Ramsey Waits: Allocating Public Health Service Resources when there is Rationing by Waiting

The optimal allocation of a public health care budget across treatments must take account of the way in which care is rationed within treatments since this will affect their marginal value. We investigate the optimal allocation rules for health care systems where user charges are fixed and care is rationed by waiting. The optimal waiting time is higher for treatments with demands more elastic to waiting time, higher costs, lower charges, smaller marginal welfare loss from waiting by treated patients, and smaller marginal welfare losses from under-consumption of care. The results hold for a wide range of welfarist and non-welfarist objective functions and for systems in which there is also a private health care sector. They imply that allocation rules based purely on cost effectiveness ratios are suboptimal because they assume that there is no rationing within treatments.