TEACHING TOOLS

ECONOMICS OF CHILDHOOD IMMUNIZATION DAVID HEMENWAY*

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 situa- tion in the U.S., and the policies of Northern Ireland and Austria. I t emphasizes (a) the use offinancial 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.

1. 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 influ- ence 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 North-

* Senior Lecturer, Harvard School of Public Health. Useful comments were received from Deborah Azrael, Michelle Bowdler, Carole Dembeck, Robbie Moore, Sara Solnick and Kathy Swartz. Special thanks to Doc- tors Christian Koeck and Elizabeth Mitchell who pro- vided up-to-date information about the immunization systems in Austria and Northern Ireland respectively.

Economic InquiIy Vol. XXXII, July 1994,519-523

ern Ireland and Austria. A short set of exercises to accompany this topic is in- cluded in section VI.

11. RATIONALE FOR GOVERNMENT INVOLVEMENT

Both efficiency and equity considera- tions may justify government intervention in the market for childhood immuniza- tions. Two common causes for efficiency problems (market failure) are information deficiencies and externalities. For exam- ple, individual families may not suffi- ciently 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 fam- ilies may have insufficient incentive to ensure that their children are vaccinated.

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The benefits of inoculating another child are reduced as more children are immunized: (1) the possibility of the un- protected child becoming infected is low- ered 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 goven- ment involvement in the immunization market is a paternalistic one [Friedman and Friedman 19801 -the simple belief that all children, whether rich or poor, or whether living with concerned or neglect- ful parents, should have minimum rights and benefits. These include freedom from easily preventable childhood diseases such as polio and measles.

111. THE U.S. SITUATION

Immunizations have historically been the gateway for primary health care for many children in the United States. Vac- cines 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. Child- hood immunization programs have been shown, by themselves, to be extremely cost-effective [Kotch et al. 1992; Freed et al. 19931.

Unfortunately, childhood immuniza- tion rates in the United States have been inexcusably low [Sibbison 19911. While the “no shots, no school” requirement has ensured adequate immunization rates for five-year-olds [Hinman 19901, 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 immu- nized against polio, measles, mumps, ru- bella, diphtheria, tetanus, whooping cough and other infectious diseases. The 1989-91 measles epidemic-55,000 re- ported cases and 132 deaths-occurred in areas where vaccination rates were low [Sibbison 19911.

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 chil- dren in the United States lacks medical insurance, and immunizations are not cov- ered for many who are insured. Parents can face substantial out-of-pocket pay- ments if they choose the private route [Graham 19931.

The “free” clinic alternative is not al- ways ”user-friendly” [Freed et al. 19931. Public clinics often are geographically in- convenient, require parental time off from work, and have long waiting lines [Skolnick 19911. Access may be further impeded by cultural and language barri- ers as well as by various clinic rules such as requirements for appointments, physi- cian referrals and enrollment in well-baby clinics [Orenstein et al. 19901.

IV. SHIFTING THE DEMAND CURVE

Various methods might be used to shift the demand curve to the right. Conve- nience 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. 19931. In addition, information concerning the importance of immunizations could be more widely disseminated by public ser- vice 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 inform- ing parents and molding their preferences. How can physicians be motivated to per- suade parents to bring their children in?

One inducement is money. Recent expe- rience in the United Kingdom demon- strates how financial incentives for physi- cians can increase immunization rates. In

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Northern Ireland, every individual selects a General Practitioner (GP) from a govern- ment-approved list. All services provided by GPs are entirely free to the patient. GPs have a contractual responsibility to pro- vide 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 19901. 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 educa- tional materials for both practitioners and patients [Ritchie 19921. Of particular eco- nomic interest has been the change in government reimbursement. Those physi- cians who reach immunization targets for the young children on their list now re- ceive 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 GI‘s 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 Brit- ish government’s goal of 95 percent cov-

erage for the childhood immunization schedule by 1995 appears within reach [White et al. 19921.

V. MOVING ALONG THE DEMAND CURVE

The initial recommendation of the Clin- ton administration to increase immuniza- tion rates was to lower the financial barri- ers to care. The government would pur- chase 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 ser- vices.

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

A large randomized control trial, the RAND Health Insurance Experiment, pro- vides empirical evidence concerning the demand curve for childhood immuniza- tions. This experiment randomly assigned participating families to different insur- ance 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. 19871.

While participants under the free plan used more preventive services, their utili- zation was far from adequate. Although they paid neither for the vaccines nor for physician services, only 59 percent of chil- dren 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 recom- mended levels of immunization.

522 ECONOMIC INQUIRY

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 19921. 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 in- creased “off-hours” availability [Yokley and Glenwick 19841.

Austria and France have a long history of using substantial negative pricing to increase prevention activities. In 1972, al- though care was free, only 40 percent of all pregnant women in Austria received medical attention. Infant mortality was high compared to other industrialized Eu- ropean nations. To make care more attrac- tive, the newly created Department of Health developed a system of cash awards for pregnant women who receive a mini- mum 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 lim- its, the mother receives a payment of ap- proximately $500. Not surprisingly, once the system was installed in 1975, the num- ber of examinations rose immediately, from 150,000 per year to more than 500,000 [Leodolter 19781. It is estimated that 98 percent of pregnant women currently re- ceive this payment.

The second phase of the Passport pro- gram continues from birth until the child reaches school age. If the baby has at least four check-ups in the first year, in accor- dance 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 situ- ation of pregnant women and young mothers.

Since 1953, France has had a similar, albeit smaller, positive incentive for pre- natal 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 approxi- mately $170. These incentives appear to have had a dramatic impact, particularly in ensuring the early initiation of prenatal care [Buekens et al. 19931.

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 punish- ing 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 repre- sents marginal private benefit, draw an

HEMENWAY ECONOMICS OF CHILDHOOD IMMUNIZATION 523

appropriate marginal social benefit curve for childhood immunizations.

2. Assume the marginal social cost curve (the supply curve in perfect compe- tition) is constant at $25. Draw an appro- priate diagram such that less than the op- timal 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 in- crease 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 immu- nized. To increase the number of immuni- zations even further, the government in- creases the payment to $50. Show in the di- agram the additional cost to the government caused by this extra $30 payment.

REFERENCES

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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,

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

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

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White, J. M., S. J. Gillan, N. T. Begg, and C. P. Farrington. "Vaccine Coverage: Recent Trends and Future Prospects." British Medical Journal,

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.

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