Internal markets v Free markets


Like Eamonn, I welcome the government’s plans to scrap Strategic Health Authorities and Primary Care Trusts and put consortia of GPs in charge of commissioning health services on behalf of their patients. As well as stripping out unnecessary bureaucracy, these reforms should create a more bottom-up health service and encourage innovation. Moreover, the Conservatives’ previous attempt at GP fundholding suggests that giving local practitioners direct financial controls is likely to improve productivity and help to deliver better services at less cost.

And yet… I can’t help feeling slightly uneasy about Health Secretary Andrew Lansley’s plans. The problem with ‘internal markets’ and ‘managed competition’ is that the devil is very much in the detail. Get everything right and, yes, you can bring about tangible improvements. But it is all too easy to get something wrong and end up worse off than you started – and discredit ‘market-based’ reforms in the process.

The trouble with internal markets is that, step forward or not, they aren’t real markets. They lack an effective price system and still rely heavily on central planning. As a result, while they may deliver better, more personalized services, internal markets are still prone to all the information and incentive problems that affect other bureaucracies.

Ultimately, there’s no substitute for letting real people spend real money, and letting a health ‘system’ develop in a truly spontaneous way. To put it another way, empowering doctors may be better than empowering bureaucrats, but empowering patients is better still.

What I’d really like to see is demand-side reform, and in particular the introduction of Health Savings Accounts (or something like them) in the UK. It could be that you compel people to save a certain amount each year, as occurs in Singapore. Or you could expand the system of tax-funded direct payments system that has been successfully pioneered in social care, and make everybody responsible for their own 'health fund'. In either case, you can still use tax-transfers to support those who can’t support themselves.

Such reforms would couple equitable and universal provision with a genuinely consumer-led system. They would also encourage greater individual responsibility when it comes to healthier living – something the current proposals manifestly fail to do. The downside is that they would require us to abandon our free-at-the-point of use healthcare dogma. And is the British public ready for that?

John Spiers’ excellent IEA book Who Decides Who Decides? explores these issues in detail, and is a highly recommended read for anyone interested in healthcare reform.