Biggin Hill, London — A recent proposal to abolish the National Health Service and replace it with a social insurance model fails to account for the basic business fundamentals of the insurance industry. While such a system might theoretically maintain free treatment at the point of need while allowing individuals to choose their coverage levels, the structural mechanics of medical insurance make it a poor substitute for a publicly funded healthcare system.
Insurance generally operates under two primary models. The first involves events that grow more likely over time, such as life assurance, where older individuals require higher premiums to cover escalating risks. The second covers events with stable probabilities across time, such as home insurance, where the risk of a fire remains relatively constant and costs are spread evenly among policyholders.
Medical insurance firmly belongs to the first category, meaning premiums must rise alongside a customer's age. To keep premiums manageable and retain customers, private insurers frequently introduce higher excesses and co-pays while denying coverage for pre-existing conditions. Consequently, the individuals who need medical insurance the most find it the most expensive and difficult to acquire.
From a financial standpoint, private insurance models carry heavy structural overhead. Premium calculations typically allocate roughly 60 percent to claims, 10 percent to administration, 20 percent to sales, and 15 percent to shareholder profits, offset slightly by investment returns around 5 percent.
In contrast, an NHS-style healthcare system eliminates the need for sales expenses and shareholder dividends entirely. Even without investment returns, a publicly funded model operates roughly 30 percent cheaper than an insured healthcare alternative, coming down to straightforward arithmetic.