Universal Coverage with Financial Constraints: How Public Health Systems Ration Care

In this paper, we study how government budget constraints in publicly funded health systems restrict access to health care. Using data from England, we show that cuts to government funding negatively impact access to hospital care for fully insured individuals. Our empirical analysis exploits a ‘pace-of-change’ policy used to determine the annual financial allocations for administrative regions. We show that this policy translates aggregate funding shocks into regional funding allocations using a non-linear formula which gives us variation in funding that is plausibly exogenous to the demand for health care. We find that government funding cuts reduce hospital admissions and increase hospital wait times. These effects are most pronounced for orthopedic patients. Using survey data on patient-reported benefits from orthopedic surgery, we then show that funding cuts increase the average benefits for admitted patients. These results are consistent with a rationing rule that maximizes population health.