Social health insurance: be careful what you wish for

The British public is unhappy with the state of NHS services but remains wedded to its funding model: tax funded and largely free at the point of use. That hasn’t stopped calls to reform the way the NHS is paid for and adopt a version of the social health insurance systems common elsewhere in Europe.

Social health insurance looks different in different nations, but there are common features. People pay contributions to non-governmental bodies, separate from the tax system, with a significant proportion of social health insurance revenue coming from employers and employees. Contributions are compulsory, and everyone is entitled to the same set of services and treatments. Unlike private insurers, social insurers must accept everyone, regardless of age or health status. To enable this, contributions are pooled and adjusted so that insurers can cover the health needs of their enrolled population.

What would it mean if the NHS was switched to a social insurance system? This blog looks at some of the policy choices that might arise based on the evolution of three European health systems: Germany, France and the Netherlands.

Would social insurance contributions raise enough money?

Historically, social insurance-based systems raised funds from employment to provide cover for working people. Over time, coverage has been extended to everyone, young and old, regardless of employment status. Most countries with social health insurance have added taxes alongside contributions to fund health care. This has been driven by concerns about the economic sustainability of relying on wage-based contributions alone, to avoid a drag on businesses and offset the load on working-age people as the number of older people rises.

In France, employment-based social health insurance contributions accounted for 33% of insurance revenues in 2021, with the remainder coming from an earmarked income tax and taxes on alcohol, tobacco and pharmaceutical and private insurance companies. In the Netherlands, everyone 18 aged years and older must pay a premium directly to an insurer, but those of working age also pay an employment-based contribution via the tax office. An additional 13% of total spending on health care comes from general taxation. This provides subsidies for people living on a low income who are unable to afford insurance premiums and funds preventative services such as screenings and vaccinations. In Germany, general taxation funds about 10% of total health expenditure.

Balancing the mix of social insurance contributions and taxes would be complex, and not an automatic route to increased investment in the NHS. France, Germany and the Netherlands spend more on health care, but they also raise more from taxation overall. In 2021, revenue from taxes (including social insurance contributions) as a proportion of GDP was higher in the Netherlands (39%), Germany (39%) and France (45%) compared with the UK (33%).

What sort of body or bodies should handle contributions?

Following the German or Dutch model would mean setting up competing insurers. In contrast, France has one large insurer that covers 95% of the population. In the Netherlands, 24 insurers offer a choice of 59 insurance plans, and people use comparison websites to make their choices each year. In Germany, people choose between 105 insurers, known as ‘sickness funds’.

In both Germany and the Netherlands, insurance bodies are not-for-profit (and in Germany they are quasi-public, required to have employer and employee representation on their administrative boards). Insurers in both countries are fully risk bearing and required to hold reserves to cover fluctuations in spending (that is, if they spend more in a year than they receive in contributions). In Germany, by the end of 2019, social health insurance funds had reserves of €21bn. In the UK, deciding the ownership status of bodies handling billions of pounds of public money for an essential service would be contentious given recent experiences with utilities such as water and energy.

Whatever their ownership status, competing social insurance funds would need to be regulated. In Germany, the larger sickness funds are the responsibility of the Federal Office for Social Security (smaller ones are the responsibility of the states). The Dutch Health Healthcare Authority oversees both the insurance and provider markets. It monitors mergers between insurance companies and scrutinises insurance plans to make sure consumers are treated fairly and given enough information to make informed choices.

What would be covered?

Competing social insurers in the NHS would mean creating a more explicit ‘benefits package’ that specifies what insurance will and won’t pay for. In Germany, everyone is entitled to the same services and treatments regardless of which insurer they choose. The German benefits package covers a wide range of services, but insurers can add additional services such as homeopathy, acupuncture and osteopathy to attract consumers. For the NHS, this would raise some dilemmas about whether public funds should be used for treatments with a limited (or no) evidence base.

Codifying what’s in the NHS benefits package would be time consuming. Through the assessment work of NICE, there is already a mechanism for deciding which new drugs should be available on the NHS and extensive NICE guidelines on many other forms of treatment. But there is no explicit benefits package in the NHS, and much is still left to the discretion of clinicians. Defining benefits would mean tackling variations in what is currently available across the NHS, for example IVF.

Once a benefits package is agreed, insurers would need to be sure they have enough funds to cover the health care of their insured population; that is, funds would need to be risk adjusted. A core principle of social health insurance systems (as with tax-funded systems) is that people are accepted by insurers regardless of their age or health status. In Germany and the Netherlands, payments to insurers are pooled and then adjusted by central agencies to make sure that any insurers covering an older or sicker population are adequately resourced. The NHS has long used risk-adjustment formulae to allocate tax-based funds according to need. But the process of adjusting for unmet need in more deprived areas has not been without controversy. For example, there is evidence that general practices with more deprived (and sicker) populations are underfunded.  

If a benefits package and risk-adjustment formulae can be agreed, a decision is needed about whether or not to allow insurance companies to negotiate with hospitals and other providers over the cost of services. Insurers in the Netherlands contract with providers on cost, quality and volume, but the central government also sets maximum prices for some services. Some NHS services, particularly in the hospital sector, already have fixed prices, but other sectors, such as mental health, do not.

Contracting already happens in the NHS in England, but introducing new insurance bodies would nevertheless be complicated. For example, general practice is largely run through a national contract in the NHS. Should we then opt for the Dutch model, where GPs agree a contract with one insurer and ask the others to use it, or the German model, where regional associations of sickness funds negotiate with regional associations of GPs and other non-hospital-based specialists?

It is not clear if insurance bodies would be any more successful at negotiating higher-quality, lower-cost services than the equivalent NHS bodies (commissioners) in England. A recent review from the Netherlands found that the use of quality metrics by insurers has been slow to evolve. Getting ‘strategic purchasing’ to work well in any health system has proved difficult, regardless of funding model.

More choices, but more challenges?

Assuming that a benefits package could be agreed for the NHS, appropriate regulation put in place, contractual and risk-adjustment snags ironed out and a competitive insurance market set up, the transition would still be a big adjustment for the public, many of whom are not used to making choices about health insurance. Many social insurance systems also have a supplementary private insurance market linked to social insurance that covers user charges and services not in the benefits package, such as extra physiotherapy.

In the UK, approximately 3 million people buy private health insurance, mostly for faster access to non-urgent hospital treatment. The creation of a social health insurance system for the NHS would likely require policymakers to consider whether to expand supplementary private insurance alongside the public system (and the additional regulation it would need).

In France, over 95% of the population buys supplementary private insurance, choosing among 439 providers (in 2019). This insurance primarily covers user charges payable on a wide range of health services in the public system. Since 2000, the government has introduced a series of reforms to make private insurance accessible to those least well off. Until 2019, people on low incomes and those just above the poverty line were protected from charges through two schemes financed by a tax on insurance companies. One of these, a voucher scheme, had only been taken up by a quarter of those eligible by 2015. Research found that the administrative burden of applying was a barrier. The schemes have since been merged, but in 2019, 5% of the French population did not have private insurance. A 2019 survey of over 150,000 people found that a quarter had forgone health care in the previous 12 months, with financial barriers the most commonly reported reason.

The addition of supplementary insurance can result in a bewildering array of choices. In 2015, the Dutch health care regulator estimated that there were approximately 6,000 combinations of options to choose among in both the main and supplementary insurance markets. Between 6% and 7% of people switch social insurance plans each year. In 2019, 50% of people had never switched since insurance market reforms were introduced in 2006. Research has found that people with less education or lower incomes have greater difficulty choosing an insurance policy.

Although the social insurance systems in European countries such as the Netherlands have deep historical roots, public trust in insurers is not a given and is substantially lower when compared with health professionals.  

Other challenges might include how the insurance system would handle those who fail to pay their premiums. In a tax-based system, mechanisms are already in place to ensure people pay. In the Netherlands, the insurers work with municipalities to track and trace those who either don’t pay or fall behind on their payments (in 2013, over 300,000 people were more than 6 months behind on their payments).  

More bureaucracy and avoidable upheaval?

A social insurance system would also likely be more expensive to run. The OECD identified that social insurance systems, particularly those where insurers compete, tend to have higher administrative costs than systems managed by central governments. In 2021, 1% of the UK’s spending on the public health care system was on governance and administration, compared with 3.6% in France, 3.9% in Germany and 3.2% in the Netherlands. This is equivalent to £43 per head in the UK versus £236 per head in Germany, for example.

Insurers in the Netherlands have reduced their expenditure on marketing and commissioning over time but still spent €2.18 per enrolee in 2018. Critics of the Netherlands’ health insurance system maintain that the administrative costs are too high – driven by contract negotiations with multiple insurers and complex regulation and accounting procedures – and absorbing public funding that could have been used differently.

This is only a sample of the decisions policymakers would face setting up a social insurance system, based on the experiences of three countries with very different histories and values to the UK. There is no clear evidence that social insurance systems deliver more cost-effective health care or better outcomes. What is clear is that the NHS, like health systems in other high-income nations, will have to treat many more people as society grows older. Spending large amounts of time and resources changing to a social insurance system would be highly wasteful and a diversion from the sustained investment, innovation and incremental reform the NHS needs.

Ruth Thorlby (@RThorlby) is Assistant Director of Policy at the Health Foundation.