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Public and Private Health Care Financing with Alternate Public Rationing

Listed author(s):
  • Katherine Cuff
  • Jeremiath Hurley
  • Stuart Mestelman
  • Andrew Muller
  • Robert Nuscheler

We develop a model to analyze health care nancing arrangements and under alternative public sector rationing rules. Health care is demanded by individuals varying in income and severity of illness. There is a limited supply of health care resources used to treat individuals, causing some individuals to go untreated. We examine outcomes under full public finance, full private finance, and mixed, parallel public and private finance under two rationing rules for the public sector: needs-based rationing and random rationing. Insurers (both public and private) must bid to obtain the necessary health care resources to treat their beneficiaries. While the public insurer's ability-to-pay is limited by its (fixed) budget, the private insurer's willingness-to-pay re ects the individuals' willingness-to-pay for care. When permitted, the private sector supplies supplementary health care to those willing and able to pay. The introduction of private insurance diverts treatment from relatively poor to relatively rich individuals. Moreover, if the public insurer allocates care according to need, the average severity of the untreated is higher in a mixed system than in a pure public system. While we can unambiguously sign most comparative static effects for a general set of distribution functions for income and severity, a complete analysis of the relationship between public sector rationing and the scope for a private health insurance market requires distributional assumptions. For a bivariate uniform distribution function we nd that the private health insurance market is smaller when the public sector rations according to need as compared to random allocation of health care.

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File URL: http://socserv.mcmaster.ca/econ/rsrch/papers/archive/2007-07.pdf
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Paper provided by McMaster University in its series Department of Economics Working Papers with number 2007-07.

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Length: 44 pages
Date of creation: Nov 2007
Handle: RePEc:mcm:deptwp:2007-07
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  1. Hoel, Michael & Saether, Erik Magnus, 2003. "Public health care with waiting time: the role of supplementary private health care," Journal of Health Economics, Elsevier, vol. 22(4), pages 599-616, July.
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  3. Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International, vol. 10.
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  5. Besley, Timothy & Hall, John & Preston, Ian, 1999. "The demand for private health insurance: do waiting lists matter?," Journal of Public Economics, Elsevier, vol. 72(2), pages 155-181, May.
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  7. Gary Biglaiser & Ching-to Albert Ma, 2007. "Moonlighting: public service and private practice," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 1113-1133, December.
  8. Hugh Gravelle & Luigi Siciliani, 2008. "Is waiting-time prioritisation welfare improving?," Health Economics, John Wiley & Sons, Ltd., vol. 17(2), pages 167-184.
  9. Iversen, Tor, 1997. "The effect of a private sector on the waiting time in a national health service," Journal of Health Economics, Elsevier, vol. 16(4), pages 381-396, August.
  10. Katharina Hauck & Rebecca Shaw & Peter C. Smith, 2002. "Reducing avoidable inequalities in health: a new criterion for setting health care capitation payments," Health Economics, John Wiley & Sons, Ltd., vol. 11(8), pages 667-677.
  11. Olivella, Pau, 2003. "Shifting public-health-sector waiting lists to the private sector," European Journal of Political Economy, Elsevier, vol. 19(1), pages 103-132, March.
  12. Propper, Carol, 2000. "The demand for private health care in the UK," Journal of Health Economics, Elsevier, vol. 19(6), pages 855-876, November.
  13. Kurt R. Brekke & Lars Sørgard, 2007. "Public versus private health care in a national health service," Health Economics, John Wiley & Sons, Ltd., vol. 16(6), pages 579-601.
  14. Culyer, A. J. & Wagstaff, Adam, 1993. "Equity and equality in health and health care," Journal of Health Economics, Elsevier, vol. 12(4), pages 431-457, December.
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