Uniform pricing and subsidy coordination mechanism in a two-tier healthcare system under a co-payment policy

Abstract

Recently, the lengthy waiting time in public hospitals (called the public system) under the free healthcare policy has become a serious problem. To address this issue, motivated by the Japanese healthcare system, this paper investigates a two-tier co-payment healthcare system under a uniform pricing and subsidy coordination mechanism. In such a setting, the public system and the private system (i.e., the private hospitals) compete for market share with different objectives, whereas the government uniformly sets the service price and the subsidy rate to maximize social welfare under a total budget constraint. Compared with two free healthcare policy cases implemented in the Canadian and Australian healthcare systems respectively in terms of social welfare, the results show that when the market demand (or the patient service quality sensitivity) is sufficiently high (sufficiently low), the uniform pricing and subsidy coordination mechanism is better and worse otherwise; and when the patient's waiting sensitivity (or the total government budget) is in an appropriate middle range (sufficiently low or high), the mechanism can outperform than the free policy cases.