Efficiency of Subsidy Schemes in Reducing Waiting Times for Public Health-Care Services

Abstract

This paper studies the efficiency of two subsidy schemes widely used in health-care systems: unconditional and conditional. Unconditional schemes partially subsidize customers seeking private care without pre-requirement, whereas conditional schemes fully subsidize those who have waited sufficiently long in the public system. Public service is assumed to suffer queuing delay whereas private service is provided without delay. For each subsidy scheme we consider two information regimes: no information and full information, according to whether or not customers observe real-time delay information. We then derive customers' equilibrium choices between private and public systems and investigate the optimal design for each subsidy scheme. We find that although providing customers with delay information improves social welfare, it increases demand sensitivity to the waiting time requirement, resulting in either a deficit or a surplus for the health-care budget. The relative efficiency of the two subsidy schemes also depends on the information regime and the size of the public fund. With no information, there exists a threshold fund level, below which the unconditional subsidy scheme outperforms the conditional scheme, and above which the conditional scheme prevails. With full information, the unconditional subsidy scheme is always superior. Finally, we demonstrate that social welfare can be significantly improved by changing the current waiting-time-based subsidy scheme into a virtual-waiting-time-based subsidy scheme.

Keywords: health care, subsidy scheme, waiting time, queue