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Impact of User Fees in Healthcare

Paper Type: Free Essay Subject: Health
Wordcount: 2947 words Published: 17th Jan 2018

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An old proverb offers a world of insight when it says that “health is wealth”. Truly without health nothing in life is worth it be it a million dollar Ferrari or a state of the art beach house. Looking at the statistics, the overall health of the population across the globe is deteriorating and no amount of medical technology or innovation is able to mask the fact that people are really getting sicker and need treatment. Method of payment differs from one country to another and within countries as well. The developed nations support their citizens by subsidizing health care and making it free in some cases. The developing nations have government hospitals which offer treatments at subsidized rates. The health care burden that the developed nations are facing is colossal. In an attempt to reduce this burden, some suggestions of introducing a co-payment are being made in the developed nations. The rationale behind this suggestion is that people who are covered with insurance tend to over use medical services because they don’t have to pay anything out of pocket. However, critics argue that introduction or rise of existing co-payments will significantly erode the will to get treatment done and many individuals will end up not going to doctors for essential treatment. The proponents of co-payments assume that every individual is insured and able to afford co-payment. This is contrary to reality where many people are unable to pay for even the most basic necessary medical interventions. I support the latter. One of the primary reason behind my conclusion is that this would increase the burden on the bourgeois and the poor population for their health care and worsen their condition.

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Background on User fees in Healthcare

Healthcare is generally price inelastic. People who have used these services pay the predetermined prices, at least for critical care, absolutely essential visits to the physician and prescribed medicines. “Moral hazard arises when an insured person chooses unnecessary/more expensive form of healthcare because she/he knows that the insurance company will be paying for it”(Banerjee, 2010).

Developing countries like India and China have made their health care services such that the people get more of health care at a subsidized rate due to the fact that 29.5 % of the population in India lies below the poverty line (Kaul, 2013). The ultra-low-cost position of hospitals in countries like India may not seem surprising because the wages are significantly lower than those in the developed countries for instance the U.S. and U.K. However, the health care available in these hospitals is cheaper even when the wages are adjusted: For example, even if Indian neurological hospitals pay their doctors and staff salaries of U.S. level, their costs of open-heart surgery will still be one-fifth of those in the U.S(Vijay Govindarajan, 2013).

Under such circumstances, if the government increases the rates of health care services, it would lead to under usage of these services because the people would have lesser access to hospitals due to the higher costs as compared to their salaries and savings. Not many people in such countries choose to insure themselves for health because of the perceived limited requirement of hospital services as compared to high payments to the health insurance companies.

Rationale for introducing user fees

The rationale behind keeping user fees could be that they could generate additional tax income for the health industry when financial help from outside sources were minimal, liability refunds were shooting up and the governments of medium income countries were feeling the pressure on their internal finances. There was also a philosophical shift in the functioning of the healthcare industry in the early 1990s during which, the system of out-of-pocket payments was introduced. In this, the patients were asked to pay for the services they get from the hospitals which in turn motivated the healthcare workers and increased their efficacy (Action). Quality can be improved with better finances and remuneration. And quality is a significant aspect of health care which cannot be compromised under any circumstances. In the later years, after implementation of totally free health care, it was realized that some patients actually “over used” medical services. Introduction of a user fees greatly reduced this moral hazard. Secondly, bulk billing and abolition of user fees leads to an increased burden on the government financially. The rising cost of health care compels the government to introduce a system where the consumer is liable to pay some amount. Supporters of user fee also claim that universal health care is a myth and the citizens ultimately bear a much higher cost (than the user fee) for the so called “free medical treatment”.

User fees compounded poverty

User fees inconsistently damage the health of poor and middle class people. They tend to push families into debt and poverty thus compelling them to scrounge money through illegal means or from financiers, or to sell or hypothecate livestock or resources that they depend upon to earn a living. The charges can especially pressurise women who have fewer resources to rely on.

Such circumstances tend to create a brutal condition where in there is a constant increase in poverty which leads to malnutrition and the ailments they live with. This results in poorer health which ultimately results in bigger issues each time there is a need to pay for healthcare emergencies.

“The World Health Organisation estimates that 100 million people each year are forced into poverty by these sudden healthcare costs” (Action).

When reporting to the hospital becomes excruciating because of high costs, people are more likely to take care at home. This increased load of care in addition to other household work usually puts burden on women and girls This may force them to entrust their education or jobs to take care of the ill (Action).

Studies done by the World Health Repot Report of 2010 show that the affliction of non-communicable diseases is emerging and is already a major drawback even in the poorest countries and the people are unable to have access to the services they need to prevent or control these diseases due to financial incompetency or inability to access those services (Priyanka Saksena, 2011).

Household burden due to specific non-communicable and chronic illnesses

A number of studies demonstrated that the household burden led to financial crisis from specific illness and conditions like, diabetes in India for example, presented that 596 diabetic patients taken as sample group at a private and public hospital in Chennai showed that in the private hospital, the poorest sample of patients spent 24.5% of their income on services for diabetes, compared to 3.5% in the richest group. This was mainly demonstrated because of the increased out of pocket costs. On the other hand, in the public hospital, where middle class family income was much lesser than in the private hospital, the poorest group payed 3.3% of their income on diabetes care while the richest cluster almost 0% of their incomes on care.

Another research that was done in 2006 on the total economic cost of illness for households was continuously above 10% of household income. As an illustration, total household charges of malaria per annum were as large as 18% of annual income in Kenya and 13% in Nigeria. Total expense for all forms of illness added up to 11.5% of monthly household income in Sri Lanka, and about 11% of average monthly income in Nigeria. Some of the researches are concerned that even 10% of household income being disbursed by health care expenditure as potentially disastrous where the medical expenditure levels are prone to drive households to cut their consumption of other basic needs, trigger productive asset sales or high levels of debt, and lead to impoverishment. It is clear that this is a somewhat subjective cut-off point and expenditure levels lower than this may be catastrophic for very poor families. Furthermore, it is not only the level but also the timing of health care expenses, which have to be paid in full at the time of illness in the case of out-of-pocket payments that determine whether or not there are catastrophic consequences for a household. This is related to the unexpected nature of most medical expenditure, the fact that the magnitude of payments is heavily influenced by the provider, and that this is precisely the time when income may be lower than usual(Diane McIntyrea, 2006).

Current perspectives on User fees in health sector in medium and low income countries

Equitable approaches to financing health services are crucial for achieving the goal of universal coverage of health services. When user fees are assigned to a particular service, they become an inequitable financing mechanism which produces barriers to access for a large number of people. Though in some of the Public Health Centres, revenue is provided by the government, it is almost always that it turns out to be inadequate and a persistent challenge in the developing countries(Rohan Sweeney, 2011). This thus leads to imposition of user charges which hinders the poor from using the available services.

Another example of this is that under the Alma Ata declaration of ‘Health for all’, developing countries like Bangladesh tried to design country health care programs but had continuously failed to do so because of the problem of increased health care needs and decreased available resources. Hence, when user charges were imposed, there were serious interferences between the two most vulnerable groups which are the poor and the women and the maintenance of patient profile (Stanton B, 1989).

There have been studies that show that when user fees were introduced, there was a substantial decrease in the use of health care facilities that ranged from 5% to 51% immediately after the intervention but a significant increase in the use of most curative services was seen that ranged from 30% to 50% when the policy was changed again (WP, 2014).

Unfortunately, it is only the user fees that the researches and economists concentrate on to reduce moral hazard. Doctors are well equipped to judge whether a patient requires treatment or not. When such wide spread reliance is placed on doctors regarding treatment, why can’t the same doctors be trusted not to over treat a patient? It must be made mandatory for doctors and other health practitioners to take steps to prevent themselves from doing treatments that could be otherwise be tamed.

How do the hospitals function with low prices of healthcare services?

Three major practices have allowed the hospitals of low and medium income countries to cut costs while still improving their quality of care.

A Hub-and-Spoke Design

In order to reach the people in need of care in the rural and other remote areas, hospitals must create hubs in major the city areas and open smaller clinics in rural areas that transfer patients to the main hospital that has all the diagnostic facilities and other resources.

This would reduce the need for duplicating the personnel and equipment in every village and the most expensive equipment and expertise in the hub, thus eventually reducing the cost burden on the village population. It would also create specialists at the hubs who, while performing greater numbers of focused procedures, develop the experience that will improve the overall quality. This can also lead to proper and frequent utilisation of machines. For example, an MRI machine if installed in every village separately, would do only 1-2 scans per day. But if a common machine is installed in the main hub, it would scan about 10-20 patients per day.

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Task Shifting

The hospitals can transfer responsibility for routine tasks to lower-skilled workers like the newly graduated and less experienced doctors, leaving expert doctors to handle only the most complicated procedures. Again, such countries always face problems because of shortage of highly skilled doctors. Thus, hospitals have to maximize the duties they perform. Doctors at these hospitals tend to become incredibly productive as they can focus on only the critical parts of the surgical procedures and the final decision making during the diagnosis of diseased conditions. This allows them to perform 6-7 surgeries in a day rather than just 1-2 surgeries in other developed countries like the U.S.

This innovation would ultimately reduce the costs. After shifting tasks from doctors to nurse practitioners and nurses, multiple number of hospitals can create a lower tier of paramedic employees with two years’ training after high school to perform the most routine medical jobs. In some hospitals, these workers can comprise more than half of the workforce.

Good, Old-Fashioned Frugality

“Necessity is the mother of invention”- Hospitals of lower income countries should come up with wiser ways of sterilization techniques and safely reusing the surgical products that are otherwise discarded after a single use in other developed countries. These hospitals must concentrate less on building designing and making it attractive and spend more on the amenities that would be needed for the welfare of the general population using them. They have also developed local devices such as stents or intraocular lenses that cost one-tenth the price of imported devices.

These hospitals can be innovative in rewarding doctors. In the program where fees are payed for every service, an incentive to perform unnecessary procedures and tests is created. Thus, the doctors at some hospitals must be paid fixed salaries, irrespective of the number of tests they order. Other hospitals can employ team-based compensation, which produces peer pressure to avoid unnecessary tests and procedures (Vijay Govindarajan, 2013)


In conclusion, it can be stated that the user charge has an abundance negative implications in the socio-economic, socio-cultural, political and administrative and management dimensions. Developing country administrators must eliminate fees for essential healthcare and choose a program of financing that will best improve access to health services for their most disregarded groups. This should be suitable to existing institutional structures, cultures and traditions, and to their economic progress. This could be through taxation with healthcare costs paid by the government. Putting an end to user fees is likely to see a rise in the use of services. Governments of developed countries should provide foreseeable aid, committed for the long term, to give developing countries the confidence to eliminate fees. The World Bank and other international institutions must stop prescribing user fees to countries as part of official or unofficial policy advice and provide more financial assistance to scrap fees. The low pay and poor conditions of health workers must be addressed to stop informal fees being tolled(Action).


Action, H. P. Key Facts: User Fees for Health Services. Retrieved from http://www.healthpovertyaction.org/policy-and-resources/health-systems/user-fees-for-health-services/key-facts-user-fees-for-health-services/

Banerjee, R. (2010). HEALTH INSURANCE AND MORALHAZARD. Retrieved from https://www.academia.edu/938630/Economics_Insurance_and_Moral_Hazard

Diane McIntyrea, M. T., Göran Dahlgrenb, Margaret Whiteheadb. (2006). What are the economic consequences for households of illness and of paying for health care in low- and middle-income country contexts?

. Social Science & Medicine, 62(4), 858-865. Retrieved from http://www.sciencedirect.com/science/article/pii/S0277953605003631

Kaul, V. (2013). Required: A new poverty line that shows 67% of India is poor. Retrieved from http://firstbiz.firstpost.com/economy/required-a-new-poverty-line-that-shows-67-of-india-is-poor-43862.html

Priyanka Saksena, K. X., David B. Evans. (2011). Impact of out of pocket payments for the treatment of non-comuunicable deseases in developing countries: a literature review. Retrieved from http://www.who.int/health_financing/documents/dp_e_11_02-ncd_finburden.pdf

Vijay Govindarajan, R. R. (2013). India’s Secret to Low-Cost Health Care. HBR Blog Network,Retrieved from http://blogs.hbr.org/2013/10/indias-secret-to-low-cost-health-care/


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