Introduction
The often high cost and uncertain demand for health care has meant that direct user charges comprise a small proportion of total health care expendit-ure in most European countries. Instead, several types of risk-pooling arrange-ments have been developed to cushion individuals from the financial effects of ill health. The United States, for example, has a large private insurance market. Most European countries, in contrast, place more emphasis on schemes that are publicly funded through social insurance contributions or general taxes. In publicly funded schemes, contributions are more closely related to the ability to pay than to personal risk status. But all insurance arrangements – both public and private – protect individuals from the full financial costs of the services they receive at the time of use. Instead, a third-party payer, either public or private, picks up all or most of the bill.
Although the nature of health care markets provides strong reasons for a third-party payer system, the absence of user charges is periodically criticized on the grounds that it encourages excessive demand for health services and thereby contributes to escalating expenditure. This is generally referred to as the problem of ‘moral hazard’. It is argued that introducing or increasing user charges will make individuals more aware of the costs of health care services and will deter people from using services that are not really necessary: where the expected marginal private benefit is less than the marginal private cost or, at the societal level, where the marginal social benefit is less than the marginal social cost.
In addition to this argument, a separate case in support of user charges is that they provide additional revenue when governments are having difficulty in funding health care by taxation or social insurance contributions. This applies to several countries in central and eastern Europe (CEE) and the former
Soviet Union (FSU), in which low economic growth, falling levels of employ-ment and wariness about governemploy-ment funding in the post-communist world have made relying on general taxation and social insurance contributions difficult. In these circumstances, cost-sharing does not aim to reduce demand:
on the contrary, additional revenue is maximized when there is price-inelastic demand.
This chapter analyses these arguments for user charges. It provides an ana-lytical framework for examining international evidence on user charges and for assessing their impact. An overview is also provided of the international evidence on the scope and scale of user charging in western and central and eastern Europe and some important trends are highlighted. This is followed by an assessment of the evidence on the impact of user charging in terms of the evaluation criteria of efficiency, equity and public acceptability. Finally, cost sharing is discussed and some tentative arguments are offered about the appeal of user charges to politicians and policy makers.
An analytical framework
User charges can take several different forms. Conceptually, these can be viewed as different positions on a continuum ranging from full third-party payment (zero cost-sharing) to full user charges (costs met completely by out-of-pocket payments). Rubin and Mendelson (1995) have conveniently sum-marized two ranges on this continuum by distinguishing between direct and indirect cost-sharing.
Direct cost-sharing includes payment (a flat fee or charge per service), co-insurance (a percentage of the total charge), deductible (a payment covering the first x dollars before insurance coverage begins) and balance billing (an additional fee the provider levies in addition to the payment received from the third-party payer). Indirect cost-sharing involves those policies that can result in out-of-pocket expenditure for patients even though charges are not directly imposed. According to Rubin and Mendelson, these policies include coverage exclusions (such as insurance contracts specifying services that will not be reimbursed, such as in vitro fertilization) and various forms of pharma-ceutical regulatory mechanisms such as generic substitution and formularies (positive, negative and selected lists).
Here, most attention will focus on systems of direct cost-sharing, although some complicating factors need to be borne in mind. For example, at the empirical level, national data on out-of-pocket payments usually cover all user charges and fail to distinguish between direct and indirect cost-sharing.
Furthermore, in some countries (such as France), people take out insurance to defray the costs of charges arising from cost-sharing. In such cases, direct costs are themselves met by third-party payments. Finally, in most CEE and FSU countries, informal payments represent an important source of direct cost-sharing, but their informal nature means that they fail to meet the standards of transparency met by formal systems, and the magnitude is largely unre-corded (see Chapter 8 for more discussion).
In analysing the impact of direct cost-sharing schemes, Chalkley and Robinson (1997) highlighted the importance of the payment profile faced by
health service users. In particular, they point out the importance of marginal prices and their expected impact on behaviour. User-charging schemes take a variety of forms, including linear pricing (co-insurance), two-part tariffs, non-linear full marginal cost pricing (deductibles) and non-non-linear partial marginal cost pricing (balance billing or reference pricing). Each of these offers different financial incentives at the margin.
Attention to marginal prices is especially relevant in service areas in which demand is user-led and the volume or quantity of services consumed by a particular patient is the main concern. These conditions apply to, for ex-ample, general practitioner consultations and, in some cases, to pharmaceutical prescriptions. In both of these areas, marginal prices may be an important determinant of demand.
Moving on from the classification of different types of cost-sharing arrange-ment, determining the criteria to use in evaluating the performance of a cost-sharing scheme is important. Kutzin (1998) reviewed the main economic criteria, namely, efficiency and equity. In this context, efficiency has several connotations. If the aim of cost-sharing is to discourage ‘unnecessary’ de-mand, its effect on the utilization of services is the key measure. Beyond this, however, disaggregating changes (reductions) in utilization is important to examine whether these have involved appropriate (effective) or inappropriate (ineffective) services, if these can be distinguished. This, in turn, addresses the effects of cost-sharing on health status. Establishing the effects of cost-sharing on the level and pattern of demand allows performance to be assessed in terms of allocative efficiency.
In some countries, however, the aim of cost-sharing is not so much to reduce demand but to generate revenue for funding health care when alternat-ive funding (such as tax revenue) is not available. This objectalternat-ive is sometimes discussed under macro-efficiency – because it focuses on reducing public ex-penditure on health – but it really has little to do with the concept of effi-ciency as developed by economists. Rather, it is a policy for public-sector cost containment. As such, cost-sharing can be judged in terms of its success in meeting this objective, although the underlying desirability of the objective is less well established than that of allocative efficiency.
The criterion of equity in health care is complex and is often only loosely defined in discussions of cost-sharing. For practical purposes, however, it is probably sufficient to investigate whether imposing cost-sharing arrangements disproportionately affects lower-income groups as observed through changes in their utilization of services. A slightly wider definition may wish to observe effects on especially vulnerable groups, such as elderly people and people with chronic diseases, independently of their income. Equity in financing as well as equity in utilization may have to be considered; that is, the financial burden of user charges as a proportion of income among different socioeconomic groups.
Economists mainly use efficiency and equity to assess the performance of most health policy instruments. However, other considerations also apply to general health policy. The cost and feasibility of administering cost-sharing arrangements is an important consideration. Although these are often identi-fied separately, these are really an aspect of efficiency and are dealt with as such here. Finally, there is the question of the public acceptability of
cost-sharing. In many countries, cost-sharing is a hotly debated political issue. As such, public attitudes can constitute an important constraint on implement-ing cost-sharimplement-ing arrangements.
To summarize the discussion on evaluative criteria, any cost-sharing scheme should be assessed in terms of its effects on efficiency, equity (including on health status) and public acceptability.
An overview of cost-sharing in Europe
Two studies have reviewed cost-sharing arrangements in western Europe (Mossialos and Le Grand 1999) and in CEE and FSU countries (Kutzin 1998).
Tables 7.1 and 7.2 summarize some of the main findings from these studies.
Although obtaining data that are completely standardized across countries is difficult, the tables provide a broad indication of the cost-sharing arrange-ments found in each country in the main service areas to which they are applied: primary care consultations and ambulatory care, specialist consulta-tions, inpatient care, pharmaceuticals and dental care. Table 7.1 also shows the relative importance of cost-sharing in each country as indicated by the share of total health expenditure financed from out-of-pocket payments (both direct and indirect cost-sharing).
This international comparative analysis produced the following findings.
Pharmaceuticals are a major area of cost-sharing. All 15 European Union countries apply cost-sharing in relation to this sector. In most cases, this takes the form of co-insurance, with the rate varying between different classes of products. Drugs used to treat life-threatening diseases or which have major therapeutic effects are typically subject to lower rates of cost-sharing than those offering more marginal improvements in the quality of life. But not all countries employ co-insurance. In the United Kingdom, and for some drugs in Belgium and Italy, cost-sharing takes the form of a flat rate co-payment. Ger-many also has a set of flat-rate co-payments but, in this case, they vary accord-ing to pack size. Ireland has a maximum quarterly expenditure that acts as a deductible. Germany, the Netherlands and Sweden use reference pricing, and consumers pay the costs exceeding the reference price.
Policies on cost-sharing in relation to general practitioner consultations and ambulatory care vary between countries. Nine countries apply cost-sharing systems in this sector. These include co-payments (such as Ireland and Sweden), co-insurance (such as Austria, Belgium and France) and balance bill-ing (such as Denmark2 and Greece). Set against these practices, however, Ger-many, Italy, the Netherlands, Spain and the United Kingdom do not levy user payments for general practitioner consultations.
Most countries (11 of 15) use some form of cost-sharing in relation to specialist consultations. These are often applied in similar ways to the relevant cost-sharing arrangement for general practitioner services. Thus, France and Luxembourg apply the same rates of co-insurance – 30 per cent and 35 per cent, respectively – to both general practitioner and specialist consultations.
In most countries, balance billing is not allowed. It is, however, used in Belgium, Denmark3 and France for specialist consultations.
User charges for health care165 75% of total cost in 1994
up to DKr500 per year, 50% for DKr501–1200, 25% for DKr1201–2800 and 15% for over DKr2800.
For chronically ill patients who spend over DKr3600 on drugs per year, the co-insurance rate is 0%
Country of 50% of the remainder of the price 20% of the total cost of pharmaceuticals
Specialist Inpatient Pharmaceutical Dental Out-of-pocket
payments as a percentage of total expenditure on health
Greece None for size plus 100% of cost above the reference price.
Cost-sharing accounted for 12% of total costs in 1996
Country to a deductible of up to a114 per quarter. Co-payment of a1.5 plus 50%
co-insurance for class B.
Full cost for class C
No charges for
Specialist Inpatient Pharmaceutical Dental Out-of-pocket
payments as a percentage of total expenditure on health
Netherlands
subject to 0%, 20% and 60% rates of co-insurance category B and 60% for category C. Cost-sharing accounted for 33% of the drug bill in 1995
Country
Spain
Sweden
United Kingdom
aData on out-of-pocket payments includes expenditure on private health insurance
bCategory 1 patients are those eligible for a medical card and whose income is below a defined level. Category 2 patients are those with limited eligibility due to their level of income.
Source: Mossialos and Le Grand (1999), updated using Health Care Systems in Transition country profiles from the European Observatory on Health Care Systems and OECD (2000) a reduced rate (10%) for chronically ill people SKr1800 in any 12 month period
Co-payment of £6 per item (2000)
Specialist Inpatient Pharmaceutical Dental Out-of-pocket
payments as a percentage of total expenditure on health
Country
Health insurance and user charges
Health Insurance Institute created in 1995, covering primary health care and basic essential drugs. User charges had fallen to very low levels before 1995 No formal cost-sharing arrangements and few user charges
Cost-sharing legalized in 1997; the 1998 Health Insurance Law allows for co-payments for certain services covered by insurance
Some co-payments within health insurance system introduced by Health Insurance Act of 1993. Co-payments accounted for 10% of direct service costs in 1999
Cost-sharing on a minor scale; out-of-pocket payments represented 5% of total health care expenditure in 1995 Cost-sharing introduced for various services and products in April 1995; exemptions introduced a few months later
Act of 1975 set up health insurance and wide scope of services covered. Initially co-payment maintained only for prescribed medicines, medical aids and spa treatments
Services with user charges
Small co-payments on some services covered by insurance, such as outpatient services and drugs
Charges for outpatient drugs, a small group of services and medical aids, etc. Hospitals can charge for non-essential services such as cosmetic surgery, but few do so. Vulnerable groups, those with chronic illness or
‘socially important’ communicable diseases are exempt from drug costs Visits to physicians, dentists and other inpatient and outpatient care if not referred by the family physician. Patients pay for ambulatory drug costs
Every primary care consultation, home visits by health professionals, ambulance transport, some specialist care, ‘hotel’ charges for inpatient care, some medical aids and prescription drugs. People on low income, unemployed people, war veterans, children up to 15 years and those with certain illnesses are exempt
Selected drugs, dental services and some medical aids, and small co-payments for ambulatory care
Public ambulatory care subject to a small user fee. In hospital care, co-payments only apply to extras such as a single room. For most prescription drugs, co-payments are about 25%. Retired people, disabled people and children are exempt from user fees
Since 1975, co-payments also for ambulance transport, dentistry, sanatorium treatments and long-term care, hotel aspects of hospital care and specialist services obtained without referral. ‘Socially indigent’
people are exempt from co-payment based on a local government means test
Country Health insurance and user charges Services with user charges Kazakhstan
Kyrgyzstan
Russian Federation
Slovakia
User charges legalized in 1995
Official user fees permitted since 1991. Policy on user fees, basic health care packages and exemptions still being developed
Health insurance scheme does not include cost-sharing co-payments. There are user charges for some services dating from the Soviet era
Patient co-payments on some products according to the legislation on the financing of health insurance (1993) and amendments (1995 and 1997)
Most oblasts (regional authorities) charge fully for non-essential services, such as cosmetic surgery and some dentistry. Substantial co-payments for outpatient drugs, aids, etc., and often for inpatient food and drugs too. Socially vulnerable groups and certain diagnostic groups such as cancer patients are exempt from outpatient drug charges. In theory, all patients are exempt from inpatient drug charges, although often not in practice
User fees charged for a defined list of 17 health services, drugs, laboratory tests, extra amenities in hospital such as single rooms, etc.
Semi-official charges made by hospitals for drugs and other supplies.
Children, students and disabled people have free health services.
However, they will soon be included in the health insurance system and may no longer be exempt from charges
Official user charges for dental care, optical services, most medical aids and prostheses, drugs for outpatients and other services excluded from insurance. Veterans, tuberculosis patients, diabetics and another 28 categories of patient are exempt from charges for essential drugs.
Unemployed people exempt from insurance contributions
Rising number of co-payments for drugs (those outside the ‘essential’
category covered by insurance) and some prostheses, dental products, spectacle frames, etc. Exemptions (such as for unemployed people and employers of disabled people) apply more to insurance contributions than to co-payments
Tajikistan
The former Yugoslavian Republic of Macedonia
Turkmenistan
Uzbekistan
Source: Kutzin (1998), updated using Health Care Systems in Transition country profiles from the European Observatory on Health Care Systems
Full payment for services outside this basic package, for which they can take out voluntary insurance. Socially disadvantaged groups (such as unemployed people) are fully covered by compulsory health insurance (contributions paid by the state) and do not pay user charges
Health care facilities allowed to charge approved prices for services such as dentistry, some diagnostic procedures, abortions, etc. People often buy their own drugs because of shortages in hospitals. Patients must pay for optical services, orthopaedics, resort treatment and cosmetic treatment. Veterans, children under 3 years of age, disabled people, tuberculosis patients, etc., are exempt
Health services and drugs for outpatient treatment (20%) and inpatient treatment (10%); treatment received abroad (20%); hearing aids and dentures (20%); orthopaedic braces, etc. (50%). People over 65 years pay reduced co-payments for drugs. Cash payments are required for services outside the basic health care covered by insurance and from non-insured patients
Drugs for outpatients, services for self-referred patients, some diagnostic procedures, cosmetic surgery, dental care and physiotherapy. Veterans, some disabled people, people affected by the Chernobyl nuclear accident, pregnant women, children under 1 year of age and people with diabetes, asthma, cancer, mental illness, kidney transplants, tuberculosis, syphilis, AIDS and leprosy have no user charges Hospital inpatients pay own food costs; co-payments for drugs and some services. Official out-of-pocket payments or co-payments for products and services comprised 5.8% of health care spending in 1995 in extent (defined in law in 1992 and after), with
many services subject to co-payment
User charges officially account for about 1% of health care expenditure (probably more)
Co-payments (usually 10% or 20%) on many services, since the Health Care Law of 1991 and subsequent amendments
Fees for services introduced alongside the voluntary health insurance system in 1996
Nine countries apply charges to inpatient care, usually a flat-rate co-payment per day with a ceiling placed on the number of paid days for which the patient is liable (such as Austria, Germany and the Netherlands). Some-times the rate of co-payment declines as the length of stay increases (such as Belgium and Ireland). In France, a small additional co-payment is levied for
Nine countries apply charges to inpatient care, usually a flat-rate co-payment per day with a ceiling placed on the number of paid days for which the patient is liable (such as Austria, Germany and the Netherlands). Some-times the rate of co-payment declines as the length of stay increases (such as Belgium and Ireland). In France, a small additional co-payment is levied for