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

Rethinking the selfare state 216
existing licensing or accreditation regimes. However, there seem compelling virtues in
managed competition models of the health care market, where private health plans or
fund-holders compete with each other in the provision of prescribed essential services to
citizens holding universal capitated vouchers for these services. Relative to other delivery
models the managed competition model appears to present individual consumers with
more tractable information problems (which can be mitigated further by mandatory
disclosure requirements of comparative plan performance against prescribed criteria),
enable efficiencies to be realized from vertical integration and other tailored contractual
arrangements with plan personnel and facilities, and are likely to contain substantially
moral hazard and hence externalities problems on both the supply-and demand-sides of
the health care market entailed in more individualized fee-for-service state subsidized
health care provision. With respect to legal aid, legal aid providers would typically be
licensed lawyers, although we envisage a form of organizational competition between the
private bar, staff offices, and community clinics (where scale and specialization, along
with more efficient use of para-legal personnel, may reduce costs and enhance quality),
with legally aided clients given the choice as to where to acquire legal aid services.
The scope of voucher entitlements
No sensible voucher system can provide an unlimited claim to the costs of goods or
services to which it relates without creating massive moral hazard problems on both the
supply- and demand-sides of the market (i.e. running up bills at taxpayers’ expense). On
the other hand, a capped or fixed-value voucher, depending both on its value and supplyside
elasticities, may lead to under-provision of needed services for many consumers.
With respect to child care and primary/secondary education, we contemplate
presumptively a fixed-value voucher, although it may be difficult to avoid the need to
adjust the value of the voucher to accommodate the special needs of, for example,
children with learning or other disabilities or disadvantages or special transportation
requirements. Even here, in order to avoid moral hazard problems, additional voucher
increments would need to be capped by class of student need, unavoidably introducing
significant additional complexity into the design of the voucher system. Alternatively,
some form of mandatory pooling would be necessary, such as first-come, first-served, or
allocation of school placements by lottery where demand exceeds supply. With respect to
post-secondary education and job-training, the case for scaling the value of vouchers by
reference to different categories of recipients does not seem as obvious, recognizing that
income-contingent loan programs can be designed with sufficient flexibility to
accommodate the varied circumstances of student recipients. With respect to health care
services, a single fixed-value (capitated) voucher presents a particularly acute problem in
that the widely varying health status of individual citizens entails equally widely varying
costs and risks to health care providers. In the absence of some attempt to develop a
calibrated, risk-adjusted array of vouchers by reference to the health status of classes of
recipients, or elaborate regulations enforcing mandatory pooling of disparate risks, the
problem of cream-skimming and the distributional consequences thereof are likely to
prove severe. With respect to legal aid, the task of determining the value of vouchers per
class of case is also problematic. A lump-sum voucher creates incentives for providers to
plead clients guilty in criminal matters or to settle civil cases early and for low value,