Did subsidising private medical insurance hekp the NHS?

In the 1997 Budget, the Labour government abolished a subsidy on Private Medical Insurance (PMI) which had been previously offered to those aged 60 or over.(1) This led to an increase of nearly 30 per cent in the price of PMI for those affected. If fewer people take out insurance as a result of this reform, an interesting question is whether or not the additional NHS costs are outweighed by the savings to the exchequer from removing the subsidy.

New IFS research, financed by the Economic and Social Research Council, and published today by the King's Fund(2), shows that the government's decision to do away with tax subsidies for Private Medical Insurance (PMI) will have saved the government money despite the fact that some individuals choose to return to the NHS.

Writing in Health Care UK Spring 2001, Carl Emmerson, Christine Frayne and Alissa Goodman consider the effect of the July 1997 Budget decision to abolish the subsidy for those over 60 who take out Private Medical Insurance. They find that the saving to the Treasury from removing the subsidy more than outweighs the additional cost to the NHS from treating those who decided not to take out PMI as a result of the subsidy being removed. Christine Frayne, one of the authors of the report, said "We find that around 4,000 fewer individuals took out Private Medical Insurance as a result of the reform. While this will have led to an increase in demands on the NHS, the cost of treating any additional patients will be far less than the £135 million saved."

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Notes to editors

1. Prior to the July 1997 Budget individuals aged 60 and over and their partners, who took out Private Medical Insurance, were entitled to a subsidy equivalent to the basic rate of income tax. The decision to remove this subsidy affected a total of 550,000 people and raised a total of ñ35m a year for the Treasury by 1999-2000.
2. Health Care UK Spring 2001, is the latest King's Fund bulletin on health policy in Britain. It is available from the King's Fund bookshop on 020 7307 2591, price ù.99.
3. Contacts: Carl Emmerson, Christine Frayne or Alissa Goodman. Press Copies from Mel Capper at the King's Fund on 020 7307 2581.
4. This research is funded by the Economic and Social Research Council as part of the research programme of the ESRC Centre for the Microeconomic Analysis of Fiscal Policy at IFS.