A theoretical analysis of how user fee on healthcare can waste economic resources

Abstract

The difficulty of assessing funds to directly fund healthcare for the poor makes governments adopt user fee in the health system. Many studies have shown how user fee can cause the poor to under utilize healthcare but not on how it can lead to the waste of resources. The current study is theoretical and it examines the efficiency of regulated user fee and the factors affecting the efficiency. Efficiency focused mainly on the extent to which resources are wasted as a result of regulated user fee. The results show that the asymmetric information between the provider of healthcare and the patient combined with the costliness of investigation by the government as well as the costliness of revenue collection caused three sources of waste: excessive treatment of the rich or the non-poor, investigation and revenue collection. Comparative statics were done to examine the effect of various factors on the level of waste. The study then examined the conditions under with regulated user fee is more efficient than direct financing of healthcare by the government. Some recommendations were made to reduce wastes.