Health  Vol.2 No.9 , September 2010
Effect of user fee on patient’s welfare and efficiency in a two tier health care market
Abstract: This is a theoretical paper examining the effect of user fee on patients’ welfare and social welfare under three forms of provider reimbursements: full cost, prospective payment and cost sharing. The paper extends Rickman and McGuire (1999) by introducing user fee to the public sector and maintaining the assumption that providers can work in both the private and public health sectors. Contrary to previous studies, this study shows that efficiency is possible under the full cost reimbursement. The paper also shows the conditions under which efficiency is possible under each reimbursement scheme. Patient’s welfare can improve with the introduction of user fee when services in the public and private sector are complementary.
Cite this paper: nullAmporfu, E. (2010) Effect of user fee on patient’s welfare and efficiency in a two tier health care market. Health, 2, 1110-1119. doi: 10.4236/health.2010.29164.

[1]   Besley, T. and Gouveia, B. (1994) Alternative systems of health care provision. Economic Policy, 203-258.

[2]   Zweifel, P. and Breyer, F. (1997) Health economics. Oxford University Press, Oxford.

[3]   Petretto, A. (1999) Optimal social health insurance with supplementary private insurance. Journal of Health Economics, 18(1), 727-745.

[4]   Holmer, M. (1984) Tax policy and the demand for health insurance. Journal of Health Economics, 3, 203-221.

[5]   Zuckerman, S. (1987) Commercial insurers and all-payer regulation evidence on hospitals’ responses to financial need. Journal of Health Economics, 6(3), 165-187.

[6]   Gravelle, H. (1999) Capitation contracts: access and quality. Journal of Health Economics, 18(1), 315-340.

[7]   Chernick, H.A., Holmer, M.R. and Weinberg, D.H. (1987) Tax policy toward health insurance and the demand for medical services. Journal of Health Economics, 61-25.

[8]   Selden, T.M. (1999) Premium subsidies for health insurance: Excessive coverage vs. adverse selection. Journal of Health Economics, 18, 709-725.

[9]   Pope, G. (1990) Hospital nonprice competition and medicare reimbursement policy. Journal of Health Economics, 8(2), 147-172.

[10]   Schleifer, A. (1985) A theory of yardstick competition. The RAND Journal of Economics, 16(3), 319-327.

[11]   Keeler, E.B. (1990) What proportion of hospital cost differences is justifiable? Journal of Health Economics 9(3), 359-365.

[12]   Selden, T.M. (1990) A model of capitation. Journal of Health Economics, 9, 397-409.

[13]   Ellis, R.P. and McGuire, T.G., (1993) Supply-side and demand-side cost sharing in health care. Journal of Economic Perspectives, 7(4), 135-151.

[14]   Ma, C. A. (1994) Health care payment systems: Cost and quality incentives. Journal of Economics & Management Strategy, 3(1), 93-112.

[15]   Ellis, R.P., McGuire, T.G., (1986) Provider behavior under prospective reimbursement, cost sharing and supply, Journal of Health Economics, 5(1), 129-151.

[16]   McGuire, A. and Rickman, N. (1999) Regulating provider’s reimbursement in a mixed market for health care. Scottish Journal of Political Economy, 46(1), 53-71.

[17]   Leger, P.T. (2000) Quality control mechanisms under capitation payment for medical services. Canadian Journal of Economics, 33(2), 565-586.

[18]   Leonard, K.L. (1998) Institutional structure of health care in rural cameroun: Structural estimation of production in teams with unobservable effort. Discussion Paper Series N, 9798-9816.

[19]   Bloom, G. and Segall, M. (1994) Expenditure and financing of the health sector inkenya, abridged report of a study performed for the ministry of health and the world bank. IDS Commissioned Study, 9.

[20]   Lavy, V. and Germain, J. (1995) Tradeoffs in cost, quality and accessibility in utilization of health facilities: Insights from Ghana. In: Shaw, R.P. and Ainsworth, Eds., Financing Health Services through User Fees and Insurance Case Studies from Sub-Saharan Africa, World Bank Discussion Papers, 103-121.

[21]   Petretto, A. (1999) Optimal social health insurance with supplementary private insurance. Journal of Health Economics, 18(3), 727-745.

[22]   Evans, R.G. (1974) Supplier-induced demand: Some empirical evidence and implications. In: Perlman, M., Ed., The Economics of Health and Medical Care, Wiley, New York.

[23]   Farley, P. (1986) Theories of the price and quantity of physician services: A synthesis and critique. Journal of Health Economics, 5(1), 315-333.

[24]   Laffont, J.J. and Tirole, J. (1986) Optimal payment systems for health services. Journal of Health Economics, 9(4), 375-396.

[25]   Laffont, J.-J. and Tirole, J. (1993) A theory of incentives in procurement and regulation. MIT Press, Cambridge.