The economics of public health: financing drug abuse treatment services.

Drug abuse treatment financing exhibits a heterogeneous set of sources from federal, state, and local governments, as well as private sources from insurance, patient out-of-pocket, and charity. A public health model of drug abuse treatment is presented for a market that can be characterized by excess demand in many communities and an implied policy of rationing. According to best estimates, as many as 6.7 million individuals may need treatment, but only an estimated 1.5 million individuals actually participated in treatment episodes. Since, as demonstrated empirically, drug abuse treatment has a robust and positive social net benefit to society, it is perplexing that treatment financing stops with a rationing outcome that inhibits social welfare. The justification for public financing is centered on the external costs of drug addiction, but subsidization is grounded in the reality that a large number of addicted individuals do not have sufficient resources to pay for treatment out-of-pocket, nor do they have private insurance coverage. Social welfare losses are generated by financial arrangements that are inconsistent with rational budgeting theory and as such would lead to non-optimal organization and management of the drug abuse treatment system.