Public health care with waiting time: the role of supplementary private health care

We consider an economy where most of the health care is publicly provided, and where there is waiting time for several types of treatments. Private health care without waiting time is an option for the patients in the public health queue. We show that although patients with low waiting costs will choose public treatment, they may be better off with waiting time than without. The reason is that waiting time induces patients with high waiting costs to choose private treatment, thus reducing the cost of public health care that everyone pays for. Even if higher quality (i.e. zero waiting time) can be achieved at no cost, the self-selection induced redistribution may imply that it is socially optimal to provide health care publicly and at an inferior quality level. We give a detailed discussion of the circumstances in which it is optimal to have waiting time for public health treatment. Moreover, we study the interaction between this quality decision and the optimal tax/subsidy on private health care.