Does devolution alter the choice of public versus private health care?

Choosing between two health care plans

The uniform provision of public health care under a national health system rarely satisfies all people’s expectations.  Unsatisfied individuals can then turn to private alternatives reducing the congestion of the public health system. Nonetheless, when health care preferences are heterogeneous across the territory, government decentralization is an organizational alternative to the reliance on private health care markets.

In BSE Working Paper 1291, “Does Devolution Alter the Choice of Public versus Private Health Care?”, authors Joan Costa-Font and Ada Ferrer-i-Carbonell examine whether government decentralization alters the choice between public and private health care and the perception of individuals about the quality of the national health system. To test their hypothesis, the authors exploit the gradual decentralization of the political stewardship of the Spanish National Health System. Their study contributes to the literature by documenting that government decentralization increases the preferences, the perception, and the satisfaction for public health care and reduces the uptake of private health insurance among higher income and education groups.

The Spanish case study

The authors have focused on the Spanish healthcare decentralization process since it provides a perfect environment to address this question. As a result of this process, Spain is today the OECD country where subcentral governments are responsible for the highest share of public health responsibilities.

The decentralization of the health system in Spain followed a two-step process. The first wave occurred from 1981-1994 and progressively transferred health care responsibilities to the seven historical regions, leaving the other ten regions centrally managed. The second wave of decentralization offers a unique opportunity as health care responsibilities were transferred to the remaining ten regions simultaneously and unexpectedly. These two conditions, together with the fact that the previously transferred regions remained unchanged and no other related reform took place during the same time, make this reform a quasi-experimental setup, with regions affected by the second wave being the treated group and the previously transferred regions the control.

Data and empirical strategy

To address their question, the authors use data from the Spanish Health Care Barometer, an annually representative survey of the Spanish population aimed at capturing, among other things, the use and attitudes towards the health sector. The survey contains standardized questions on the satisfaction, opinion, preferences, and prospective use of the public health care system, information on the uptake of private health insurance, and individual and household characteristics. The authors perform the analysis with data from 1998 to 2009, which avoids taking the years in which Spain was hit by the economic downturn and goes well beyond the reform that took place in 2002.

Regarding the empirical strategy, the identification of their work relies on exploiting the variation resulting from the 2002 decentralization reform. The authors exploit the fact that ten regions received the treatment of decentralization. At the same time, no reform took place for the control regions, whose governance was not modified during the period of analysis. Therefore, by comparing both groups, the authors can make causal inference on what is the effect of decentralization on the outcome of interest.  Unlike conventional specifications, the control group of this setup is not a not-treated group but rather a group that was already treated in the past. 

Empirical evidence and mechanisms driving the effect

The authors found that government decentralization produced an increase of 7.5p in the perception that the public health system is working well, a 12p increase in the preference for public health care, and a 10.5p increase in the satisfaction with public health. They also find that decentralization brought a reduction of the PHI take up only for high-income (13.1p) and high education (14p) individuals. Hence, overall, the results are consistent with the argument that decentralization does shift the demand for public health care and that government decentralization provides an alternative to the ‘build in’ accountability mechanisms of health care markets.

Finally, the authors examine several alternative mechanisms potentially driving their results, including variations in regional level budgets, measures of quality of health care, public health capacity, the role of policy interdependence, and migration. They conclude that an increase in capacity cannot explain their results through contracting out private health or an increase in health expenditures. 

The effects are mainly driven by improvements in health care quality as well as policy innovation and diffusion. The transfer of competencies towards the regional governments did not imply an increase in the regional expenditure on health. In contrast, it did modify the rules of the game since it provided regional governments with a new policy responsibility to prove themselves valuables to constituents relative to the central government. Not only this, but it provided the necessary legislative tools to adjust the national health system to the preferences of each region. This created an important mechanism for regional governments to improve the national health system to increase their re-election chances. A side effect of such legislative activity has been the development of further policy interdependence leading to the design of new policies and the dissemination of those policies that have proven successful to regions. 

Overall, the paper provides evidence on the fact that the model of government decentralization common to many European countries, characterized by high political but limited fiscal decentralization, strengthens the choice of national health system care as it adapts to regional specific preferences.