Julian Le GrandEquality and Choice in Public Services

People should not forget the current system is a two-tier system when those who can afford it go private, or those who can move ge beter schools Choice mechanical enhance equity by exerting pressure on low quality or incompetent providers. Competitive pressure on incentives drive up quality, efficiency, and responsiveness in the public sector. Choice leads to higher standards The overriding principle is clear. We should give poorer patients the same range of choices the rich have always enjoyed. In a heterogeneous society where there is enormous variation in needs and preferences, public services must be equipped to respond.-Prime Minister Tony Blair, Speech to South Camden Community College, January 23, 2003

These choices will be there for everybodyNot just for a few that know their way around the system. Not just for those who know someone in the loop-but for everybody with every referral. Thats why our approach to increasing choice and increasing equity go hand in hand. We can only improve equity by equalizing as far as possible the information and the capacity to choose.-Jhone Reid, UK Secretary of State for Health, Speech to the New Health Network, July 16, 2003

While increased patient choice may put pressure on poorly performing providers to improve their services, there is no reason to think, despite the Prime Ministers assertion, that this will ensure equal treatment for equal need. Hence extending choice puts at risk a key objective of the NHS [National Health Services]-equal access for equal need.-Appleby, Devlin, and Harrison (2003)

INTRODUCTIONThe extension of the individuals right to choose the public services such as health care and education is a major policy issue in the developed world. As the preceding quotations indicate, it is a matter of intense political controversy in Britain, where debates concerning choice in public services figured prominent in the 2005 general election campaign. In the United States, it is most prominent in the long running controversies over education voucher programs and charter schools and it may begin to surface in health care, as voucher debates begin to develop there as well (Hoxby, 2003; Emanuel and Fuchs, 2005). New Zealand, Denmark, and Sweden have all experimented with choice in public education and health care; Germany, France, Belgium, and the Netherlands have choice programs, in some cases long established (Le Grand, 2003, chaps. 7 and 8; Blomqvist, 2004; Van Beusekom et al., 2004)Despite this experimentation, in most countries the right to exercises choice in areas such as public education and health care has historically been limited. Many public education systems required, and still require, parents to send their children to the neighborhood school. Under system of public health care, patients commonly have little or no choice over their physician or hospital. Further, the case for such restrictions is often made on the grounds of equity or fairness; if no one has choice, if everyone has to go to the same school or hospital, then there is equality of provision or utilization. And, if there is equality of utilization, there is equity or so the argument goes. Further, it is contended that this achievement of equity would be threatened if the restrictions on choice were removed; the well-off are better placed to make the relevant choices than the poor and therefore are likely to be advantaged by any system that allocates resources on the basis of choice.In this paper, I address these arguments. I begin with an elucidation of the terms involved, including choice, equity, and public services. The next section asks and tries to answers the equations: Does extending individual choice in publicly funded services promote or reduce equity? There is a brief concluding section. It should be noted that the paper concentrates only on the equity arguments concerning choice; there are many other reasons why a policy of extending choice might be desirable, including the incentives it provides for improving provider efficiency and responsiveness, but these are not our concern here (for the arguments-both for and against-see Le Grand, 2003; Lent and Arend, 2004; Levett et al., 2003; Marquand, 2004; Schwartz, 2004).

THE CONCEPTSMuch of the debate in this area is characterized by confused terminology, and it is important to be clear what key concepts mean. In the title of this paper there are three such concepts that are apparently simple but that in fact require some explication before we can proceed. They are public services, choice, and equity. First, public services. By this I mean primarily publicly funded services. These are services that are no purchased directly by consumers form their own resources but financed primarily from taxation (central or local) or from social insurance. Thus publicly funded health care would include Medicare and Medicaid in the United States, funded from federal and state taxation; the British National Health Service, and the Spanish, Portuguese, and Irish health care systems, all largely funded from central government taxation; the Danish and Swedish systems, funded from local taxation; and the social insurance systems of Germany, France, Netherlands, and Belgium, where themselves funded by social insurance contributions paid by contributions levied on employers and employees (Mossialos and Le Grand, 1999, chap. 1). In education, it would include the public school systems of virtually every developed country, funded usually by a mixture of central and local taxation.In many cases of public services, the services is not only funded publicly, but also provided publicly. That is, the government owns and operates the institutions that provide the service concerned (the schools, the hospitals, etc.) and employs the people working in the services. However, this is not a necessary feature of all publicly funded services, including those that are the focus for this paper. Many countries have private or nonprofit providers of health care and education as well as (or instead of) publicly owned ones, still financed wholly or largely from public funds. The methods of funding can take a variety of forms; block grants directly to the institution concerned; the adoption of formulae based on activities undertaken (such as number of operation or of inpatient days for hospitals) or numbers of people served (such as pupils for schools); or vouchers, under which the government gives the users a specific amount of resources that can spent at any provider of the service concerned. But whatever the method of funding, so long as the principal source of the funds concerned is government taxation, then services are at least for the purposes of this paper public services.Or public services defined in this way, there are a number of dimensions of choice. These may be summarized n the equations; Where, who, what, when, and how? First, there is choice of provider, such as hospital or school (where?) and in some social insurance systems, choice of social insurer. Then there is choice of professional, such as doctor or teacher (who?); choice of service, such as medical treatment or school curriculum (what?); the choice of appointment time (when?); and the choice of access channel, such as phone, web, or face-to-face (how?). The principle of choice in publicly funded services includes decisions on all these dimensions.These decisions are not necessary independent. In health care, a patient may choose a particular provider because of its opening hours or shorter waiting times, or in order to see a particular school for a child because of the type of curriculum (for example, a specialist school) or style od pedagogy it offers. However, it is useful to keep distinctions between these different kinds of choice in mind because the arguments for and against extending user choice in public services can vary according to which type of choice is being considered.It is also important to distinguish who is doing the choosing. This could be the users themselves (such as patients in elective surgery), relatives or individuals agents for the actual users (such as parents for their childrens schools or curricula), or collective agents choosing on behalf of users (such as government awarding contracts to suppliers of public services on behalf of users).Of all these various kinds of choice, this paper concentrates primarily on choice of provider (such as schools or hospitals) by users or their families (such as patient, parents, or pupils). It emphasizes choice in relation to providers because that is where much of the policy and political debate is centered, and because, as noted earlier, that decision often incorporates the other kinds of choice. And it concentrates on users because that is where most of the major equity issues lie.Finally, the paper focuses on cases where the money follows the choice; that is, where providers that are chosen receive extra resources, while those that are nor receive less. One example of this kind of scheme is the current policy the United Kingdom for patient choice in secondary health care, where patients referred for elective surgery by their general or primary care practitioner (GP) are offered the choice of variety of hospitals where the procedure may be undertaken; and where the hospital that is chosen and that undertakes the relevant surgery is the reimbursed out of public funds on a cost-per-case basis. The classic example in education voucher, where parents are given a voucher worth the equivalent of, for example, a years cost of education a voucher that they can present at any school of their choice. The school then redeems the voucher from the education departments in the relevant government, receiving payment from public resources. Another education example would be the current UK system, which in theory at least relies on open enrollment (or free parental choice of school), plus a government-funding formula based on number of pupils: a system where the financial transactions are hidden from the users but is nonetheless effectively a form of voucher in that, as with vouchers, the money follows the choice.Finally, equity. It will come as no surprise to most that equity is a contested term. It is frequently confused with, or used synonymously with, terms such as equality, fairness, and social justice. I have tried to resolve some of these confusions elsewhere (Le Grand, 1982, 1984, and 1991) and will not attempt to continue that debate here. Instead, I shall simply use two common interpretations of the term: equality of choices and equality of utilization. I shall try to provide some answers to the questions: Will extending choice in public services create greater equality of choices for users of public services? And will it create greater equality in the use or utilization of these services?

EQUALITY OF CHOICESFirst, will extending choice in public services move closer to equality of choices for users services? The principal point to make in this context is that, even in system that apparently offer little choice, there are nonetheless usually two possibilities for choice. First, in such systems, there is always the possibility of opting out (or never entering) the public system: using the individual or the familys own funds to buy private education or private health care (Canada, which bans the use of private health care, is an exception here although there is always the possibility of crossing the borders).Second, there is the possibility of moving so as to benefit from the proximity of good schools or hospitals. That this is a real phenomenon is illustrated by a number of studies in the United Kingdom. A recent study by the nations biggest mortgage lender, the Halifax, found that houses are valued at 12 percent more than the regional average if they are located in the same areas as the most successful secondary schools, confirming an earlier, similar report by another large mortgage lender, Nationwide (Guardian, 2005: 23). Gibbons and Machin (2003, 2005) found that a 10 percent improvement in league table performance for primary schools can be expected to add 3 percent to the price of a house located close to the school. This is a very local effect, one hat halves 600 meters away from the school gate. In London and the southeast the result can be moving from an area with weak primary schools to an area with stronger ones can cost 61,000. (They also found that because of confusion over admissions and lack of clear information about school performance, parents exhibited a herd mentality, going for schools that are difficult to get into, not necessarily those that were tor performing.)Do proposals to introduce choice within public services can be viewed as simply extending opportunities for choice that already existed for the better off (through moving or going privately) to groups that previously had little or none. In that sense, it is moving toward a greater equality of choice that, at least according to that interpretation of the term, is a move toward greater equity.

EQUALITY OF UTILIZATION As noted in the introduction, often the first line of argument against extending choice in public services is that it will create inequality in utilization. Compelling everyone to go to the same school, use the same insurer, or attend the same hospital will create equality in services utilization and therefore, according to that interpretation, of the equity. Allowing, choice will enable some people to use different amounts continues, the poor, and disadvantaged are less well placed than the better off to exercise choice effectively: so this will disadvantage them even more.The initial presumption behind this argument is that no-choice systems avoid inequalities in utilization. However, this is suspects. To take just one nontrivial case, I have, together with colleagues, reviewed the research concerning the utilization of the British National Health Service until recently very much a no-go area for choice-by different socioeconomic group (Dixon at al., forthcoming). In fact, we found man significant differences in utilization relative to need. Just give a few examples:

Affluent achievers had 40 percent higher coronary artery bypass grafts and angioplasty rates than the have-nots, despite far higher mortality from coronary heart disease roughly 30 percent higher need. Hip replacements were 20 percent lower among lower socioeconomic groups despite roughly 30 percent higher need. Social classes IV and V (roughly, manual workers and their families) had 10 percent fewer preventive consultations than social classes I and II (professionals and higher-level mangers) after standardizing for other determinants. A one-point move down a seven-point deprivation scale resulted in GPs spending 3.4 percent less time with the individual concerned.

No-choice systems can thus generate inequalities in utilization. The question therefore in relation to choice and equity is not whether extending user choice within a public service that previously offered little or no choice exacerbates or reduces those inequalities in utilization that already exist. To answer that, it is necessary to have some idea of the factors that bring about these ineaquality in utilization in the first place. These may be summarized ad unequal costs and resources differences in capacities and risk-selection.Unequal Costs and ResourcesClearly, if users face different costs of using a services or have different resources from which to meet those costs, this will create different in the utilization of the service. Most of the services with which we are concerned on this paper are free at the point of use, or with means-tested copayments, so service changes are no usually in issue. However, even users of a service that is free at the opportunity cost of the time taken to use the service. These will differ between individuals and social groups, creating differences in the barriers they face from using the service, and therefore different patterns of utilization.The survey of inequalities within the British NHS referred to earlier found that, in particular, transport and travel costs were important in affecting service utilization by lower socioeconomic groups, even in a service such as this where there is little or no choice. The extension of choice in services for which this is little or no choice. The extension of choice in services for which this is major concern is likely to exacerbate this problem, since, in all probability, if choice is to work, patients will have to travel further. Middle-class patients will generally fin this easier since they usually have better access to transport, especially cars; hence, if no or little help with transport costs is offered, the inequalities in utilization are likely to be exacerbated by patients choice.So an essential element of any policy aimed at encouraging user choice in public services is the provision of help with transports and travel costs. Ideally, this help should cover the full range of costs associated with an accompanying partner or carer.

Unequal CapabilitiesA second source of inequality in utilization in no-choice systems is the difficulties that the less advantaged face in obtaining a responsive service. The only way in which the poor can exert pressure if they are receiving a low-equality services (or even being denied a service) in a no-choice system is through a variety of other means, such as trying to argue with the relevant professional or bureaucrat, or putting in a more formal complaint through some kind of complaints procedure. But these inevitably favor the articulate, confident middle classes and disadvantage the less well-off. Put another way, the better off have better contacts and sharper elbows-a louder voice in the terminology of Hirschman (1970). And they are adept at using their voice to demand access to more extensive services (such as specialist outpatient consultations, diagnostic tests, inpatient treatments, better teachers, and so on).Generally, middle-class patients and parents are more articulate, more confident, and more persistent than their poorer equivalents. Moreover, the medical practitioners who are making the relevant treatment decisions and the school principals often are more likely to speak the same kind of language as, and thus relate better to, middle-class patients and parents. In addition, many of the relevant professions, and who can help them those lower down the social scale in no-choice systems to ensure they obtain quality medical treatment for themselves and their family and education for their children.So how will this be affected by extending choice? In fact, the shift of power from professional to user that is implicit in the choice strategy directly favors the less well off precisely because it reduces the role of middle-class voice in allocating health service resources. Ultimately, extending choice to all goes a long way toward equalizing power between users from different social groups; and that can only be equity enhancing.There are many who would dispute this conclusion, arguing that poorer groups do not have the ability to make choices that middle class ones have. However, this argument is usually supported by anecdote rather than evidence. In fact, I can find no hard evidence that the capacity of lower socioeconomic groups for choice is less than that of higher ones.Still, it is possible that differences in capacity for exercising choice between social groups do exist. In the case, some mechanism for giving advice, information, and support would help level the playing field-especially in areas where social capital is low. An appropriate policy response could be what we might term guided or supported choice. This would use advisers to help individuals and families to make choices. Thus in health care, the responsibility for the adviser role could include monitoring care plans, offering choices of provider, discussing treatment options, identifying social needs regarding travel, disability, and language, and providing information and updates about the care pathway (including assessment, treatment, and aftercare), booking appointments with providers, arranging transport, helping patients navigate the system, and supporting/coaching patients on self-care, self-management, and behavioral change.Part of the supported choice package could include help with transport and travel costs as discussed in the previous section. The package would then have the advantage of overcoming both the capacity and resource problems of individuals in making choices.

Risk SelectionRisk selection is often also termed skimming or cherry picking. It is argued that, with choice, providers, especially if they are oversubscribed, will have the power to select the users to whom they provide services: the easiest, the cheapest, those who are most likely improve their finances or to boost their ratings in any league tables. User choice thus turns into provider choice with again particularly adverse consequences for the poor and disadvantaged.This is an obvious problem in education, where oversubscribed schools can select pupils or students who are easy to teach or who in other ways can boost the schools performance. In health care systems with consumer choice of multiple insurers, it can arise on the insurance side, where insurers try to select good health risks as enrollees and discourage worse health risks or charge them higher premiums. In social insurance systems with multiple funds, choice of funds, and capitated allocations (such as Germany, the Netherlands, and Belgium), funds try to select below average risk enrollees. In systems such as the United Kingdom, where purchases have a defined population, the problem is confined to the provider side, whereby GPs or hospitals may try to select patients who are easier or cheaper to deal with. The consequence is discrimination against groups with a higher risk of ill health, such as the old and the poor.It is worth noting that, at least in the care case, there are factors that militate against cream skimming. There is first the question of knowledge: Can those in charge of acceptance on a GP list or in charge of hospital outpatient referral effectively distinguish between high and low risk patients? Second, there are professional interests: more difficult patients may present more of an intellectual challenge (although, of course, for doctors in search of a quiet life, this could act a positive incentive for cream skimming).It is worth noting that, in hospitals at least, these incentives not to cream-skim are largely associated with specialists, whereas the direct incentives to cream-skim (finance, pressure to meet waiting lists) impact primarily on hospital management. Several studies indicate that it is specialists who are the principal decisionmakers in hospitals (see, for instance, Crilly and Le Grand, 2004), suggesting that perhaps the incentives not to cream-skim may currently dominate the incentives to do so.The situation complicated further by the use of private providers. It could be argued that the incentives to cream-skim are intensified in a profit- making context: that private providers are run by knaves not knights, and hence will ruthlessly exploit any opportunity they have to enhance their profits, including the opportunities offered by cream skimming. This is clearly a danger, although it is likely to be partly offset by the fact again some of the private organizations concerned are actually nonprofits and thus likely to have a more complicated (and more knightly) motivational structure than of simple profit-maximization.So cream skimming or risk selection is likely to be a problem for any system of extending user choice in public services. But there are a variety of policy options for addressing it. These include stop-loss insurance; restrictions on the admission freedoms of providers; and risk adjustment of funding formula.Stop-loss insurance is a scheme whereby providers faced with a user whose service costs lie well outside the normal range are allocated extra resources once the cost has passed a certain threshold. This has the advantage of removing the incentive to economize on service once the thresh-old has been passed.A second possibility is to take admission decisions completely away from users. So in health care, social insurer, hospitals, and other treatment centers would be required to accept whoever was referred to them. Schools would have to accept every applicant up to capacity and, once capacity was reached, to allocate by lottery or some other random process.A third alternative is to risk-adjust the pricing system so that higher-cost users have higher costs associated with them. If full risk adjustment is possible, this could eliminate the incentive to cream-skim completely. However, as has often been demonstrated, risk adjustment is arguably an impossible one. But so long as risk adjustment is not perfect, there will remain an incentive to cream-skim. Risk-adjusted payments also provide the incentive for coding creep for example, in health care, upcoding patients to more lucrative high cost categories.A form of risk adjustment that would be simpler and help assuage any socioeconomic inequities arising from cream skimming would be deprivation: adjust the tariff or price. The tariff could be associated inversely with an area deprivation index such that treatments for those from wealthier ones. This could act as form of risk adjustment since it is widely believed that poor users have greater need than better-off ones.The policy challenge is to identify which of these options is likely to be most effective and most consistent with other government policies.

CONCLUSIONThe overall conclusion arising from these arguments is simple. Contrary to popular belief, public services that offer their users little or no choice can create substantial inequities. Extending user choice within those services, therefore, so far from being inequitable, can create greater equity in the sense of greater equality of choices and utilization. However, the policies concerned have to be appropriately designed. In particular, they should contain features that offer support to those who might find it difficult to make choices; and they must have mechanisms that offset or neutralize incentives to risk select or cream-skim. If those features exist, the choice in public services will promote equity and do so more effectively than no-choice alternatives.