Julian Le Grand

Equality and Choice in Public Services

People should not forget the current system is a two-tier system when those
who can afford it go private, or those who can move ge beter schools
Choice mechanical enhance equity by exerting pressure on low quality or
incompetent providers. Competitive pressure on incentives drive up quality,
efficiency, and responsiveness in the public sector. Choice leads to higher
standards The overriding principle is clear. We should give poorer
patients the same range of choices the rich have always enjoyed. In a
heterogeneous society where there is enormous variation in needs and
preferences, public services must be equipped to respond.
-Prime Minister Tony Blair, Speech to South Camden Community
College, January 23, 2003

These choices will be there for everybodyNot just for a few that know
their way around the system. Not just for those who know someone in the
loop-but for everybody with every referral. Thats why our approach to
increasing choice and increasing equity go hand in hand. We can only
improve equity by equalizing as far as possible the information and the
capacity to choose.
-Jhone Reid, UK Secretary of State for Health, Speech to the New Health
Network, July 16, 2003

While increased patient choice may put pressure on poorly performing

providers to improve their services, there is no reason to think, despite the
Prime Ministers assertion, that this will ensure equal treatment for equal
need. Hence extending choice puts at risk a key objective of the NHS
[National Health Services]-equal access for equal need.
-Appleby, Devlin, and Harrison (2003)

INTRODUCTION
The extension of the individuals right to choose the public services such as health
care and education is a major policy issue in the developed world. As the
preceding quotations indicate, it is a matter of intense political controversy in
Britain, where debates concerning choice in public services figured prominent in
the 2005 general election campaign. In the United States, it is most prominent in
the long running controversies over education voucher programs and charter
schools and it may begin to surface in health care, as voucher debates begin to
develop there as well (Hoxby, 2003; Emanuel and Fuchs, 2005). New Zealand,
Denmark, and Sweden have all experimented with choice in public education and
health care; Germany, France, Belgium, and the Netherlands have choice
programs, in some cases long established (Le Grand, 2003, chaps. 7 and 8;
Blomqvist, 2004; Van Beusekom et al., 2004)
Despite this experimentation, in most countries the right to exercises choice
in areas such as public education and health care has historically been limited.
Many public education systems required, and still require, parents to send their
children to the neighborhood school. Under system of public health care, patients
commonly have little or no choice over their physician or hospital. Further, the
case for such restrictions is often made on the grounds of equity or fairness; if no
one has choice, if everyone has to go to the same school or hospital, then there is
equality of provision or utilization. And, if there is equality of utilization, there is
equity or so the argument goes. Further, it is contended that this achievement of
equity would be threatened if the restrictions on choice were removed; the welloff are better placed to make the relevant choices than the poor and therefore are
likely to be advantaged by any system that allocates resources on the basis of
choice.
In this paper, I address these arguments. I begin with an elucidation of the
terms involved, including choice, equity, and public services. The next section
asks and tries to answers the equations: Does extending individual choice in
publicly funded services promote or reduce equity? There is a brief concluding
section. It should be noted that the paper concentrates only on the equity
arguments concerning choice; there are many other reasons why a policy of

extending choice might be desirable, including the incentives it provides for

improving provider efficiency and responsiveness, but these are not our concern
here (for the arguments-both for and against-see Le Grand, 2003; Lent and Arend,
2004; Levett et al., 2003; Marquand, 2004; Schwartz, 2004).

THE CONCEPTS
Much of the debate in this area is characterized by confused terminology, and it is
important to be clear what key concepts mean. In the title of this paper there are
three such concepts that are apparently simple but that in fact require some
explication before we can proceed. They are public services, choice, and equity.
First, public services. By this I mean primarily publicly funded services.
These are services that are no purchased directly by consumers form their own
resources but financed primarily from taxation (central or local) or from social
insurance. Thus publicly funded health care would include Medicare and
Medicaid in the United States, funded from federal and state taxation; the British
National Health Service, and the Spanish, Portuguese, and Irish health care
systems, all largely funded from central government taxation; the Danish and
Swedish systems, funded from local taxation; and the social insurance systems of
Germany, France, Netherlands, and Belgium, where themselves funded by social
insurance contributions paid by contributions levied on employers and employees
(Mossialos and Le Grand, 1999, chap. 1). In education, it would include the public
school systems of virtually every developed country, funded usually by a mixture
of central and local taxation.
In many cases of public services, the services is not only funded publicly,
but also provided publicly. That is, the government owns and operates the
institutions that provide the service concerned (the schools, the hospitals, etc.) and
employs the people working in the services. However, this is not a necessary
feature of all publicly funded services, including those that are the focus for this
paper. Many countries have private or nonprofit providers of health care and
education as well as (or instead of) publicly owned ones, still financed wholly or
largely from public funds. The methods of funding can take a variety of forms;
block grants directly to the institution concerned; the adoption of formulae based

on activities undertaken (such as number of operation or of inpatient days for

hospitals) or numbers of people served (such as pupils for schools); or vouchers,
under which the government gives the users a specific amount of resources that
can spent at any provider of the service concerned. But whatever the method of
funding, so long as the principal source of the funds concerned is government
taxation, then services are at least for the purposes of this paper public services.
Or public services defined in this way, there are a number of dimensions of
choice. These may be summarized n the equations; Where, who, what, when, and
how? First, there is choice of provider, such as hospital or school (where?) and in
some social insurance systems, choice of social insurer. Then there is choice of
professional, such as doctor or teacher (who?); choice of service, such as medical
treatment or school curriculum (what?); the choice of appointment time (when?);
and the choice of access channel, such as phone, web, or face-to-face (how?). The
principle of choice in publicly funded services includes decisions on all these
dimensions.
These decisions are not necessary independent. In health care, a patient may
choose a particular provider because of its opening hours or shorter waiting times,
or in order to see a particular school for a child because of the type of curriculum
(for example, a specialist school) or style od pedagogy it offers. However, it is
useful to keep distinctions between these different kinds of choice in mind
because the arguments for and against extending user choice in public services
can vary according to which type of choice is being considered.
It is also important to distinguish who is doing the choosing. This could be
the users themselves (such as patients in elective surgery), relatives or individuals
agents for the actual users (such as parents for their childrens schools or
curricula), or collective agents choosing on behalf of users (such as government
awarding contracts to suppliers of public services on behalf of users).
Of all these various kinds of choice, this paper concentrates primarily on
choice of provider (such as schools or hospitals) by users or their families (such as
patient, parents, or pupils). It emphasizes choice in relation to providers because
that is where much of the policy and political debate is centered, and because, as

noted earlier, that decision often incorporates the other kinds of choice. And it
concentrates on users because that is where most of the major equity issues lie.
Finally, the paper focuses on cases where the money follows the choice; that
is, where providers that are chosen receive extra resources, while those that are
nor receive less. One example of this kind of scheme is the current policy the
United Kingdom for patient choice in secondary health care, where patients
referred for elective surgery by their general or primary care practitioner (GP) are
offered the choice of variety of hospitals where the procedure may be undertaken;
and where the hospital that is chosen and that undertakes the relevant surgery is
the reimbursed out of public funds on a cost-per-case basis. The classic example
in education voucher, where parents are given a voucher worth the equivalent of,
for example, a years cost of education a voucher that they can present at any
school of their choice. The school then redeems the voucher from the education
departments in the relevant government, receiving payment from public resources.
Another education example would be the current UK system, which in theory at
least relies on open enrollment (or free parental choice of school), plus a
government-funding formula based on number of pupils: a system where the
financial transactions are hidden from the users but is nonetheless effectively a
form of voucher in that, as with vouchers, the money follows the choice.
Finally, equity. It will come as no surprise to most that equity is a contested
term. It is frequently confused with, or used synonymously with, terms such as
equality, fairness, and social justice. I have tried to resolve some of these
confusions elsewhere (Le Grand, 1982, 1984, and 1991) and will not attempt to
continue that debate here. Instead, I shall simply use two common interpretations
of the term: equality of choices and equality of utilization. I shall try to provide
some answers to the questions: Will extending choice in public services create
greater equality of choices for users of public services? And will it create greater
equality in the use or utilization of these services?

EQUALITY OF CHOICES
First, will extending choice in public services move closer to equality of choices
for users services? The principal point to make in this context is that, even in

system that apparently offer little choice, there are nonetheless usually two
possibilities for choice. First, in such systems, there is always the possibility of
opting out (or never entering) the public system: using the individual or the
familys own funds to buy private education or private health care (Canada, which
bans the use of private health care, is an exception here although there is always
the possibility of crossing the borders).
Second, there is the possibility of moving so as to benefit from the
proximity of good schools or hospitals. That this is a real phenomenon is
illustrated by a number of studies in the United Kingdom. A recent study by the
nations biggest mortgage lender, the Halifax, found that houses are valued at 12
percent more than the regional average if they are located in the same areas as the
most successful secondary schools, confirming an earlier, similar report by
another large mortgage lender, Nationwide (Guardian, 2005: 23). Gibbons and
Machin (2003, 2005) found that a 10 percent improvement in league table
performance for primary schools can be expected to add 3 percent to the price of a
house located close to the school. This is a very local effect, one hat halves 600
meters away from the school gate. In London and the southeast the result can be
moving from an area with weak primary schools to an area with stronger ones can
cost 61,000. (They also found that because of confusion over admissions and
lack of clear information about school performance, parents exhibited a herd
mentality, going for schools that are difficult to get into, not necessarily those that
were tor performing.)
Do proposals to introduce choice within public services can be viewed as
simply extending opportunities for choice that already existed for the better off
(through moving or going privately) to groups that previously had little or none.
In that sense, it is moving toward a greater equality of choice that, at least
according to that interpretation of the term, is a move toward greater equity.

EQUALITY OF UTILIZATION
As noted in the introduction, often the first line of argument against extending
choice in public services is that it will create inequality in utilization. Compelling
everyone to go to the same school, use the same insurer, or attend the same

hospital will create equality in services utilization and therefore, according to that
interpretation, of the equity. Allowing, choice will enable some people to use
different amounts continues, the poor, and disadvantaged are less well placed than
the better off to exercise choice effectively: so this will disadvantage them even
more.
The initial presumption behind this argument is that no-choice systems
avoid inequalities in utilization. However, this is suspects. To take just one
nontrivial case, I have, together with colleagues, reviewed the research concerning
the utilization of the British National Health Service until recently very much a
no-go area for choice-by different socioeconomic group (Dixon at al.,
forthcoming). In fact, we found man significant differences in utilization relative
to need. Just give a few examples:
Affluent achievers had 40 percent higher coronary artery bypass grafts and
angioplasty rates than the have-nots, despite far higher mortality from
coronary heart disease roughly 30 percent higher need.
Hip replacements were 20 percent lower among lower socioeconomic groups
despite roughly 30 percent higher need.
Social classes IV and V (roughly, manual workers and their families) had 10
percent fewer preventive consultations than social classes I and II
(professionals and higher-level mangers) after standardizing for other
determinants.
A one-point move down a seven-point deprivation scale resulted in GPs
spending 3.4 percent less time with the individual concerned.

No-choice systems can thus generate inequalities in utilization. The question

therefore in relation to choice and equity is not whether extending user choice
within a public service that previously offered little or no choice exacerbates or
reduces those inequalities in utilization that already exist. To answer that, it is
necessary to have some idea of the factors that bring about these ineaquality in
utilization in the first place. These may be summarized ad unequal costs and
resources differences in capacities and risk-selection.

Unequal Costs and Resources

Clearly, if users face different costs of using a services or have different resources
from which to meet those costs, this will create different in the utilization of the
service. Most of the services with which we are concerned on this paper are free at
the point of use, or with means-tested copayments, so service changes are no
usually in issue. However, even users of a service that is free at the opportunity
cost of the time taken to use the service. These will differ between individuals and
social groups, creating differences in the barriers they face from using the service,
and therefore different patterns of utilization.
The survey of inequalities within the British NHS referred to earlier found
that, in particular, transport and travel costs were important in affecting service
utilization by lower socioeconomic groups, even in a service such as this where
there is little or no choice. The extension of choice in services for which this is
little or no choice. The extension of choice in services for which this is major
concern is likely to exacerbate this problem, since, in all probability, if choice is to
work, patients will have to travel further. Middle-class patients will generally fin
this easier since they usually have better access to transport, especially cars;
hence, if no or little help with transport costs is offered, the inequalities in
utilization are likely to be exacerbated by patients choice.
So an essential element of any policy aimed at encouraging user choice in
public services is the provision of help with transports and travel costs. Ideally,
this help should cover the full range of costs associated with an accompanying
partner or carer.

Unequal Capabilities
A second source of inequality in utilization in no-choice systems is the difficulties
that the less advantaged face in obtaining a responsive service. The only way in
which the poor can exert pressure if they are receiving a low-equality services (or
even being denied a service) in a no-choice system is through a variety of other
means, such as trying to argue with the relevant professional or bureaucrat, or
putting in a more formal complaint through some kind of complaints procedure.
But these inevitably favor the articulate, confident middle classes and

disadvantage the less well-off. Put another way, the better off have better contacts
and sharper elbows-a louder voice in the terminology of Hirschman (1970).
And they are adept at using their voice to demand access to more extensive
services (such as specialist outpatient consultations, diagnostic tests, inpatient
treatments, better teachers, and so on).
Generally, middle-class patients and parents are more articulate, more
confident, and more persistent than their poorer equivalents. Moreover, the
medical practitioners who are making the relevant treatment decisions and the
school principals often are more likely to speak the same kind of language as, and
thus relate better to, middle-class patients and parents. In addition, many of the
relevant professions, and who can help them those lower down the social scale in
no-choice systems to ensure they obtain quality medical treatment for themselves
and their family and education for their children.
So how will this be affected by extending choice? In fact, the shift of power
from professional to user that is implicit in the choice strategy directly favors the
less well off precisely because it reduces the role of middle-class voice in
allocating health service resources. Ultimately, extending choice to all goes a long
way toward equalizing power between users from different social groups; and that
can only be equity enhancing.
There are many who would dispute this conclusion, arguing that poorer
groups do not have the ability to make choices that middle class ones have.
However, this argument is usually supported by anecdote rather than evidence. In
fact, I can find no hard evidence that the capacity of lower socioeconomic groups
for choice is less than that of higher ones.
Still, it is possible that differences in capacity for exercising choice between
social groups do exist. In the case, some mechanism for giving advice,
information, and support would help level the playing field-especially in areas
where social capital is low. An appropriate policy response could be what we
might term guided or supported choice. This would use advisers to help
individuals and families to make choices. Thus in health care, the responsibility
for the adviser role could include monitoring care plans, offering choices of
provider, discussing treatment options, identifying social needs regarding travel,

disability, and language, and providing information and updates about the care
pathway (including assessment, treatment, and aftercare), booking appointments
with providers, arranging transport, helping patients navigate the system, and
supporting/coaching patients on self-care, self-management, and behavioral
change.
Part of the supported choice package could include help with transport and
travel costs as discussed in the previous section. The package would then have the
advantage of overcoming both the capacity and resource problems of individuals
in making choices.

Risk Selection
Risk selection is often also termed skimming or cherry picking. It is argued that,
with choice, providers, especially if they are oversubscribed, will have the power
to select the users to whom they provide services: the easiest, the cheapest, those
who are most likely improve their finances or to boost their ratings in any league
tables. User choice thus turns into provider choice with again particularly adverse
consequences for the poor and disadvantaged.
This is an obvious problem in education, where oversubscribed schools can
select pupils or students who are easy to teach or who in other ways can boost the
schools performance. In health care systems with consumer choice of multiple
insurers, it can arise on the insurance side, where insurers try to select good health
risks as enrollees and discourage worse health risks or charge them higher
premiums. In social insurance systems with multiple funds, choice of funds, and
capitated allocations (such as Germany, the Netherlands, and Belgium), funds try
to select below average risk enrollees. In systems such as the United Kingdom,
where purchases have a defined population, the problem is confined to the
provider side, whereby GPs or hospitals may try to select patients who are easier
or cheaper to deal with. The consequence is discrimination against groups with a
higher risk of ill health, such as the old and the poor.
It is worth noting that, at least in the care case, there are factors that militate
against cream skimming. There is first the question of knowledge: Can those in
charge of acceptance on a GP list or in charge of hospital outpatient referral

effectively distinguish between high and low risk patients? Second, there are
professional interests: more difficult patients may present more of an intellectual
challenge (although, of course, for doctors in search of a quiet life, this could act a
positive incentive for cream skimming).
It is worth noting that, in hospitals at least, these incentives not to creamskim are largely associated with specialists, whereas the direct incentives to
cream-skim (finance, pressure to meet waiting lists) impact primarily on hospital
management. Several studies indicate that it is specialists who are the principal
decisionmakers in hospitals (see, for instance, Crilly and Le Grand, 2004),
suggesting that perhaps the incentives not to cream-skim may currently dominate
the incentives to do so.
The situation complicated further by the use of private providers. It could be
argued that the incentives to cream-skim are intensified in a profit- making
context: that private providers are run by knaves not knights, and hence will
ruthlessly exploit any opportunity they have to enhance their profits, including the
opportunities offered by cream skimming. This is clearly a danger, although it is
likely to be partly offset by the fact again some of the private organizations
concerned are actually nonprofits and thus likely to have a more complicated (and
more knightly) motivational structure than of simple profit-maximization.
So cream skimming or risk selection is likely to be a problem for any
system of extending user choice in public services. But there are a variety of
policy options for addressing it. These include stop-loss insurance; restrictions on
the admission freedoms of providers; and risk adjustment of funding formula.
Stop-loss insurance is a scheme whereby providers faced with a user whose
service costs lie well outside the normal range are allocated extra resources once
the cost has passed a certain threshold. This has the advantage of removing the
incentive to economize on service once the thresh-old has been passed.
A second possibility is to take admission decisions completely away from
users. So in health care, social insurer, hospitals, and other treatment centers
would be required to accept whoever was referred to them. Schools would have to
accept every applicant up to capacity and, once capacity was reached, to allocate
by lottery or some other random process.

A third alternative is to risk-adjust the pricing system so that higher-cost

users have higher costs associated with them. If full risk adjustment is possible,
this could eliminate the incentive to cream-skim completely. However, as has
often been demonstrated, risk adjustment is arguably an impossible one. But so
long as risk adjustment is not perfect, there will remain an incentive to creamskim. Risk-adjusted payments also provide the incentive for coding creep for
example, in health care, upcoding patients to more lucrative high cost categories.
A form of risk adjustment that would be simpler and help assuage any
socioeconomic inequities arising from cream skimming would be deprivation:
adjust the tariff or price. The tariff could be associated inversely with an area
deprivation index such that treatments for those from wealthier ones. This could
act as form of risk adjustment since it is widely believed that poor users have
greater need than better-off ones.
The policy challenge is to identify which of these options is likely to be
most effective and most consistent with other government policies.

CONCLUSION
The overall conclusion arising from these arguments is simple. Contrary to
popular belief, public services that offer their users little or no choice can create
substantial inequities. Extending user choice within those services, therefore, so
far from being inequitable, can create greater equity in the sense of greater
equality of choices and utilization. However, the policies concerned have to be
appropriately designed. In particular, they should contain features that offer
support to those who might find it difficult to make choices; and they must have
mechanisms that offset or neutralize incentives to risk select or cream-skim. If
those features exist, the choice in public services will promote equity and do so
more effectively than no-choice alternatives.