Rethinking the Welfare State: The prospects for ... - e-Library

Health care 115
risk patients or some form of mandatory patient pooling (although both entail significant
additional administrative complexity).
As the comparative experience reviewed above suggests, capitation systems are likely
to function best when health care providers (e.g. GP fund holders in the UK) or health
plan providers (e.g. sickness funds in Germany and the Netherlands or HMOs in the US)
(a) are large enough to diversify risks, but not so large that consumers are denied
effective choices amongst providers or plans; (b) the capitation payments internalize most
of the costs of health care provision to service or plan providers so as to minimize
incentives to engage in cost shifting to other elements of the health care system; and (c)
mandatory patient pooling or risk adjusted capitation payments are adopted to minimize
cream-skimming.
While these features of a capitation regime improve incentives on the supply-side of
the health care market, they leave unaddressed moral hazard problems on the demandside
of the market, although there is controversy over how serious these problems are.
While physicians would no longer derive marginal private benefits from providing
additional services to patients, patients would still derive marginal private benefits from
demanding them. A tax-based health care copayment system would improve incentives
on the demand-side of the market while being sensitive to the regressive impact of copayments
and the problem of catastrophic health care needs. Decoupling the issues of
how health care providers should be compensated from the issue of how the health care
system should be financed presents similar features to the economic analysis of liability
for accidents. While making defendants wholly liable to plaintiffs for the latters’ losses
may create appropriate incentives for injurers, they remove any incentive for plaintiffs to
take self-precautionary measures. Ideally, both parties to an injury-causing interaction
should face the full social costs of their causal contribution to the negative outcome. In
bilateral tortious interactions, this is difficult to achieve but in health care financing it is
feasible, in principle, to decouple what health care providers get paid from what patients
should pay Under a capitation system obviously some cost-accounting mechanics would
need to be resolved in order to attribute a cost or value to services received by consumers
and hence treated as a taxable benefit. While this may entail an element of arbitrariness, it
is not clearly a more arbitrary exercise than prescribing fees for services under a fee-forservice
regime.
In short, in principle, moral hazard problems on both sides of the health care market
need to be addressed if a better efficiency-equity trade-off is to be realized than is evident
in most health care systems today
Scope of the voucher entitlement
A major challenge inherent in identifying the appropriate scope of a health care voucher
is defining precisely the distinction between essential and non-essential health care
services. In Canada, for example, the ambiguity of the term “medically necessary” has
resulted in differing interpretations in each province as demonstrated by the differing
policies towards prescription drug coverage, long-term care, eye care and dental care. 101
The difficulty of this task is further demonstrated by recent attempts in the Netherlands,
New Zealand, and the state of Oregon in the US to define what constitutes “core”
services. 102 In New Zealand for example, the National Advisory Committee on Health