Tuesday, 20 April 2010

The Health of the Portuguese - a note on copayments

   In the Health Care jargon, the term “copayment” means the amount paid by the patient (usually out-of-pocket) each time he/she uses a health care service. The main objective of copayments is to control the demand for health services i.e. to restrict the (ex-post) moral hazard due to insurance. Copayments are not restricted to private insurance. The Portuguese National Health Service is one example where copayments were introduced to control the demand for public health services. One concern with the introduction of copayments in a NHS is the reduction of Equity since typically copayments are not a function of income but a fixed amount per service. The other major concern is the potential postponement and interruption of necessary health care, which may result in worse health outcomes and more expensive treatments.
   Copayments tend to vary across health services to account for differences in demand elasticity. Services where demand is less elastic should face lower copayments because there is not much moral hazard to start with.
   From the beginning of 2010, the Portuguese stopped paying a copayment for hospitalizations in public hospitals. Although not much publicized in the media, this decreto-lei probably affects positively the health of many. Up to the beginning of the year a hospitalized patient would pay 5.2 Euros/day during the first 10 days of stay, which represented more than 10% of the national (monthly) minimum wage. Bare in mind that physicians, not patients, decide on hospitalizations. Demand for hospitalizations represents, therefore, most of the time, necessary treatment and hospitalizations are one of the least elastic (to price) services. The now abolished copayments on hospitalizations were probably reducing the level of necessary care. Good news then.

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