Understanding supply and demand: the NHS

The NHS is amazing. It is wonderful. It is full of hard-working and knowledgeable staff, all the way from the trainee nurses to senior consultants. It has some of the most advanced medical equipment in the world. And it manages to provide this all for free.

Sounds too good to be true? It is.

Too good to be true, I mean. It is NOT free. Someone has to pay for it. But no, not the patient, never – the NHS is founded on the principle that it is free at the point of delivery: http://www.nhs.uk/NHSEngland/thenhs/about/Pages/nhscoreprinciples.aspx
Result: it is operated at the taxpayer’s expense.

Let’s think about the law of supply and demand for a second. It is the first law you learn in economics. As price goes up, demand goes down. As price goes down, demand goes up. As supply goes up, price goes down. As supply goes down, price goes up. For price to remain constant, supply has to rise to meet demand. And generally that’s what happens in properly functioning a free market.

Let’s consider the NHS then. The NHS is free at the point of delivery. In terms of demand, that means demand for it is as high as conceivably possible. (point A)

Can we agree that because the UK budget is not a bottomless pot of gold, the NHS is limited or fixed in terms of supply? (point B)

So we have (A) high demand and (B) limited supply. In a free market, this would normally mean suppliers would take advantage of this market condition to crank up capacity to meet demand and reap the profits from it. But the NHS is a non-profit monopoly on a public service. It has a stranglehold on health services in the UK, meaning the free market is not able to step in and increase supply capacity. If the NHS was a private for-profit business it would be able to reap huge profits from this monopoly. But thankfully, it is not for profit, it’s publicly owned. (Incidentally, this is why I oppose the recent consecutive governments’ plans to sell off parts of the NHS to private ownership.)

In the meantime, supply of health services remains fixed and strained to capacity. But demand doesn’t care about supply, it just cares about the price it has to pay, which in the NHS case, is nil. So demand remains super high. The practical outworking is this: People don’t take care of their health, and get drunk, do stupid things like get into fights or are not careful when doing dangerous activities. And they expect the NHS to cover them. And people go to the NHS for all sorts of non-health related problems. And people start taking the NHS for granted. It’s free after all. That must mean I am entitled to it. I don’t care how much it costs the government, it is MY human right.

So, what is the solution? Let’s identify the nature of the problem: We have an excess of demand, and very limited supply.
The solution could address either one of these problems. We could reduce demand somehow, or we could increase supply.
Ideally, we would do both.

Here’s how it can happen…

1) Reduce demand: bring in a nominal charge for accessing NHS services, a small sum that anyone could afford, that would discourage any time-wasters. This would significantly reduce public demand for NHS services. No need to fine people for failing to turn up to appointments (although I’m not entirely against the idea, it’s just unnecessary in my opinion). And definitely no need to charge people a sum that’s sufficient to cover the service. That defeats the point of having a NHS.

2) Increase supply: Encourage private health providers to build their own clinics and hospitals. If they want a piece of the health market, let them invest in it themselves, don’t restrict them. But keep the NHS FULLY funded, including continuous investment. Let the NHS compete against the private market. Break the monopoly. Then both patients and medical staff get to choose whether they want to go with the NHS or private healthcare. There’s no need for health insurance schemes like the US (although people should still be free to buy private health insurance if they choose to).

Is there any politician bold enough to fight for this and implement this?


Author: Hoong-Wai

I'm a sinner. I have an interest in economics, philosophy, politics, science, sociology, technology, theology (in alphabetical order). I care about truth and justice. I can be a contrarian.

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