Price signals May 2014 AMA National Conference, Canberra Professor Elizabeth Geelhoed School of Population Health The University of Western Australia

Overview Economic reasoning for price signals Potential impact of price signals in health The co-payment policy is flawed based on grounds of equity and efficiency Other co-payments may have a role

''It's too easy to shoot down,….Once they get some sensible health economists to actually analyse the issue, they will say why would [we] do that? '‘ Steve Hambleton February 22, 2014 The Sydney Morning Herald

Starting point Demand for health care is increasing faster than population growth – ageing population – increasing technology – increasing expectations and declining dependency ratio

Source: OECD Health Statistics 2013, OECD (

Starting point Demand for health care is increasing faster than population growth Universal health care is both desirable and necessary for optimal economic outcomes Reform initiatives will be required - addressing both efficiency and equity

Potential reform …. Increasing co-payments to: o Reduce overuse of services o Increase revenue o Raise awareness of the true cost of services o ? use bulk billing appropriately* * Health Minister Peter Dutton, ABC News, 21/5/3014

Based on economic theory A price signal conveys information to consumers and producers, to trigger an increase in supply and/or decrease in demand for the priced item When a resource is scarce, demand exceeds supply and prices are driven up. This discourages demand and conserves resources ……… in a market economy

Market economy Perfect information (Health – information asymmetry) Prices set by supply and demand to maximise profit (Health – government intervention) Driven by consumer behaviour (Health – determined by need rather than want) No externalities (Health – behaviour can affect others)

‘America's health care system is collapsing, and we can blame the Economics profession. Most economists approach health care in the wrong way, viewing it as a commodity like shoes..health care is..idiosyncratic.., subject to uncertainty and "asymmetric information" …’ Gerald Friedman, Professor of Economics at the University of Massachusetts-Amherst.

The evidence (GP) There is little evidence to establish with certainty how consumers will respond to GP co-payments, however: The commonly cited Rand experiment # showed little overall impact on total visits, but a disproportionate effect on low socioeconomic groups and the chronically ill A systematic review published in 2013 of behavioural responses to co-payment found that vulnerable populations reduce their access to GP more than the average population** # Brook et al, 1984 ** Kiil and Houlberg, Eur J Health Econ 2013

Disadvantaged groups and primary care A wealth of evidence both from Australia and internationally supports the premise that individuals from low socioeconomic groups demonstrate lower rates of primary care and higher rates of hospital admission, particularly potentially preventable admissions Related to this is the associated high risk factor profile

Smoking and SES ANZAME 2010

Conclusion 1 – Co-payment Efficiency – a co-payment is likely to exacerbate the trend of low use of primary care and high hospital use for vulnerable groups Equity – Lower income earners will pay a greater proportion of their disposable income thereby increasing inequality

On the other hand… Consumers do value more what they have to pay for Co-payments in some guise may be part of an eventual reform solution Policy development should be subsequent to appropriate consultation and evidence "Bring me a one-armed economist!" Harry S Truman

The public sector is the main source of financing in most OECD countries.

Source: OECD Website