Cam Donaldson: Covid-19 and the economic case for a national care service

The exposure of care home residents to covid-19 during the past year has led to calls for a system review, including, as an option, a National Care Service (NCS). Scotland has taken the plunge and now has proposals tabled for a NCS. [1] Most advanced economies, save the United States, have learned the lesson that publicly funded healthcare is not only more equitable, but also more efficient. Hence, 80% of healthcare funding in the UK comes from the public purse. In 2018, approximately £100 billion worth of care support was provided informally (i.e. privately), with an additional £22 billion from local authorities and £11 billion funded privately. [2] A substantial, unspecified, proportion of the £22 billion comes from (private) user contributions.

The proposals for a national care service in Scotland are based on a human rights perspective. But the dominance of public funding in healthcare lies in economic as well as such humanitarian arguments. The economic arguments are not financial either, but rather rest on three sources of market failure, first brought together by Canadian economist, Robert Evans. [3] In economics, market failure does not equate to a dislike of free markets. Many of us dislike the fact that only some people can afford luxury cars, but rarely do we hear a case being made for a National Car Service. Market failure is quite specific, arising when markets struggle to account fully for important characteristics of commodities; rendering their allocation sub-optimal relative to when governments intervene. An NHS is an extreme, but justifiable and popular, form of this. Yet, how the market failure case for an NHS transfers to a case for an NCS has never been examined. 

The failure of private insurance

Without government intervention, insurance markets would develop to deal with unpredictable healthcare needs. In this sense, social care is no different. However, with financial risks mitigated by insurance, costs receive less emphasis in decisions of consumers and providers. Such “moral hazard” is behind historic inflation in US healthcare, exacerbated by administrative costs (of billing and advertising) which inflate premiums so much that people who would otherwise be insured are priced out of the market. Administrative costs are substantial in private as opposed to public systems. [4]

In public systems, government funding and supply-side controls (limiting human and capital resource) make it easier to control costs and spread administrative burdens across large populations. A naïve observer would promote user charges to control costs. However, charges simply encourage the system to switch its care-giving powers to those willing and able to pay. Exemptions help, but add further administration costs. These challenges are eliminated with extensive government intervention. 

Lack of consumer knowledge

Markets work well in maintaining quality when consumers are informed, which is less so in health or social care. To maintain standards, we grant license to qualified professionals. But this inadvertently creates powerful professional bodies, requiring “countervailing power” of government to negotiate over pay and provision. [6] In social care, providers can use their knowledge advantage to specify care packages which may not be in line with what a fully-informed consumer would wish; thus requiring government, with its countervailing collective power, to step in.

The “caring externality”: markets don’t care, but people do

Well-functioning insurance markets tailor premiums to risk. However, this leads the rich (usually healthier) to pay less while those in greater need (usually on lower-incomes) pay more. Many of the latter thus opt out of coverage and the market segments, leading to different quality for different groups.  These types of “adverse selection” count as market failure because those with required access are also willing to pay to ensure access for others too. Markets, focusing only on individuals acting on their own behalf, cannot facilitate this. The most effective way to achieve the transfers necessary to ensure universal coverage, whether for health or social care, is through taxation.


Successive governments have considered divesting themselves from funding healthcare since the early 1950s. The subsequent 1956 Guillebaud Report declared the NHS value for money. Despite differences across countries, the stunning common feature, internationally, is achievement of (or moves towards) universal coverage through collective, not private, “insurance.” The alternative, illustrated by the US, even with its mixed system of funding, is spending twice as much, with multiple levels of access to care and variations in quality according to types of coverage. Does this ring any bells? It is the comprehensiveness of market failure in healthcare which sustains the case for public funding as both equitable and efficient. If this case resonates for social care, then surely the time for a NCS has arrived.

Cam Donaldson, Yunus Chair and Pro Vice Chancellor Research, Glasgow Caledonian University, G4 0BA.

Competing interests: none declared.


  1. Independent Review of Adult Social Care in Scotland. The Scottish Government, February 2021. 
  2. Adult social care at a glance. National Audit Office, 2018.
  3. Evans RG, Strained Mercy: the Economics of Canadian Health Care. Butterworth, Toronto, 1984.
  4. Woolhandler S, Campbell T and Himmelstein DU. Cost of health care administration in the United States and Canada. N Eng J Med 2003; 349: 768-775.