Insurance model is no substitute for the NHS | Healthcare industry

In Dining across the divide (4 October), the young participant, Ted, is quoted as expressing his “desire to abolish the NHS and replace it with a social insurance model. This would still have provision for free treatment at the point of need, but people would pay through insurance systems, and they would choose the level of cover they’ve got. Those models deliver far better outcomes for patients.”

As a retired insurance underwriter, I must disagree profoundly with Ted’s assertion. Let’s concentrate on business fundamentals. Insurance comes in two “flavours”: first, events that become likelier as time goes on – eg, life assurance. The older you get, the more likely you are to die and the more premium is needed to cover the risk; and second, events whose likelihood stays essentially the same over time, eg home insurance – the likelihood of a house burning down is much the same for everyone and the cost is spread evenly between policyholders.

Clearly, medical insurance is flavour one. Premiums need to rise with age. To reduce premiums and keep customers, insurance companies apply ever-increasing “excesses” and “co-pays” and can refuse to cover pre-existing conditions. The more you need medical insurance, the more expensive and difficult it is to get.

There is also the business case. When you buy an insurance policy, premiums are calculated to include the cost of claims (about 60%); administration (about 10%); sales (about 20%); shareholder profits (about 15%); less investment returns (about 5%).

In contrast, an NHS-style system does not require either sales costs or shareholder profits. Of course, there would be no investment return – but nevertheless, it is still about 30% cheaper to operate than an insured healthcare system. Like most sound business ideas, it’s simple arithmetic.
Susan Jones
Biggin Hill, London