CESifo Working Paper No. 1620

Concerns for Equity and the Optimal
Co-Payments for Publicly Provided
Health Care

Abstract

In countries where health care is publicly provided and where equity considerations play an
important role in policy decisions, it is often argued that an increase in co-payments is
unacceptable as it will be particularly harmful to the less well-off in society. The present
paper derives socially optimal co-payments in a simple model of health care where people
differ in income and in severity of illness. The social optimum depends on the welfare
weights given to persons with different levels of expected utility. Increased concern for equity
may increase optimal co-payments for illnesses with homogeneous severity across the
population. For illnesses where the severity varies strongly across the population, optimal co-
payments go down as a response to increased concern for equity, provided income differences
in the society are sufficiently small.

JEL Code: D63, H42, H51, I18.

Keywords: public health, co-payments, equity concerns.

Michael Hoel
Department of Economics
University of Oslo
P.O. Box 1095 Blindern
0317 Oslo

Norway
[email protected]

November 14, 2005.

The paper was presented at the 4th Norwegian-German Seminar in Public Economics. Several
participants at the conference, and in particular Silke Uebelmesser and Tomer Blumkin, gave
useful comments and suggestions. Useful comments were also given by participants at a
seminar at the Department of Economics, University of Oslo, in particular by Vidar
Christiansen, and by Per-Olov Johansson and Albert Ma. I gratefully acknowledge financial
support from the Research Council of Norway through HERO - Health Economic Research
Programme at the University of Oslo.

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