The reasons why, in the absence of government intervention, individuals might spend
too little on their health services include factors such as;
(a) ignorance of the costs and risks involved
(b) the existence of spillover benefits or externalities to society as a whole from the doctor-
patient transaction; and
(c) the inability of low income persons to afford health expenditures (Buchanan, 1966).
The contrary arguments are that the problem of ignorance is best dealt with by the
supply of information rather than by public provision. It is also maintained that the spillover
benefits from health expenditures are in fact small and that the benefits overwhelmingly
accrue to patients rather than to society as a whole. The inability of low income persons to
afford healthcare could also be tackled by programmes of income distribution designed to
benefit low income as a whole (Allan,C, 1971, 114).
In 1973 the International Economics Association examined a number of causes of the
rapidly rising cost of healthcare such as:
(a) the increase in medical expenditures rather than changes in diet, exercise and other
aspects of lifestyle;
(b) the moral hazard factor caused by both social and commercial insurance finance of
health services;
(c) the ability of producers of medical services to determine both the demand for, and
supply of, healthcare services; and
(d) the poor measures of outcomes of health expenditures (Perlman,1974).
Tussing (1985) found several of the above factors significant in his examination of
Irish healthcare expenditures. There was a heavy emphasis on hospital rather than primary
healthcare expenditure. Tussing recommended free general practitioner services for all and
charges for outpatient and inpatient services to reflect social priorities in favour of primary
healthcare. He favoured group general practice as a way to reduce referral rates to hospital
by general practitioners. Tussing proposed medical audit to examine differences in healthcare
costs for similar conditions and outcomes.
Tussing also recommended capitation rather than fee per item systems of payment and
the establishment of pre-paid group plans (PPGPs) or health maintenance organisations
(HMOs) as an alternative to both commercial and social insurance in order to give doctors an
equity stake in low cost treatments.
The Commission on Health Funding found that " the major attraction of the HMO is
that the individual making the resource-using decision is either an owner or an employee of