British and American health care systems: a comparative economic perspective.

as shown by labour unrest, has deteriorated. Patrick Jenkin, Secretary of State for the Social Services, has warned that doctors, nurses, hospitals, and clinics must begin to be protected from the rising demand for health services and that the public must be educated to lower its expectations for health care.' Concerned about the pressure of increasing health care costs on tax resources, the Government is investigating the possibility of increasing the part that health insurance plays in funding health services. Such a policy, if adopted, would mark a departure from the practice of financing health services almost entirely from tax revenues. But, as Cooper noted, it is important "not to swing from the finding that the NHS has been less than utopian to the advocacy of some other system which may prove to be a good deal worse in practice."2 The British and American systems of health care represent quite different approaches to the financing and provision of health care. While private medicine is expanding in Britain, it still forms only a small part of medical care and the NHS is used by about 95% of the population. The British system is perhaps the closest in the non-communist world to a command economy in health care. The NHS has been termed the "only piece of pure socialism" of the postwar Labour government.3 Over 88% of NHS funds are drawn from general taxation, and services are provided to the public, usually free of charge, through a system of Government-owned hospitals and independent general practitioners under contract to the NHS. The American system is closer to a market economy in health care, with about 60% of health funds coming from private sources: consumers, private health insurance, industry, and philanthropic organisations. For the most part hospitals are owned by private non-profit institutions and most doctors are in private practice. Over 80% of the population carry some type of private health insurance and 70% of personal health care expenditure is paid by third-party payers: government, private insurance, and philanthropists. From an economic perspective, each health care system needs to accomplish three important tasks. Firstly, a limit must be set on the resources devoted to health care; secondly, a means must be found to determine who will receive the health care; and, thirdly, incentives must be provided so that health care resources are used efficiently. I have attempted to analyse how the British and American systems accomplish these tasks, and to identify the implications for reform of the British system, including insurance financing. Limiting the resources for health care