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Financing health care: False Profits and the Public Good

12 November, 2014

The research “Financing health care: False Profits and the Public Good', by Jane Lethbridge of Public Services International Research Unit (PSIRU), University of Greenwich was commissioned by PSI and released on Thursday 13 November at the Australian NSW Nurses and Midwives Association Forum: When profits come first – The true impacts of health privatisation.

Fiscal consolidation, escalating health care costs and demographic changes are placing universal public health care under increasing pressure. In this environment, the idea that the private sector is more efficient, effective and better able to fund health care than the public sector has been promoted.

After almost thirty years of privatisation in the health care sector the evidence shows that these claims do not reflect the evidence. Comparisons of total health spending at national level show that countries with higher private spending on health spend more on health care and achieve worse results in key indicators of national health.

Countries such as the UK and Sweden spend less than 10% of GDP on health care, of which over 80% is public expenditure. By comparison the USA spends almost 18% of GDP on health care, of which less than 50% is public, but has lower life expectancy and higher infant mortality rates. France which has very high life expectancy and low infant mortality rates spends 11.4% of GDP on health of which 76.7% is public.   

The reasons for the efficiency and effectiveness of the public provision of health are not complex. Administrative costs of public insurers are routinely and dramatically lower than private insurers. Public systems, with a single payer system in the form of a government or state run agency, produce efficiencies of scale and are better able to control costs.

Public systems better control over-servicing and ensure the most appropriate form of treatment. Several studies show that the incentive structure in private systems distort the types of treatments provided towards those that are more profitable for the provider even where they are less appropriate and more costly. 

Studies of USA healthcare provision show that most of the $750 Billion in inefficiencies annually are from unnecessary services ($210 Billion), excessive administrative costs ($190 Billion) and inefficient delivery of care ($130 billion). 

Private providers also pay more to borrow, exploding the myth that they bring more and cheaper financing to health care.

And nor are Public Private Partnerships, often introduced simply to shift debt of the balance sheet, any more efficient. In 2012, the first Public Finance Initiative hospital in England to be completed in 2001, was declared an ‘unsustainable provider’ and placed in administration.

Tragically the effects of out of pocket costs cause untold hardship. Surveys in 89 countries, both high and low income, covering 89% of the world’s population suggest that 150 million people globally suffer financial ruin annually because they have to pay for health services. There is also significant evidence that introducing user fees influences weather people access needed care.    

Attempts to supplement public systems with private providers fared no better. The ensuing two tiered system tends to starve the public system and slide towards the inefficiencies of a substantially private system.

Despite widely held beliefs to the contrary, funding universal public healthcare systems through general taxation is more efficient, creates better health care outcomes and is more equitable than the private alternatives. 

Financing health care: False Profits and the Public Good


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