Financing Health Care SA407 User Charges Wednesday, 21 October 2009 Faisal Latif Miranda Perra

Overview Key arguments of user charges Various types of user charges Implications of applying user charges to different health care services

Fixed PaymentFixed Payment Consumer contributes a payment on receipt of a particular health service which is fixed independently of the quantity of goods or service consumed MC=0 except for the first unit

Variable PaymentVariable Payment If the payment that the consumer makes varies with the quantity of a good or service consumed, this will be referred to as variable payment. X * C = VC X =number of units of a service or good consumed C =cost per unit

Linear Pricing S=p.c.x S=total payment p>0 =fractional share Co-payment or user fee Co-insurance Fixed plus Linear (F+L) S=F+ p.c.x F=fixed element MP> P of the first unit Two-part tariff

Non-linear (full marginal price (FMP)) Insurance Deductibles or Excess MP=0 once insurance starts to cover the TC Non-linear (partial marginal price (PMP)) Balance billing MP< TC

Contextual factors behind User Charges (Cost Sharing (CS) ) Reasons cost sharing is employed Instrument for promoting cost containment Raising revenue Contextual factors (country-specific) Broad macroeconomic environment Extent of population coverage (by a national health service) Western Europe vs. CEE/CIS countries Western Europe: minimal obligations for poorest individuals

Implications of User Charges (Cost Sharing) Context: Rand Health Insurance Experiment (HIE) Decreased utilisation of health services (Rice and Morrison, 1994) ‘Necessary’ vs. ‘unnecessary’ utilisation Rationale: reduce use of those services not ‘medically necessary’ CS no selective effect (Lohr et al. 1986)

Implications of User Charges (Cost Sharing) First Contact vs. Referral Services Utilisation rate of primary care more sensitive to cost than referral services (more elastic) Provider response Providers will induce increase in intensity of referral care (due to decreased demand) UMW Health & Retirement Fund Introduction of co-payments Physicians changed practice patterns to maintain income

Implications of User Charges (Cost Sharing) Effect of CS on total health expenditure CS does not ultimately contain costs Why? Costs are primarily driven by supply-side factors Paradox - lowest utilisation but highest HC expenditure – which country? Why? Possible solution Supply-side measures more effective mechanisms e.g. budgetary controls Prescription drugs Weak tool for cost-containment (Jönsson & Gerdtham, 1995).

Limitations of Cost Sharing (CS) Information asymmetry Heterogeneous health-service mix Reduced equity in finance Reduced equity in access & health status Driven by supply-side Policies required to address this CS will only reduce utilisation, NOT cost containment Considerable administration, information, economic and political constraints (Gilson et al., 1995)

Thank you for listening! Any Questions?