Rationing in health care provision: a welfare approach

We study the welfare properties of direct restrictions based on cost-effectiveness and indirect methods represented by waiting lists in a public health care system. Health care is supplied for free by the public health sector, but patients can choose to address their demand elsewhere by stipulating a private health care insurance policy to avoid restrictions. Our model shows that if the individual response to treatment is independent of income and cannot be observed by the patient, the choice of opting out simply depends on income, and the redistributive effects of both instruments are quite similar. In general, restrictions may only improve welfare of relatively rich individuals, usually those that opt out of the public health care system. From a policy point of view, our model casts serious doubts upon the use of these instruments for redistributive purposes.