When people propose the Government should boost national spending on health, by incentivising individuals to make provision for their own healthcare needs, they normally mean tax incentives for individuals and/or employers for making contributions towards private medical insurance.
The efficiency test
The efficiency test
3.6 This approach is inefficient in five respects:
3.7 First, as a policy its effects are likely to be minimal without a strong element of compulsion. In 1990 the previous Government introduced tax relief on private medical insurance for the over 60s. Despite annual public spending of £140 million on these incentives the numbers of subscribers to private medical insurance rose by only about 50,000 in seven years. This 1.6 % increase therefore had only a marginal effect on the NHS. More recent experience from Australia confirms this analysis. Three years of experimenting with increasingly costly public subsidies totalling £1 billion appears to have merely stopped a long term decline in the coverage of private health insurance. These subsidies have mainly benefited those already with insurance and so far may have added much more to public spending than to private funding.
3.8 Second, using public money to pay for tax incentives diverts funds from the public healthcare system. The cost of providing tax relief to those who already have private health insurance would be significantly over £500 million the so-called dead weight cost. Unless taxes were to rise or spending in another area of government were to fall, that would mean the NHS budget being reduced by the same amount.
3.9 Third, it is misleading to presume that incentives for people to go private saves thepublic sector money. This is because the saving to the NHS is likely to be outweighed by the deadweight costs of subsidising those who already have private medical insurance. A recent report from the Institute for Fiscal Studies concluded that: it is extremely unlikely that the cost of any such subsidy to private medical insurance would be less than the NHS expenditure saved . In other words, switching public funding from NHS expenditure to spending on tax reliefs could reduce health spending overall.
3.10 Fourth, the development of genetic testing will affect the coverage and cost of voluntary private health insurance. Healthcare risks will become more transparent. As a result, premiums will rise to reflect high-risk subscribers likely claims, reducing the affordability of cover, and lower risk subscribers will drop out. The combined effect will be to erode the risk pool on which private health insurance depends.
3.11 Fifth, whether or not the introduction of tax relief increased the overall volume of healthcare it would certainly inflate its costs:
- labour costs: currently there is no surplus of doctors and nurses in our country. The previous Government considered the introduction of tax relief in 1988. As Nigel Lawson, the then Chancellor of the Exchequer, concluded: If we simply boost demand, for example by tax concessions to the private sector, without improving supply, the result would not be so much a growth in private health care, but higher prices 
- fragmentation: the more fragmented commissioning of healthcare becomes, themore prices would be likely to rise. In the USA, for example, pharmaceutical prices are on average 75% higher than in Britain. This is at least in part due to the fragmentation of healthcare purchasing
- administration: administrative costs would rise significantly. The costs of management and administration are much higher under private insurance because of the bureaucracy needed to assess risk, set premiums, design complex benefit schedules and review, pay or refuse claims. These raised costs impact on hospital budgets. Administrative costs in America are up to 15% higher than in Canada, largely because of the cost of insurance processing.  The implication is that much of any increase in private medical insurance in Britain would go in administrative costs with no direct benefits to patients.
The equity test
The equity test
3.12 Private medical insurance is inequitable. Subsidising private health insurance will use taxpayers funds to expand two-tier access to healthcare, reducing equitable access to needed care. The costs of private health insurance per individual are substantial. For a 65 year old private health insurance costs around 50% more than the equivalent NHS cost.
3.13 Private medical insurance shifts the burden of paying for health care from the healthy, young and wealthy to the unhealthy, old and poor. The cost of private health insurance rises the older and sicker the person indeed beyond a certain age, and with chronic conditions, it is virtually impossible to get private insurance cover. Tax relief for private health insurance by definition is regressive. It offers public subsidies to the better off and is meaningless for the worst off.
3.14 This view is borne out by findings from a large scale research study in the early 1990s which looked at the costs across income classes of healthcare in Europe and America. It concluded that: the two countries with predominately private financing systems Switzerland and the US have the most regressive structures overall& The group of countries with the next most regressive systems are the countries operating the so-called social insurance model, &countries which rely&mainly on tax finance& have the least regressive financing systems.
3.33 There is no perfect healthcare system. Systems worldwide are subject to the same sort of pressures facing the NHS. In Germany, for example, there have been four major health reform packages since 1990, and debate continues about the need for further reform. In France, there has been growing disquiet amongst employers about the costs of the social insurance scheme. In the USA, both Presidential contenders, George W. Bush and Al Gore, are proposing major changes to deal with the problem of the over forty million Americans not covered by health insurance.
3.34 No healthcare system is beyond reform and political controversy. But the way that the NHS is financed continues to make sense. It meets the tests of efficiency and equity. The principles on which the NHS was constructed in 1948 remain fundamentally sound. Its practices, sometimes stuck in the world of 1948, need fundamental reform. Investment and reform are the twin solutions to the problems the NHS faces.
I don't normally agree with cut and paste articles but I think it is healthy to try and bring some balance to the current plethora of threads claiming that America can't afford universal healthcare and that more equitable healthcare systems dont work (despite the overwhelming evidence that they do).
The article is quoted from http://www.dh.gov.uk/en/Publicationsandstatistics/Publications/PublicationsPolicyAndGuidance/Browsable/DH_5204614 a Department of Health report looking at NHS investment plans.