration charges in health services in the USA which are publicly funded such as medicare and madicaid cost much more than the services in the NHS making it less readily available to all the poor, elderly or disabled.
The importance of application of economic evaluation in the NHS, to provide decision makers with robust information to guide resource allocation decisions.
The definition of economic evaluation is that it is a comparative analysis of two or more courses of action in terms of both their costs and consequences.13 Hence in healthcare it can be thought of as a framework to assess the benefits and costs of each alternative method of healthcare intervention. The limited resources such as people, equipment and facilities in the healthcare, provide a helpful framework where alternative uses of the available resources can be compared. Economic evaluation in healthcare aims to maximise the outcomes from available resources through aiding resource allocation.13
There are three types of economic evaluations. These include cost-effectiveness analysis (CEA), cost-utility analysis (CUA) and cost-benefit analysis (CBA). Although these terms characterise different types of analysis, they do share some similar components, which include a stated perspective, a comparison group, and evidence of effectiveness, evidence of costs and a method of combining both costs and effects collectively. The differences in the analyses are the ways used to measure and value health outcomes. When the health outcomes of comparative interventions are established to be the same, then a cost-minimisation analysis (CMA), which is a sub-component of CEA is used, and only considers the inputs. This analysis aims to decide which intervention is the cheapest method of attaining the same outcome.13
Resource allocation decisions in the NHS are very important because demand for healthcare exceeds the recourses that are available, which gives health authorities many challenges to face. Due to the acknowledged resource constrains in the NHS, economic evaluations have become a recognised part of policy making.14 In England, the National Institute of Health and Clinical Excellence (NICE) is in charge of providing the national guidance for promoting good health and the treatment and prevention of ill health and provides clinical guidance to improve the quality of healthcare.15 In order to do that, the effectiveness and cost-effectiveness of comparative healthcare interventions are required to be considered.
There is a large increase in procedures and technologies for the prevention and treatment of diseases. Therefore, there are many alternatives of treatments and prevention of illnesses with variations in efficiencies and quality of care. Rational priorities in healthcare cannot be set for current and new resources. Hence, NICE would consider whether the resources available are being used in the best way possible to maximise efficiency. Technology appraisals are recommendation by NICE on the use of existing and new treatments and medicines within the NHS, such as surgical procedures, medical devices etc. which the NHS is legally obliged to fund. These very important recommendations, are based on evidence of how well the treatments and medicines work (clinical evidence) and how well they work in relation to their cost (economic evidence), (i.e. does it represent value for money?).16
Discuss the principles and an appropriate method for conducting an economic evaluation of breast cancer screening
The breast cancer screening programme aims at detecting breast cancer at an early stage in women between the ages of 50-64, who are at a significantly increased risk of developing the neoplasm.
An economic evaluation of the breast cancer screening program would need to compare to cost-effectiveness of the programme and of the treatment that would follow, with the cost-effectiveness of symptomatic detection of breast cancer and the appropriate treatment that would also follow. One would have to calculate the QALY of both the screening program and symptomatic detection, in order to achieve a quantitative measure of the benefits of the two interventions. In order to calculate QALY one would need to work out the quality of life during the disease stage and multiply it by the duration of the disease stage. This would provide a quantitative measure so that two interventions aimed at the same disease can be compared. Then one would need to calculate the costs of each intervention. Both of these would provide the cost effectiveness of each intervention and would show which is more cost-effective.3
Evaluate the rationale of the screening programme targeted to women aged between 50 and 64 in the UK.
It is established now that breast cancer is the most common type of cancer in the UK, where 45,700 women and 277 men were diagnosed with it in 2007. Over the last 25 years, the incidence of incidence of female breast cancer rose by 50%. It is much more common in women over the age of 50 were 8 out of 10 women diagnosed fall in that age group.17
16,000 cases of breast cancer were detected in 2007/2008 through the NHS breast screening programme, and it is estimated that 1,400 lives are saved every year because of this programme. Approximately 2 out of 3 women with breast cancer survive more than 20 years with the disease. Where before 5 out of 10 women survived beyond 5 years now it is 8 out of 10 women. The graph (Figure 2) below illustrates the decreasing mortality of women diagnosed with breast cancer in comparison to the past. The earlier breast cancer is diagnosed the increased chance of survival. Approximately 9 out of 10 women diagnosed with stage I breast cancer survive longer than 5 years, whereas only 1 out of 10 women diagnosed with stage IV breast cancer survive beyond 5 years. Although so many lives are saved each year due to the screening programme, there were still 12,116 deaths from breast cancer in 2008 and 99% of these were in women.
Therefore, it is crucial to detect breast cancer as early as possible to increase the chances of survival and the quality of life. In addition, detecting breast cancer at an early stage and treating it would be more cost less than the long term treatment of women diagnosed with later stages breast cancer.18
The reason the screening program is for women between the ages of 50-64 is that this age group have a much higher incidence of breast cancer in comparison to younger age groups. The average age of menopause is 50 and this is the when the breast become less dense and cancer can be detected much easier. The compliance in the age group of women over 64 years old is low; therefore it would increase costs and decrease the benefit of the screening program making it less cost effective.
Figure 2. Demonstrates the age-standardised (European) mortality rates of breast cancer patients in the UK from 1971 until 2007.
In conclusion this report has discussed the different patterns of financing healthcare (Table 1 & 2). The health system in the USA was compared with the NHS in terms of financing, availability and cost. It was determined that the NHS has a lower health expenditure as percentage of GDP than the USA’s health expenditure. However, the effective use of these recourses through guidance provided by NICE after taking into account economic evaluation of the different available resources makes the NHS a better healthcare provider than the USA’s healthcare system.
The importance of economic evaluations that are used to provide robust information to the NICE committee to aid in policy making decisions that are concerned with the allocation of the scarce resources of the NHS have been discussed. Also the principles and an appropriate method for conducting an economic evaluation of breast cancer screening was illustrated in this report.
Finally, the importance of the breast cancer screening programme for women aged between 50-64 years was examined and the report demonstrates why the screening programme is so important and why this age group has been chosen for screening.

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