Health insurance: the influence of the Beveridge Report.

The National Health Service (NHS) of the United Kingdom was created by an Act of 1946, based on the recommendations of Sir William Beveridge's report (1). Seldom has any report to a government been so influential. The NHS is the pioneer of universal, publicly financed health insurance, and could probably be credited with much of the improvement in the health of the British population since its creation. It is admired and in varying degrees imitated worldwide, especially but not exclusively in former British colonies. And it continues to inspire study, debate and proposals for improvement (2). That alone makes the Beveridge Report a public health classic, even though it has little to say about medical care and nothing whatever to say about disease. It is something of a literary classic in the best British civil servant style and in Beveridge's forthright assumption of responsibility for every recommendation and every word in it. And it has perhaps become a classic according to Mark Twain's definition of "something that everyone wants to have read and that no one wants to read" (3). The extracts reproduced for this issue of the Bulletin concentrate on the principles proposed for the improvement of the health services, which are described as inferior both to the other forms of social protection which the United Kingdom offered its citizens before the Second World War and to the public health insurance of some other nations. Where the other forms of insurance are concerned, the report also provides an exercise in accounting, but there is little in the way of numerical estimates regarding utilization or costs for health care. And there is scant discussion of how health services might be organized, beyond the observations that provision and finance ought to be considered together and that different ways of organizing services and paying providers might affect their costs of service and financial viability. Contrary to what public health specialists might assume, the report is not primarily about health interventions but treats them as among the "allied services" included in a comprehensive scheme whose chief concern is the maintenance of employment and income. This is hardly surprising in view of the experience of the Depression and the fear of an economic collapse once the wartime stimulus ended. Health care is important to that scheme largely as a means of protecting or restoring people's capacity to work: hence the emphasis on postmedical and rehabilitative care. Beveridge had been Director of the London School of Economics (1919-37) and at the time of the report was President of the Royal Statistical Society, but the report contains almost no economics in the theoretical sense and no statistical sophistication. Friedrich Hayek, who had been Beveridge's colleague and became a virulent opponent of the welfare state, claimed that Beveridge "knew no economics whatever" (4); but the economics that Hayek preached, particularly the importance of competitive market prices to provide information for efficient allocative decisions, while generally correct, applies less well in the health sector than anywhere else. The paucity of economic theory in the report is explained rather by the fact that it predated by more than 20 years Arrow's (5) elucidation of the role of uncertainty and information in health markets and the beginnings of modern health economics in the work of Klarman (6) and others. The Beveridge Report does not mention information asymmetry (when different actors in a health delivery system -- such as providers and patients -- do not: have the same information or amount of information about an aspect of health, e.g. the prognosis of a disease or the effectiveness of a medical technology) or other sources of market failure (a situation where a free market will not lead to efficient outcomes). It refers only once to potential moral hazard, to question "whether persons in receipt of disability benefit, on entering an institution, should be required to make any payment towards the cost of their board", since they might otherwise profit financially by staying longer than necessary in hospital. …