Can we all be assured of receiving the healthcare services we need at a price the economy can afford? In the UK the answer is a resounding No.

A recent report showed that Britain ranks last among the five largest European countries in its uptake of cancer drugs, which may account for its low five-year survival rates for diseases such as breast cancer – 78.4 per cent in the UK compared with 90.1 per cent in the US.

But if the country were to restructure its system from one that subsidises institutions to one that subsidises patients, it may improve the care offered and save taxpayers’ money.

Of the three primary goals of any health system – universal coverage, quality care and affordability – many assert that only two can be achieved.

After all, as the UK’s and other government-controlled healthcare systems illustrate, a country can attain universal access at a reasonable cost –about 9 per cent of GDP – but the socially disadvantaged cannot be assured of receiving all the services they may need. The employer-controlled US system illustrates the obverse: insured citizens receive all the health care they need but the price, 16 per cent of GDP, threatens to cripple the economy and seemingly obviates universal coverage.

But there is a way that we can all access the care we need at a price the economy can afford. Switzerland illustrates the point. The Swiss have excellent care and universal coverage for 11.5 per cent of GDP and a comparison of cancer survival rates in Switzerland and Britain dramatises the consequences of this incremental rise in spending. Male five-year relative survival rates for all cancers are 44.3 per cent in Britain and 53.6 per cent in Switzerland.

In Switzerland, the rationing function is performed by consumers, not by governments or employers. The Swiss buy their health insurance primarily using their own money. In this consumer-driven system, the trade-offs forced by finite resources are choices made by individuals. The current UK system makes exactly the same trade-offs but they are made by bureaucrats and imposed on all.

The Swiss enable universal coverage by transferring sufficient money to those who could otherwise not afford health insurance and enable all consumers, within certain demographic characteristics and geographic areas, to pay the same price for a given type of health insurance.

To ensure that health insurance companies will be interested in insuring sick people, the Swiss health insurers formed a pool to reinsure each other. Although they are supported in this by the Swiss Government, they have a substantial incentive to make it work. They understand that if it were to fail the Swiss principle of solidarity would compel a government-run, single-payer system.

Nevertheless, the Swiss system is hardly perfect. It has suppressed competition among healthcare providers, which are handcuffed by uniform, nonmarket based pricing. while heavy subsidisation of public hospitals lessens the incentive for market-based competition with private ones.

Learning from these lessons, a UK consumer-driven healthcare system could contain the following features:

1 Everyone is required to buy their own insurance, using tax-sheltered income. This step, which creates a consumer-driven system, would be financed by the tax revenues currently used for the NHS, in the form of a tax credit for the purchase of health insurance. To protect against bankruptcy-for those with high medical needs, individuals would be required to purchase health insurance that covers all expenses exceeding some percentage of their income and liquid assets.

2 Government helps those who cannot afford to buy insurance by subsidising them. The tax credit would guarantee that those in low or no-tax brackets would have sufficient funds to purchase insurance.

3 Providers are free to bundle care as they wish and name their price. This step enables market-based pricing so that entrepreneurial providers can innovate freely.

4 Prices are risk-adjusted. This step ensures that, while sick people pay the same price for their insurance as everybody else, providers or insurers would receive more money for their treatment. They are financially rewarded for attracting the sick. Because the sick account for the bulk of healthcare costs, we want providers to be interested in innovating cost-effective systems of care.

5 Government requires publication of data on the performance of all medical providers. This enables consumers to make informed decisions and protects them against providers who are incompetent, or deliver bad value for money.

The UK spends a reasonable amount to attain universal coverage for all but the sick. The US system cares for the sick but its exorbitant costs leave 50 million uninsured. The consumer-driven Swiss system shows how to do it all – universal coverage, reasonable cost and care for the sick.

— Regina E Herzlinger is the Nancy R. McPherson Professor of Business Administration at Harvard Business School

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive