Pricing Health Products 

 

Is the price wrong?

Charging even very small user fees sharply limits access to preventive health care. Though charging small fees is promoted for many reasons- including better targeting of products and reduced wastage in health programs- several experiments in different countries found very little support for these views. But because there are limited resources available for health services, governments should place priority on providing for free those products whose effects spill over beyond individual users and are highly cost-effective.

User fees have been advocated for many years to promote sustainability of health services, to help make sure that goods and services are not given away wastefully, and to provide a source of flexible revenue to those in frontline services to replenish supplies and pay for repairs. More recently, social entrepreneurs have argued that an entrepreneurship model based on small fees can bring socially important products to the poor in a sustainable way. Those arguing against user fees, however, point to the massive increases in the take up of public services that have accompanied the abolition of user fees for schooling and health care in places like Uganda and Kenya.

The first potential effect of user fees is on who gets the products. The act of paying for a product may force people to consider their purchase more carefully, screening out those who did not intend to use it in the first place. On the other hand, it also potentially excludes people who did need the product but can’t afford it. J-PAL studies have tested whether this is fact the case.

The second potential effect is on product use. For many products there is no step between take up and use, meaning that distribution of these products is equivalent to usage. When a child lines up to be dewormed the teacher puts a pill in her mouth and watches her swallow it. The same is true for immunization. In other instances, patients, students, or consumers have to take action to get the benefits of a product, prompting worries that people will receive a free product but never use it. A bednet is no help in preventing malaria if it is still in its package and not hung up, and chlorine cannot prevent diarrhea if it is not regularly added to a family’s drinking water. In these cases, user fees are seen by some as a means to encourage people to use products once they have them, since people may want to rationalize their purchase through utilization. Again, J-PAL studies have tested this hypothesis.

There are other reasons for charging that go beyond targeting and encouraging use. A common claim is that charging provides incentives for service providers to come to work and stock products, as they can pocket the money to supplement their salaries or purchase other badly needed supplies. These effects have yet to be rigorously tested through randomized evaluations. We also need evidence on alternative ways of incentivizing service providers to do their work, which do not rely on poorly understood user fees. Our bulletin "Showing Up is the First Step" illustrates just how complex incentivizing service providers can be, but offers some positive examples of programs that have been effective without relying on user fees.

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Demand for Health and Education Products

Evaluations Cost Effectiveness Academic Papers
see demand curves above
Pricing Studies
1 Deworming Drugs in Kenya

The introduction of a small fee for deworming drugs led to an 80% reduction in treatment rates.

Kremer & Miguel, 2005 Policy red
2 Insecticide Treated Bednets in Kenya

Charging a positive price significantly decreased take-up of bednets among pregnant mothers in Kenya.

Cohen & Dupas, 2010 Academic red
3 Home Delivery of Chlorine in Zambia

Charging higher prices for chlorine reduced demand, but willingness to pay was associated with increased use.

Ashraf, Berry & Shapiro, 2008 Academic red
4 Distribution of Soap in India

Increasing the price of soap in door-to-door sales reduced demand significantly

red
5 Home Delivery of Chlorine in Kenya

Higher prices caused significant drops in the adoption of point-of-use chlorine products.

Policy red
6 Bednet Coupons in Kenya

Giving people coupons for subsidized bednets which are good for 3 months and allow them to gather money, significantly improves take-up.

Bhattacharya et al., 2013Dupas, 2013Dupas, 2009 Academic red

Charging even very small user fees sharply limits access. When a program in Kenya moved from free provision of deworming tablets to charging an average price of 30 cents, take up fell from 75 percent to 19 percent 1. Similar declines were seen when charging for water disinfectant and mosquito nets. This sharp decline in take up with price was true even when the user fee was a tiny fraction of the true cost of the product.

Charging small user fees to the poor for health products and services is promoted for many reasons—including to help reduce wastage and target products to those who need or will use them. Several experiments on different products and in different countries found very little support for these views. In every study where this was tested, the act of paying for something did not help encourage people to use the product, nor did charging help target a product to those who need it. In one study, charging a higher price for chlorine to add to drinking water did screen out more people who would not have used the product than those who would have used it 3. This effect was not found in other studies. Giving people more time to raise the money to purchase a product did lead to a less dramatic fall-off in take-up as price rose 6.

In most cases, user fees neither improved nor worsened targeting among those who obtained the product, but it did reduce the fraction of individuals in need who got the product. Those who were dewormed when medicine was paid for were no more likely to have a high worm load than those who were dewormed for free, and many children with high worm loads did not get dewormed when user fees were charged, because of the decreased demand 1.  Pregnant women who chose to purchase bednets in Kenya were no more anemic than those who received nets free of charge, and many anemic pregnant women did not acquire a bednet which user fees were charged, because of the decrease in take-up 2.  Families with children under 5, who are particularly vulnerable to the negative effects of diarrhea, were no more likely to buy chlorine to add to their water than other households, and many children continued to drink dirty water because of the barrier of user fees 5. In a Kenyan study, however, charging did alter the type of family that bought nets and who in the family used the nets. But on average charging worsened targeting, as it reduced the likelihood of children under 5 sleeping under nets (holding net ownership constant)—despite the fact that these children are the ones most likely to die from malaria.

Goods and services with positive spillover effects should be prioritized when governments are selecting which interventions to make available for free. Many preventive health product offer benefits that reach beyond individual users, but because users do not personally benefit from these spillovers they are often unwilling to pay for them. If a child receives deworming medicine she is less likely to infect others nearby; if enough people sleep under a bednet, this contributes to malaria control in the community.  In these cases, there is a strong rationale for subsidizing or even giving products away. Deworming school children, providing bednets, or immunizing children all help break the cycle of disease transmission and benefit more than just the treated child.

There is also strong evidence that people under invest in preventative health products even when they are highly cost effective which make them good candidates for free delivery. 

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