Economic Rationales for the Design of Health Care Financing Schemes

Francesco Paolucci ()
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Francesco Paolucci: The Australian National University

Chapter Chapter 2 in Health Care Financing and Insurance, 2011, pp 13-32 from Springer

Abstract: Abstract In this chapter we investigate the economic rationales for the design of health care financing schemes. We make an explicit distinction between the arguments for governments to implement a system of mandatory cross-subsidies to achieve affordability in the financial access to basic services for high-risk or low-income individuals, and the arguments to mandate the coverage for predefined health care services. We argue that the most important economic arguments to enforce a system of cross-subsidies are related to: the presence of externalities in health care services consumption; the individuals’ risk of becoming bad risks; and the moral hazard effects induced by cross-subsidisation. The rationale for mandatory coverage is based on considerations of free riding behaviour, individuals’ lack of foresight and too high transaction costs of alternative ways to organise cross-subsidies. Finally, we discuss the implications of our analysis for the design of health care financing arrangements. We argue that imposing a universal mandate to obtain uniform coverage for predefined services is not a necessary and proportionate measure to increase the affordability of health care for vulnerable groups. To achieve affordability it is sufficient if governments impose mandatory cross-subsidies. By allowing variations over income groups in the composition of the mandatory benefits packages and/or on the level of deductibles moral hazard can be reduced as compared to a universal mandate for a uniform coverage.

Keywords: Health Care Service; Marginal Utility; Moral Hazard; Consumption Externality; Financial Access (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1007/978-3-642-10794-8_2

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