Two-tier health systems result from supply of health services and commodities at different prices and different qualities. This can occur within the public system, as a price differentiation strategy of a single private provider and in the context of multiple sectoral providers targeting different segments of the market.
Two-tier systems are interesting from the perspective of economic analysis because of the inter-related demand functions for the two services: both demands are functions of the quality and prices of both services. The implications for the adequacy of health care received by the poorest groups from the competitive process across substitutes, in some cases offered by the same provider are not intuitively obvious.

It is usually assumed that 'two tier' systems are inequitable and in comparison to universal systems, it is obvious that there is greater inequity in the quality of care that groups of patients receive. However, it is possible that in some cases two tier provision enables the cross subsidy of a more basic service by a higher priced one - and this is often the justification for public policy that creates for example 'private' wings in public hospitals.

This session will compare the evidence that exists about the impacts on equity of different types of two tier system in different markets. The first paper will provide an overview of the prevalence of the phenomenon of two tier systems offered by single providers which occurs in insurance, pharmaceutical and public health care markets among others. It identifies those cases where there is a reasonable body of evidence and considers what it says about distributional impacts.

The second paper will provide a case study of demand for private health insurance in Brazil and its dependence on characteristics of care associated with both public and private insurance, analysing the implications of the choices made for the opportunities open to the public system to improve the care offered to its users.

The third paper will consider the case of a nascent private sector in Malawi, operating in a highly constrained market and competing for the demands of middle class Malawians whose means are still limited but whose preferences are not matched to the offer of services in the public sector.