Optimal Copayment Strategies in a Public Health Care System

Abstract

Health care usually represents a so called merit good, i.e. a good whose consumption should be promoted and given that in most cases it might be essential to restore health or to stop its decay, most countries have implemented a public health care system where care is supplied to anybody needing it for free and its cost is borne by all the community. inappropriate use of health care. To curb this expenditure waiting lists and copayments have been introduced in the public health care system. In this paper we study the optimal definition of the copayment schedule in two different environments, namely when there are no limits to the resources that can be raised using the tax system and when there are specific limits to public expenditure. The paper shows that if the tax system is optimal the copayment can be used as a risk sharing instruments; in the presence of ceilings on expenditure its revenue should be used to increase public provision, but it assumes the role of an instrument to improve income distribution.