Discussion Paper No. 32 of 2004 on User Charges and Utilization of Health Services in Kenya

Abstract

This paper uses data from Kenya to examine the role of user charges and quality of health services in determining the choice of healthcare providers. We find that an increase in the price of public health services diverts demand from public to private facilities. The associated reduction in demand for modern health care, captured by increased use of self-treatment, is minimal. In contrast, a decline in the quality of public health services leads to a sharp reduction in their use and to increased reliance on self-treatment. These demand patterns suggest that a programme that improves the quality of services and enhances drug availability through cost-sharing may be more effective in meeting the healthcare needs of the population than one that fully subsidizes health services at low standards of service. However, since improving health services entails higher costs of provision and use, targeted subsidies are required to ensure that the poor are not denied access to basic care. Difficulties in enforcing statutory fee exemptions at public health facilities in Kenya have created interest in social health insurance as a dominant mechanism for financing healthcare. Demand effects of social insurance are briefly discussed.