Models for financing dental care

1
Models for financing dental care

• Professor Jostein Grytten
• Dental Faculty
• University of Oslo
• http//www.odont.uio.no/om/iko/samfunnsodontologi/
  
• forskning/Jyvaskyla_Grytten.ppt
• August 2003

2
The market for dental services - participants

• Insurance bodies
• (private and public)
• Patient Service
  providers
  (dentists and dental
  auxilliary personnel)

Jostein Grytten, Dental Faculty, University of
Oslo
3
Adverse selection

• The risk of illness (q) varies among the insured
• The premium (p) is based on the mean expected
  loss of the insured population (L)
• p qL
• Low risk individuals drop out. They pay a premium
  that is too high in relation to the benefit from
  insurance
• Low risk individuals High risk individuals
• q1L1 lt q2L2 lt...lt qnLn
• Private insurance can never be universal

Jostein Grytten, Dental Faculty, University of
Oslo
4
National Health Expenditures in the USA, by
source of fund in 2001
Levit et al. Trends In U.S. Health Care Spending,
2001. Health Affairs 2003 22 154-64
Jostein Grytten, Dental Faculty, University of
Oslo
5
Provision of dental services for adults in Norway

• Almost no public or private insurance for dental
  services
• Nearly all the income of private dentists comes
  from user fees
• Mainly provided by private dentists (n 2 400)
• Findings
• 75 of the adult population 20 years and over
  visit the dentist
• at least once a year
• There is no effect of family income on
  utilization of dental services for those who have
  visited the dentist during the last year
• Grytten J. Accessibility of Norwegian dental
  services according to family income
• from 1977 to 1989. Community Dent Oral
  Epidemiol 1992 20 1-5.
• Grytten J, Holst D, Laake P. Accessibility of
  dental services according to family income
• in a non-insured population. Social Science and
  Medicine 1993 37 1501-8

Jostein Grytten, Dental Faculty, University of
Oslo
6
Moral Hazard
The insured persons change behaviour because they
are insured The costs increase ? the premium
increases ? the insurance market fails
Price, costs
Patient pays the full cost
p0 c0
Quantity
Free dental care
q1
q0
Jostein Grytten, Dental Faculty, University of
Oslo
7
Moral Hazard and costs
No insurance
Full dental insurance
Price, costs
Price, costs
Patient pays the full cost
c0
p0c0
Quantity
Quantity
q1
q0
Free dental care
Jostein Grytten, Dental Faculty, University of
Oslo
8
Moral Hazard and copayments
Inelastic demand
Elastic demand
Price, costs
Price, costs
c0
c0
User fee
p2
p2
Quantity
Quantity
q1
q2
q2
q1
Free dental care
Jostein Grytten, Dental Faculty, University of
Oslo
9
Public dental insurance

• The distributional effects are debateable,
  particularly in countries with an egalitarian
  income distribution
• High costs by financing the insurance scheme by
  taxes
• Cost-containment is difficult due to a low price
  elasticity for dental services

10
The market for dental services - participants

• Insurance bodies
• (private and public)
• Patient Service
  providers
  (dentists and dental
  auxilliary personnel)

Jostein Grytten, Dental Faculty, University of
Oslo
11
Fixed salary and per capita payments
Per capita payment
Income
Salary
Number of patients per year
Q1
Jostein Grytten, Dental Faculty, University of
Oslo
12
Per capita study in the Public Dental Services
in Østfold
These Public Dental Officers increased their
output by 10
Grytten J, Holst D, Berge K. Innsatsbasert
avlønning i Den offentlige tannhelsetjenesten i
Østfold. Den norske tannlegeforenings Tidende
2001 111 226-231
Jostein Grytten, Dental Faculty, University of
Oslo
13
Per capita payment

• Advantage
• Improves the effectiveness of dental services
• Potential disadvantages
• High administrative costs (e.g. quality control)
• Many small communities. Are there enough patients?

Jostein Grytten, Dental Faculty, University of
Oslo
14
Number and proportion of municipalities/
inhabitants according to the size of the
municipality in Norway
Jostein Grytten, Dental Faculty, University of
Oslo
15
Per capita payment

• Advantage
• Improves the effectiveness of dental services
• Potential disadvantages
• High administrative costs (e.g. quality control)
• Many small communities. Are there enough
  patients?
• Patient selection and undertreatment
• Dentists must not be allowed to choose his own
  patients
• Risk adjustment
• Quality control

Jostein Grytten, Dental Faculty, University of
Oslo
16
Fee-for-item financing

• The dentist is remunerated according to the
  actual cost of the treatment
• Suitable for production of services for which the
  quality is difficult to measure and observe
• Solves the problem of patient selection and
  under-treatment, that can be a problem with per
  capita financing
• But cost containment can be difficult if
  fee-for-item financing is in combination with
  free price-setting

Jostein Grytten, Dental Faculty, University of
Oslo
17
Potential limitations to price competition for
dental services

• Supply side
• Asymmetric information between dentists and
  patients. Supplier-induced demand
• Demand side
• Dental services are an experience good. Difficult
  to assess the quality of different types of
  treatment
• High transaction costs by changing from one
  dentist to another dentist

18
Price
S0
S1
Market model
F0
F1
D0
Quantity
Q0
Q1
Jostein Grytten, Dental Faculty, University of
Oslo
19
Price
S0
S1
F0
Market model
F1
D0
Quantity
Q0
Q1
Price
S0
S1
Supplier-induced demand
F0
D1
D0
Quantity
Q0
Q1
Jostein Grytten, Dental Faculty, University of
Oslo
20
S0
S1
Fees
Market model
F0
Patients total costs
F1
D0
Quantity
Q0
Q1
Fees
S0
S1
Supplier-induced demand
F0
D1
D0
Quantity
Q0
Q1
Jostein Grytten, Dental Faculty, University of
Oslo
21
Fee-for-item financing and price competition
the demand side fails

• Difficult to obtain reliable information. Dental
  services are experience goods. Difficult to
  assess the quality of different types of
  treatment
• High transaction costs by changing from one
  dentist to another the savings in fees by
  changing from one dentist to another are often
  small

Jostein Grytten, Dental Faculty, University of
Oslo
22
Dental fees in Norway 1995-2002
Jostein Grytten, Dental Faculty, University of
Oslo
23
The system of financing and the labour market for
dentists must be seen in relation to each other
Combination of per capita and fee-for-item
contracts

• Endures effectiveness reduces the number of
  personnel needed
• Higher per-capita rate for practices that utilize
  dental hygienists
• Ensures a more even distribution of dentists

• Ensures quality patient selection and
  under-treatment can be avoided

24
Conclusions

• Factors that must be taken into account in
  relation to public insurance schemes for dental
  services for adults
• The degree of inequality in consumption of dental
  services, particularly in countries with an
  egalitarian income distribution
• The cost of collecting taxes for financing a
  public insurance scheme
• Moral hazard and use of user fees

Jostein Grytten, Dental Faculty, University of
Oslo
25
Conclusions (continued)

• The type of remuneration for dentists
• Per capita remuneration high effectiveness, but
  potential problems with under-treatment and
  patient selection
• Fee-for-item financing takes account of quality,
  but cost-containment can be a problem when
  fee-for-item financing is in combination with
  free price-setting

Jostein Grytten, Dental Faculty, University of
Oslo
26
Conclusions (continued)

• Combined per-capita and fee-for-item remuneration
• Promotes effectiveness and quality
• Makes the dentist responsible for a well-defined
  patient population
• Per capita component can also ensure an even
  geographic distribution of dentists. Per capita
  rate can vary according to use of dental
  hygienists

Jostein Grytten, Dental Faculty, University of
Oslo