From the poor to the rich: the redistributive effects of healthcare decentralization

Any decentralization of revenue and expenditure powers in Italian healthcare will affect the degree of interregional redistribution and the proposals put forward in the political debate would likely result in lower levels of income redistribution across regions, Caterina Ferrario (Università di Ferrara and Econpubblica Bocconi) and Alberto Zanardi (Università di Bologna and Econpubblica Bocconi) find out in What Happens to Interregional Redistribution as Decentralisation Goes On? Evidence from the Italian NHS, a working paper of Econpubblica.

Healthcare policies pursuing interpersonal redistribution have the side effect of producing interregional redistribution when the personal attributes relevant for accessing their benefits are unevenly distributed across regions. That's the case of Italy and its National Health Service (NHS), which reduces differences in regional per-capita GDP by about 7%.

Italian central government sets minimum standards of healthcare services to be provided by all regional governments, which hold some tax-raising powers to partially cover the costs and ask the citizens for a co-payment. The gap between costs and revenues is filled by the central government, which manages a vertical (from the central government to the regions) equalization mechanism, covering 53% of total NHS expenditure. This results in a transfer of income from rich to poor regions because poor regions raise limited local-tax revenues and contribute slightly to the central tax revenues pool which funds the equalization mechanism.

Currently, some political forces in Italy are calling for a further decentralization of tax-collecting powers and for a lowering of the minimum standards. The paper thus compares the interregional redistributive effects of the lowering of minimum standards under the current institutional arrangement (partial decentralization and vertical equalizing fund) and under other two alternative scenarios of intergovernmental fiscal relations: a "transfer-based financing" one, in which central government has full control of financial resources, and a "horizontal equalizing fund" setting, in which the tax resources are fully under regional control and the regions themselves manage the horizontal equalizing fund.

When minimum standards are lowered, redistribution decreases in all three scenarios, but at a steeper rate in case of regionally controlled financial resources. The lowering of the minimum standards makes less regions eligible for transfers and, in the last scenario, leaves rich regions with more resources, which are neither transferred to poor regions nor to the central government. In this case "the reduction of minimum standards gives rise to a wide differentiation of health expenditures across regions": when a reduction of 30% is considered, Lombardia can afford an expenditure of 129.2% of its current one, while Molise, Puglia, Basilicata and Calabria are restrained to 70%.

Finally, a stronger decentralisation is also likely to cause an increase in the demand for interregional mobility of patients from poor regions, which would barely provide decreased minimum standards, to richer ones, able to provide better services thanks to the money no more devoted to the equalizing fund. How to meet and finance this demand would become a critical issue.