More freedom & responsibility

Against the backdrop of massive personal and public debt and difficult economic conditions, it would take several years for most people to accrue a pot of savings sufficient to contribute to healthcare costs beyond primary care. But at some point, perhaps a decade after the establishment of Health Saving Accounts (HSAs), it would become reasonable to move more of the costs of healthcare off the taxpayer and on to those individuals that could afford it (accompanied by a compensatory tax reduction).

The process should be a gradual one, as even after a decade most people's HSAs could be depleted quickly by major healthcare costs.

Continued public funding of big-ticket items

In any case, the purpose of the HSAs is not to cover the costs of low-probability/high-cost items such as catastrophic or chronic care. As discussed elsewhere, insurance is more appropriate than saving for those items. Given the poor experience with private health insurance in the USA, we propose to continue with socialized insurance in the UK, i.e. publicly-funded treatment free at the point of use, allocated in accordance with NICE* assessments of value, within the constraints of a budget set by the Treasury and the Department of Health.

But even for big-ticket items, HSAs would benefit some people. By returning some of the purchasing power from the taxman to the individual, people would have some funds to contribute to the private purchase of those treatments that were not approved by NICE. This would go some way to reducing the unfairness of the current system, where middle-earners make their contributions to tax revenues and yet sometimes find that taxes will not pay for treatment that they need, because NICE had other priorities.

He who pays the piper calls the tune

The main areas for increased individual contributions would not be for big-ticket items, but for medium-cost items. The types of healthcare that would fall into this bracket would be selected by the Department of Health and gradually expanded over time.

For these types of healthcare, individuals would be obliged to provide the first £X of the cost of treatment in any year. X would be based on annual earnings (i.e. ability to pay), and would increase gradually over time to allow for the gradual accumulation of savings.

It could expand on the model already adopted for GP services. Whereas people had been expected to contribute at least 5% of their earnings to primary-care costs only, they would now be expected to contribute an increasing proportion of their earnings to primary and selected secondary-care costs. Starting gradually, it might be 6% of earnings in Year 1, 7% in Year 2 and so on, until we reached 10% of earnings in Year 5, from which time the minimum contribution to the relevant costs in any year would be 10% of earnings. In most years, of course, most people would not incur costs as high as this. 10% would represent a maximum obligatory contribution, not an average or typical contribution (though they could contribute more voluntarily).

Why would anyone choose voluntarily to contribute more than necessary? For as long as people were spending their own money, they would have the freedom to choose their own doctors, facilities and treatments (within the options that doctors were willing to prescribe). Once they were relying on public funds, they would have to accept the doctor, facility and treatment that was deemed most efficient/appropriate by the public insurance operator (the body that provided public funds for treatments within this bracket). Self-funding would bring freedom to choose, and the HSA tax-benefits would support investment in that freedom. The reason that people might choose voluntarily to contribute more than necessary would be the same reason that people currently choose to pay for private healthcare despite the availability of free healthcare on the NHS.

More privatization, more diversification

This development would require more treatments to be charged at market rates. Only private providers can discover market rates, because only they are constrained by the need to (a) fully recover costs, and (b) attract sufficient business to maintain cash-flow and support overheads. All providers of the services covered by these provisions would therefore have to be privatized.

Some of these providers (e.g. hospitals) would also provide services that remained covered by socialized insurance. These providers would have to operate different administration schemes for different departments, depending whether the department dealt with treatments whose costs were socialized or not.

To the patient, the only immediate effect would be that, for those treatments that required an individual contribution, they would be asked to declare whether they were paying fully in person, or whether they were entitled to some or all of the cost being covered by the public insurance operator (PIO). If the latter, the provider would contact the PIO prior to treatment (other than in an emergency, which should generally be socialized and not covered under these provisions), to confirm what share of the costs would be covered and what share should be demanded from the patient, and to check that the PIO was happy for the patient to receive the prescribed treatment at that facility.

Patients would also have to provide annual information to the PIO regarding their level of earnings. This could be amalgamated with the annual tax return. They would also need to update the PIO if their level of earnings changed materially during the year (e.g. if they were made redundant).

The treatment under the same scheme of primary care and less complex/expensive secondary care would fit well with innovative treatment centres such as polyclinics, and greater integration between providers of different services covered by this scheme.


Increasing proportions of healthcare that was formerly fully tax-funded would become only partially tax-funded (for lower-earners). This should allow for reductions in income tax to balance the increased private costs of healthcare for higher earners.

For example, let's say that the treatments initially covered under the scheme cost £10bn of the healthcare budget, and that only £5bn would now need to be publicly-funded. The £5bn reduction in the healthcare budget would allow the Flat Tax to be reduced by around 1 percentage point (e.g. from 43% to 42%).

The more healthcare that was covered by this scheme, and the greater the level of private contribution that was required, the more the Flat Tax would be reduced, and the more competitive the British economy would become. More jobs should be created as the reducing tax reduced the disincentive to work and the advantage of competitor countries with lower wages and taxes.


* National Institute of Health and Clinical Excellence