Some early thoughts on Brexit and the NHS

In one interview I’ve read an ‘out’ voter describe how they voted for Brexit because they felt there was too much pressure on the NHS. I think it can be inferred that the believed cause of these pressures is immigration. I don’t feel this person is alone in these beliefs at all unfortunately. While it is the case that there is a rising need for healthcare and an insufficient supply to meet this need, there are huge uncertainties about future political and economic outcomes, which rules out any precise prediction about what will happen in the NHS. Nevertheless, we can tentatively consider the effects of Brexit on certain key areas on both the demand and supply sides and think about how leaving the EU might impact on the NHS.

Supply

Efficiency. The NHS is tasked with finding large efficiency savings. In 2011 the health service was expected to find at least £16.4 billion in efficiency savings by 2014/15. This was through a fairly nebulous process of production of local integrated plans, reducing input costs, and redesigning services. Alas, these efficiency targets were not met, as we have discussed previously. Indeed, over the past 20 years, there has been little improvement in efficiency. The Office for Budget Responsibility estimates that the NHS has achieved an average increase in efficiency of 0.8% per annum. Recently observed modest improvements in efficiency may be due more to current outputs being determined by past spending than current spending, so annual inputs to outputs ratios appear more favourable and could be expected to deteriorate going forward. In any case, how Brexit will affect efficiency is not clear, but may depend on how the labour force, of which a significant proportion are migrants, evolves in the near future.

Funding. Up to 2010 the NHS budget increased by approximately 4% per annum. Post-2010 this dropped to a little under 1% on average with some areas hit worse than others. For example, Wales experienced a drop in funding of 1% between 2014/15 and 2015/16. These changes were driven by government policy to reduce fiscal expenditure in response to the ‘great recession’. As a result there are projected to be significant shortfalls in funding. The most optimistic scenario in the NHS Five Year Plan puts this shortfall at £8 billion by 2020/21, but this optimistic scenario requires efficiency savings of 2-3%, far greater than the 0.8% that has been previously achieved. The general consensus among economists of the effects of Brexit are that it will lead to a further recession, further fiscal contraction might therefore be expected in response from the government. A corollary to the fact that there has been a lack of any systematic change in NHS efficiency is that outputs a straightforwardly determined by inputs, reductions in funding will therefore likely lead to reductions in outputs.

Overall, a precursory analysis would suggest that the supply of healthcare services may be reduced as a result of Brexit. But this may not be a problem if demand is reduced concurrently.

Demand

Immigration and Demographics. The use of public healthcare services has been a topic of discussion in the news for a number of years. The King’s Fund provide a nice summary of the evidence on the topic in which they say:

There has been a great deal of debate about the impact of immigration on the NHS. However, there is a lack of reliable data on the use of health services by immigrants and visitors… The best research on this is, by its own admission, tentative. The Department of Health published research into the cost of providing services to visitors and immigrants in 2013. The total gross cost at the top end of the estimate is £2 billion per year, of which a relatively small amount was recouped through charges and other arrangements. However, this total includes the use of the NHS by nationals of countries with which the United Kingdom has a reciprocal agreement. Within this total, ‘health tourism’, where people come to the United Kingdom with the express intent of using health services to which they were not entitled, was estimated to cost between £60 million and £80 million per year. This compares to the annual NHS budget of £113 billion.

This may lead us to expect that even if migration was completely reversed it would have very little effect on the funding deficit that the NHS is facing. On the demand side, demographic factors such as population aging and increases in the prevalence of non-communicable diseases are much larger drivers of demand. For example, the direct costs to the NHS of Type 2 diabetes was estimated in 2012 to be £8.8 billion, a cost which is expected to double over the next 20 years. Thus, Brexit is unlikely to have much of an effect on overall demand.

(An Initial) Conclusion

At this stage little can be said with certainty. However, the evidence would suggest the Brexit may lead to a potential increase in the mismatch between the growing need for healthcare services and their supply unless there is a change in government policy to significantly increase funding. Since there is no price mechanism in the NHS to limit demand, the use of other measures to ration services may increase. These include increasing waiting lists, removing ‘non-essential’ services, or limiting access to certain treatment to only those who stand to benefit the most. However, only time will tell.

Update: The King’s Fund library has a collection of EU referendum and NHS papers here.

Photo credit: EU Exposed (CC BY 2.0)

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