Can a mixed health care system be desirable on equity grounds ?

Abstract

Should health care provision be public, private, or both? We look at this question in a setting where people differ in their earnings capacity and face some illness risk. We assume that illness reduces a person's time endowment when waiting for treatment. Treatment can be obtained in a competitive private sector (through private insurance) or in the National Health Service (NHS) where it is provided free of charge but after some (endogenous) waiting time. The equilibrium in the health care sector consists of a waiting time in the NHS such that no patient wants to switch health care provider. This equilibrium is governed by two public policies: the income tax system and the size of the NHS. Our findings are threefold. First, a mixed system with a small public health care sector always gives a lower social welfare than a pure public system. Second, a mixed system with a sufficiently large NHS may improve upon a pure public system if the dispersion of earnings capacities is large enough. And finally, when health risk is negatively correlated with ability, there is an extra argument for a large NHS.