A Conceptual Foundation for the Public and Private Role in Health

Abstract

The appropriate role of the state in health is complex both in economic theory and in practice. Theory identifies three reasons for state action: public goods or services with large externalities (involving efficiency); poverty (involving equity); and failings peculiar to insurance markets for health care (where both inefficiency and inequity arise). The insurance domain presents the most costly and difficult problems, and explains why —in contrast to other sectors— governments tend to finance an increasing share of health care as incomes rise. Regulation, mandates and provision of information are also crucial public instruments; public provision of care is less important.