Jens Holst

International health service research reveals a uniform tendency in practically all industrialised countries: an increasing shift of costs from solidarity-based financing to private households. Legislators and advisors usually justify this policy through the need to encourage cost-consciousness and especially “individual responsibility”. Economists consider cost sharing in health care to be necessary to prevent abuse of the welfare state. They expect user charges and co-payments to motivate a more “rational” utilisation of health care and, thus, the financial stabilisation of health systems.

Many politicians and economists base their assumptions about the “health market” on the theorem of demand-side moral hazard. This model transforms patients into rational “utility maximisers” consuming services beyond their needs thereby causing welfare losses to society as a whole. Moral hazard in health insurance belongs to the standard repertoires of economic textbooks.

Making patients contribute to the costs of their medical treatment is one of the oldest health policy ideas, almost as old as Germany’s socialised health insurance system itself. During the hyperinflation of 1923 the statutory health insurance fund introduced a 10-percent co-payment for prescription medications. At the end of the 1920s the physician Gustav Hartz complained: “Don’t people go to the doctor a dozen times without a thought, when once would be enough – just because the fund is paying? … They go to the doctor for a cold or a minor injury where previously they would have been ashamed to call themselves sick and take the doctor’s time at all.” In line with this view, the next steps to increase cost sharing came with Brüning’s emergency decrees of 1930/31, which introduced a voucher fee and increased prescription charges.

By the end of the 1950s Christian democratic politicians in West Germany – in particular Theodor Blank (labour minister 1957–65) – had put the issue of direct patient cost sharing back on the agenda. Since then the question has played a central role in the Federal Republic’s social policy debate and health sector reforms. The Health Modernisation Act of 2004 introduced a “practice fee” (comparable with the voucher fee) and increased drug co-payments. Although the Statutory Health Insurance Competition Strengthening Act of 2006 refrained from further increasing cost sharing, it did break another taboo by raising the idea of excluding “self-inflicted” conditions. A clause abolishing coverage of “self-inflicted” illnesses (and thus further increasing out-of-pocket payments) was discussed, but not ultimately included. The declared goal of all the reforms, and especially of shifting costs to patients, is to slow the steady general increase in health care costs.

The application of out-of-pocket payments for health care is closely tied to the concept of “responsible” behaviour by free independent citizens acting as economic subjects. Whereas cost sharing in developing countries is supposed to encourage people to value medical care and demand better quality of the services they pay for, in the world’s rich countries the focus is much more on controlling the behaviour of the “consumer in the health market”.

Across the world, social policy reforms pursue greater efficiency and fairness. In the European welfare states, and in many other countries too, these two goals are explicitly linked. This raises the question whether and to what extent out-of-pocket payments increase the efficiency and/or enhance the fairness of a health service.

Private health spending by European Union citizens has increased steadily over the past twenty-five years, largely on account of increasing co-payments. Although patient cost sharing is nothing new in the western European welfare state tradition, its extent has increased conspicuously in recent years. This general tendency not only begs the question why legislators in various countries have increasingly resorted to out-of-pocket payment for health care. It is also necessary to examine the legitimising models on which this systemic trend is based.

Redefining health services as consumer goods and patients as rational consumers opens the way to apply regulatory goals and instruments from the consumer goods markets to the field of health care. As the central yardstick for the health service we now find an inflated and very arbitrary concept of “efficiency”, which at the societal level leads to a market-driven reformulation of political goals. Cost containment at the macro-level and control of health service use at the micro-level become the central concerns. It is especially conspicuous that efforts to control spending are directed largely at consumers and rarely or never towards providers. Despite the availability of many effective approaches acting primarily on the supply side – limiting the number of services or service-providers (e.g. by restricting the number of practices or introducing positive drug lists), budgeting or price regulation, more effective control of the pharmaceuticals industry and medical equipment manufacturers, deeper structural reforms (GP system, managed care, etc.) and explicit rationing – direct patient cost sharing is widely regarded as the most important tool for reducing spending in the health service.

The present study analyses the extensive theoretical and empirical literature on patient cost sharing published during the last forty years. The results show that persuasive evidence for demand-side moral hazard is still lacking. Furthermore, the claimed empiricism turns out to be inappropriate for providing evidence. Science health service research and clinical studies instead suggest that health insurance beneficiaries are not aiming to abuse the health system. In fact, introducing patient cost sharing seems to endanger proper health care since it deters the sick from claiming benefits. The idea of “rational” use transpires to be out of touch with reality.

After a systematic in-depth review of current research on the topic, the author concludes that moral hazard in health insurance is a bogey of academic economic theory. Adequate reality-based evidence for implementing patient user fees and co-payments is lacking. In view of the detrimental effects on health service utilisation, he advises cancelling existing co-payment arrangements and abandoning cost-sharing policies.