The Distributional Effects of Cost-Sharing in a Universal Healthcare System

Patient cost-sharing is used as a tool to limit over-utilization of insured healthcare services in almost all high-income countries. We study its distributional consequences in the context of a publicly-funded universal health insurance system, where consumers (as tax-payers) are residual claimants on insurer spending. We highlight the distinction between consumers' elasticity of demand for healthcare services—which moderates how cost-sharing rules affect healthcare utilization—and their baseline level of demand—which moderates how cost-sharing rules affect out-of-pocket costs. Using detailed administrative data on the Norwegian national health insurance scheme, we study a 2010 policy change that raised the age threshold for cost-sharing exemption, thereby increasing patient cost-sharing substantially for adolescents. We find that females and native-born Norwegians have higher average utilization and thus have more at stake financially from cost-sharing, but are relatively less responsive to cost-sharing. In contrast, lower-income individuals as well as individuals with a chronic health condition have both higher average healthcare utilization as well as higher responsiveness. Cost-sharing therefore places a larger burden on these groups both in terms of the financial cost of out-of-pocket spending and in terms of reduced quantities of healthcare used.