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Embedded Incentives in the Funding Arrangements for Residential Aged Care in Australia *
Author(s) -
Hamilton Steven D.,
Menezes Flavio M.
Publication year - 2011
Publication title -
economic papers: a journal of applied economics and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.245
H-Index - 19
eISSN - 1759-3441
pISSN - 0812-0439
DOI - 10.1111/j.1759-3441.2011.00125.x
Subject(s) - incentive , government (linguistics) , health care , business , psychological intervention , public economics , value (mathematics) , preventive care , market failure , public policy , economics , nursing , medicine , economic growth , market economy , microeconomics , linguistics , philosophy , machine learning , computer science
We examine interventions by the Australian Government in the market for residential aged care and consider the impacts on the incentives of market participants. We find that providers are likely to have an incentive to discriminate against high‐care residents, in favour of low‐care residents. As a result, since high‐care residents, unlike low‐care residents, face few viable alternatives, many are forced into public hospital beds, which has placed pressure on the broader health system. Providers are “squeezed” between an inability to charge high‐care residents a bond of any value and an inability to derive bonds of sufficient value from low‐care residents, given the availability of substitutes. We stress the importance in policy design of fostering proper incentives and suggest a path for a program of microeconomic reform in health care.