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 well-off 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

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 nochoice 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 nogo 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 cream-skim 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 cream-skim. 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.