Economics of childhood immunization.

Hemenway, David

Recent outbreaks of measles and other childhood diseases have put immunization policy on the national agenda. This teaching note on childhood immunization, intended for principles courses, discusses the rationale for government involvement, the situation in the U.S., and the policies of Northern Ireland and Austria. It emphasizes (a) the use financial incentives to motivate behavior, (b) the distinction between shifting and moving along the demand curve, and (c) the notion of negative prices (i.e., paying the customer to "buy" the item). Students especially like the idea of the demand curve extending below the x-axis.

I. INTRODUCTION

In an introductory microeconomics course for public health students, I spend part of one class examining the market for childhood immunizations. In particular, I discuss the innovative policies of two other developed countries to illustrate:

(a) how financial incentives can influence behavior;

(b) the distinction between moving along and shifting the demand curve;

(c) the notion of negative prices (as a policy option); and for the American students,

(d) that useful lessons can be learned from other countries' experiences.

This note--intended for principles classes--discusses why the market for childhood immunizations may require government attention, provides a brief overview of the situation in the United States, and describes the policies of Northern Ireland and Austria. A short set of exercises to accompany this topic is included in section VI.

II. RATIONALE FOR GOVERNMENT

INVOLVEMENT

Both efficiency and equity considerations may justify government intervention in the market for childhood immunizations. Two common causes for efficiency problems (market failure) are information deficiencies and externalities. For example, individual families may not sufficiently inoculate their children because they lack pertinent information about the importance of the shots.

Externalities arise in the immunization market due to the infectious nature of the diseases; immunizing one's own child not only reduces the likelihood that she will become ill, but also lowers the chance she will infect other children. Furthermore, once a child is sick, health care insurance typically picks up much of the medical costs. Because some of the benefits of immunization are spread to others, and some of the costs of not immunizing are borne by others, even fully informed families may have insufficient incentive to ensure that their children are vaccinated.

The benefits of inoculating another child are reduced as more children are immunized: (1) the possibility of the unprotected child becoming infected is lowered and (2) an infected child is likely to impose less of an external cost on others since fewer other children are at risk. Thus, the optimal immunization rate will typically be less than 100 percent.

The major equity rationale for government involvement in the immunization market is a paternalistic one [Friedman and Friedman 1980]--the simple belief that all children, whether rich or poor, or whether living with concerned or neglectful parents, should have minimum rights and benefits. These include freedom from easily preventable childhood diseases such as polio and measles.

III. THE U.S. SITUATION

Immunizations have historically been the gateway for primary health care for many children in the United States. Vaccines against childhood diseases have been the carrot to get children into the system where lead levels can be checked, and tuberculosis, vision, hearing and blood pressure tests etc. performed. Childhood immunization programs have been shown, by themselves, to be extremely cost-effective [Kotch et al. 1992; Freed et al. 1993].

Unfortunately, childhood immunization rates in the United States have been inexcusably low [Sibbison 1991]. While the "no shots, no school" requirement has ensured adequate immunization rates for five-year-olds [Hinman 1990], the problem has been the pre-school age group. It is estimated that only half of the nation's four million two-year-olds are fully immunized against polio, measles, mumps, rubella, diphtheria, tetanus, whooping cough and other infectious diseases. The 1989-91 measles epidemic--55,000 reported cases and 132 deaths--occurred in areas where vaccination rates were low [Sibbison 1991].

Children in the United States receive vaccinations from private physicians or at free public "clinics" (e.g. community health centers, county health departments, public hospital clinics). One in five children in the United States lacks medical insurance, and immunizations are not covered for many who are insured. Parents can face substantial out-of-pocket payments if they choose the private route [Graham 1993].

The "free" clinic alternative is not always "user-friendly" [Freed et al. 1993]. Public clinics often are geographically inconvenient, require parental time off from work, and have long waiting lines [Skolnick 1991]. Access may be further impeded by cultural and language barriers as well as by various clinic rules such as requirements for appointments, physician referrals and enrollment in well-baby clinics [Orenstein et al. 1990].

IV. SHIFTING THE DEMAND CURVE

Various methods might be used to shift the demand curve to the right. Convenience might be increased: physician and clinic hours might be extended, waiting time decreased, travel time reduced (e.g. mobile units). Combining vaccines into one inoculation could reduce the number of shots and visits needed [Freed et al. 1993]. In addition, information concerning the importance of immunizations could be more widely disseminated by public service announcements and news reports.

An important feature of the market for medical care is the role of providers in influencing demand. Physicians, acting as the agent for the patient, have a major impact on immunization rates. The advice of the physician can be crucial in informing parents and molding their preferences. How can physicians be motivated to persuade parents to bring their children in?

One inducement is money. Recent experience in the United Kingdom demonstrates how financial incentives for physicians can increase immunization rates. In Northern Ireland, every individual selects a General Practitioner (GP) from a government-approved list. All services provided by GPs are entirely free to the patient. GPs have a contractual responsibility to provide comprehensive primary care service to their patients 24 hours a day, 365 days per year. GPs receive remuneration from the government in two principal forms: (1) a fixed amount of money for the central expenses of running a practice, and (2) a capitation payment for each patient on their list. GPs can compete for patients, with increasing numbers leading to higher total revenues.

In the early 1980s, Northern Ireland's childhood immunization rates were quite low. For example, in 1982 only 12 percent of two-year-olds had their measles shots, 44 percent had been immunized for whooping cough, and 76 percent for polio [Chief Medical Officer 1990]. At times, the total number of reported measles cases among the Northern Ireland population of 1.5 million people actually exceeded that of the United States.

Various national vaccination initiatives were launched during the 1980s, including improved information systems and educational materials for both practitioners and patients [Ritchie 1992]. Of particular economic interest has been the change in government reimbursement. Those physicians who reach immunization targets for the young children on their list now receive financial bonuses. If the 70 percent target is attained, they can receive an additional 600 pounds (about $1,000). If they meet or exceed the 90 percent target, they earn 1800 pounds (about $3,000).

The GPs now have a financial incentive to remind and encourage parents to bring in their children for the immunization shots. They appear to have succeeded in shifting the demand curve substantially to the right. By April 1991, 77 percent of GPs were reaching the higher target, and an additional 13 percent the lower. The British government's goal of 95 percent coverage for the childhood immunization schedule by 1995 appears within reach [White et al. 1992].

V. MOVING ALONG THE DEMAND CURVE

The initial recommendation of the Clinton administration to increase immunization rates was to lower the financial barriers to care. The government would purchase vaccines, which would then be free for certain patients at private physician offices, as well as at public clinics. Private physicians could still charge for their services.

The Clinton initiative would have increased pre-school immunization rates. The most fundamental micro-economic hypothesis--the law of downward sloping demand--asserts that as prices to the consumer fall, ceteris paribus, the quantity demanded increases. But even before it was scaled back, would the Administration plan have increased immunization rates sufficiently?

A large randomized control trial, the RAND Health Insurance Experiment, provides empirical evidence concerning the demand curve for childhood immunizations. This experiment randomly assigned participating families to different insurance plans with various levels of cost sharing. Compared to those families who had to pay part of the price themselves, the children of families with full coverage (the free plan) were significantly more likely to receive needed immunizations. [Lurie et al. 1987].

While participants under the free plan used more preventive services, their utilization was far from adequate. Although they paid neither for the vaccines nor for physician services, only 59 percent of children aged 0-6 in these families received any immunizations during the three-year experimental period. Completely free care did not ensure that the children would receive anything close to the recommended levels of immunization.

Quantity demanded increases as price falls. There is no reason, of course, for the minimum price to be zero. Price can fall below zero--a negative price. In other words, the customer can be rewarded for "buying" the item. The higher the reward, the more likely it is that the item will be purchased. While most textbooks show only the first quadrant, the demand curve continues below the x-axis.

The U.S. has experimented with the idea of a negative price for preventive care--on a very small scale. For example, a program in Utah awards gift certificates to mothers for participation in well-baby care [Williams and Miller 1992]. And in a randomized experiment in Akron, Ohio involving clients of a public health clinic, a small monetary incentive (the gift of a lottery ticket) increased immunization rates more than patient reminders or increased "off-hours" availability [Yokley and Glenwick 1984].

Austria and France have a long history of using substantial negative pricing to increase prevention activities. In 1972, although care was free, only 40 percent of all pregnant women in Austria received medical attention. Infant mortality was high compared to other industrialized European nations. To make care more attractive, the newly created Department of Health developed a system of cash awards for pregnant women who receive a minimum number of medical examinations. This method was highly successful and is still in use.

Women are issued a "Passport" which is stamped by the attending physician. If physicians certify that all examinations are performed within the prescribed limits, the mother receives a payment of approximately $500. Not surprisingly, once the system was installed in 1975, the number of examinations rose immediately, from 150,000 per year to more than 500,000 [Leodolter 1978]. It is estimated that 98 percent of pregnant women currently receive this payment.

The second phase of the Passport program continues from birth until the child reaches school age. If the baby has at least four check-ups in the first year, in accordance with a specified program, the mother receives another $500. Additional installments of $300 and $200 are available through the fiftieth month of life. These funds not only increase the immunization rate, but also improve the financial situation of pregnant women and young mothers.

Since 1953, France has had a similar, albeit smaller, positive incentive for prenatal visits. Every French woman who makes at least one visit during the first trimester, and at least two other visits, at six and eight months, receives approximately $170. These incentives appear to have had a dramatic impact, particularly in ensuring the early initiation of prenatal care [Buekens et al. 1993].

The concept of negative prices is rarely explored in economics texts, but is an attractive one for students. A former TA who just finished teaching a class in health economics writes:

The immunization stuff was a big hit. I was talking about things that affect the demand. I told them the statistics and drew a demand curve that stopped at the x-axis at a level that was less than the goal. I asked how they would reach the goal. They suggested adding more staff or hours to the clinics to make them more convenient, launching an education or awareness program, and punishing parents who don't get the kids immunized. I said these are good ideas, but there's another way, and extended the demand curve into the 4th quadrant. Their jaws dropped. It was really satisfying. They think I'm a genius.

VI. EXERCISES

1. Assume all individuals are well-in-formed. Given a demand curve that represents marginal private benefit, draw an appropriate marginal social benefit curve for childhood immunizations.

2. Assume the marginal social cost curve (the supply curve in perfect competition) is constant at $25. Draw an appropriate diagram such that less than the optimal amount of immunization occurs even when the price to the consumer is $0.

3. Show in the diagram the net gain in welfare to society if immunizations increase from the quantity where price to consumers equals zero to the optimal level.

4. Suppose the government decides to give parents $20 for getting a child immunized. To increase the number of immunizations even further, the government increases the payment to $50. Show in the diagram the additional cost to the government caused by this extra $30 payment.

REFERENCES

Buekens, Pierre, Milton Kotelchuck, Beatrice Blondel, Finn Borlum Kristensen, Jian-Hua Chen, and Godelieve Mausuy-Stroobant. "A Comparison of Prenatal Care Use in the United States and Europe." American Journal of Public Health, January 1993, 31-36.

Chief Medical Officer. "The Health of the People in Northern Ireland." Annual Report, Department of Health and Social Services: Government of Northern Ireland, 1990.

Freed, Gary L., W. Clayton Bordley, and Gordon H. DeFriese. "Childhood Immunization Programs: An Analysis of Policy Issues." Milbank Quarterly, 71(1), 1993, 65-96.

Friedman, Milton, and Rose Friedman. Free to Choose. New York: Harcourt Brace Jovanovich, 1980.

Graham, Mary. "Unprotected Children." Atlantic Magazine, March 1993, 20-29.

Hinman, Alan R., and Walter A. Orenstein. "Immunization Practice in Developed Countries." Lancet, 24 March 1990, 707-10.

Kotch, James B., Craig H. Blakely, Sarah S. Brown, and Frank Y. Wong. A Pound of Prevention: The Case for Universal Medical Care in the United States. Washington, D.C.: American Public Health Association, 1992.

Leodolter, Ingrid. "The Mother-Child Health Passport: Austria's Successful Weapon Against Infant Mortality." Preventive Medicine, 7, 1978, 561-63.

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Orenstein, W. A., W. Atkinson, D. Mason, and R. H. Berier. "Barriers to Vaccinating Preschool Children." Journal of Health Care of the Poor and Underserved, Winter, 1990, 315-29.

Ritchie, Lewis, Ann F. Bisset, Daphne Russell, Valerie Leslie, and Irene Thompson. "Primary and Preschool Immunization in Grampian: Progress and the 1990 Contract." British Medical Journal, 30(4), 1992, 816-18.

Sibbison, J. B. "Return of Measles." Lancet, 10 August 1991, 375.

Skolnick, Andrew. "Should Insurance Cover Routine Immunization?" Journal of the American Medical Association, 15 May 1991, 2453-54.

White, J. M., S. J. Gillan, N. T. Begg, and C. P. Farrington. "Vaccine Coverage: Recent Trends and Future Prospects." British Medical Journal, 30(4), 1992, 632-34.

Williams, B. C., and C. A. Miller. "Preventive Health Care for Young Children: Findings from a 10-Country Study and Directions for United States Policy." Pediatrics, 89 (suppl), 1992, 983-98.

Yokley, James M., and David S. Glenwick. "Increasing the Immunization of Preschool Children: An Evaluation of Applied Community Interventions." Journal of Applied Behavioral Analysis, Fall 1984, 313-25.