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Health 1 healthcare financing system needs especial considerations such as risk pooling. Substantiate.

Outline the various mechanisms available to pool health risks 2 Examine the relationship between economic development and health. What are the important factors that determine health status of the population ? 3 Explain how the demand for healthcare gets influenced in the presence of health insurance. 4 what are the 4 main health insurance mechanisms used to pool health risks?should user charges be levied for public health care services. Examine critically 5 What are the different health insurance mechanisms used to pool health risks ? Should user charges be levied for public health care services - examine critically Explain Barker's in Utero Hypothesis. In what way is it important for achieving better health status of a community ? 6 Explain the links between food intake, social exclusion and health. Distinguish between national health service systems and social health insurance systems. . What are the major issues related to health insurance and its interaction with medical market ? Brins out the linkage of heahh with darclopment E<plain horu the changing health status in India over time indicates a mixed story of health impror,rernent and new health ctrallenges. Discuss the concept of publpircivate dichOtOmy in proding healthcare ser1/ices. . Discuss the principles and constraints involved in the financing of healthcare services. 9 Explain the factors which influence the supply of healthcare

The need for an appropriate policy framework within which both sectors of health service providers viz. the public and the private sector, can function efficiently.Many of the diseases they suffer from are related to the lack of provision of safe drinking water. The crucial responsibility of the government is therefore to provide the weaker sections of the population with basic primary health services. Facilities for specialised health care also need to be established in easily accessible locations through public funding in which the government has to take the lead. The more well-to-do sections of the population require health services of a different kind. As their affordability is higher, they can plan for even their future health uncertainties Technological advances in the field of medical science makes the issue of economics of health services dynamic in nature. When new diagnostic procedures and treatments become available in the market they are usually expensive and beyond the reach of large sections of the society. They remain unaffordable, even for the relatively better off sections of the population, without some form of subsidy/insurance coverage. With time and wider adaptation, their costs will come down although they continue to remain outside the capacity of large sections of the population. Establishing a policy framework by which health infrastructure is so developed that an effective balance is maintained between basic health services and specialised services by an efficient public and private sector coexistence is a major challenge for the governments. HEALTH AND ECONOMIC DEVELOPMENT: LINKAGE AND IMPACT While healthy people in a country promote the development of the economy by contributing productively, economic development promotes better income earning avenues, which, in turn, generate demand for better services (including health services). The essential linkage between the two sets of processes (and the impact that they make on each other) needs to be pointed.

Health, in its comprehensive or holistic sense, refers to the state of complete physical, mental, social and spiritual well being of a person. It does not merely relate to the absence of diseases and infirmity. This definition encompasses all components of welfare in terms of physical (i.e. organic and biological), mental and spiritual sides of life. It signifies happiness, satisfaction and social well-being required for harmonious living with the surroundings. Health can therefore be regarded both as a means and as an end of development. When people are healthy they are more productive. Higher productivity ensures two important processes which are fundamental to economic growth: better purchasing power signifying better propensity to consume and save. Savings in turn promote investment and capital formation. In an economy where this chain of consumption and investment is weak, the process of development gets retarded. Such economies tends to be characterised by features of under development like high infant and child mortality rates, lack of infrastructure (e.g. nonavailability of safe drinking water, poor sanitation, inadequate transportation facilities, lack of electricity, etc.) and low level of education marked by high proportion of illiterates. The basic assumption is that a healthy and educated workforce isan important and essential input to economic growth with welfare. World Development Report of 1991 which asserted as follows: the challenge of development is to improve the quality of life which goes beyond mere economic growth..it encompasses better education, higher standard of health and nutrition, less poverty, a cleaner environment, more equality of opportunity, greater individual freedom and a richer cultural life. The transition from 1970s to 1990s thus saw the replacement of physical quality life index (PQLI, developed in 1979 taking into account the three variables of life expectancy at age 1, infant mortality rate and literacy) by the more comprehensive human development index (HDI). The latter (i.e. HDI) was also based on three related aspects but with wider and extended connotations viz. (i) longevity measured by life expectancy at birth, (ii) knowledge measured by the weighted average of adult literacy (twothirds) and combined primary, secondary and tertiary gross enrolment ratio (onethird) and (iii) the standard of living measured by per capita real income adjusted for purchasing power parity. Its focus was thus on the ends of development (longevity, knowledge and material choice) rather than on the means of development. HDI is also used to measure the relative position of development (inter-regional or subnational and international) on a more comparable basis. Health and development are thus closely interrelated with a potential to influence each other strongly. In recognition of this fact, health has been accorded a distinct status in the measurement of the level of development of an economy. Health contributes to the process of human capital formation making a major contribution to raising the productivity of labour. Issues Impacting Health and Development Poverty and malnutrition are the leading causes of high maternal and child mortality rates in developing countries. Together, they seriously impair the resistance of the body to infections. In children, malnutrition impacts their learning ability besides leading to high dropouts from schools. This reduces the returns to investment in education. The average real rate of social return on primary schooling in low income countries was estimated at 24 per cent (World Bank, 1981). If improved health status can be ensured through proper nutritional and health care, the rate of return on education can be improved. Better health implies that less resources are required to be devoted for curative health care. Resources thus spared can be spent for other productive purposes. Realising the severity of the problem, the millennium development goals (MDGs) of the UN included three goals to be targeted for achievement by 2015 in the health sector. These are (i) reduction of under five child mortality by two-thirds; (ii) improvement in maternal health by achieving reduction in maternal mortality rate by three-quarters; and (iii) combat diseases like malaria, HIV/AIDS and other diseases by reducing their incidence by one-half reversing the spread of such major diseases. E.G. To achieve the above goals, massive funding and policy initiatives are required. Such initiatives, besides focusing on improvement in consumption/nutritional levels, can be centred around the major diseases. Tuberculosis and Malaria are identified to be among the major diseases contributing to adult mortality. Acute respiratory infections is identified to be a major child killer. These diseases are known to hurt rural people more than city dwellers suggesting that the focus of policy initiatives should centre more on the rural population. Some simple measures/provisions identified to prevent the mortality arising from these diseases are: bed-nets, affordable antibiotics, trained birth attendants and spreading awareness on basic hygiene. Along with the issue of limited resources, two other issues confronting the task of effective health delivery are inequity and inefficiency. While the former refers to the problem of the rural health systems not having enough staff and resources dedicated to women and children, the latter refers to the anomaly on account of nonintegration of vertical programmes for specific diseases with the general health systems. Limited resources: One way of meeting the required resources is by tapping on the internal means i.e. by raising the proportion of expenditure on health as a proportion of GDP. While the high-income countries are spending more than 5 per cent of their GDP on health (Table 17.1), some developing countries including India, spend less than 1 per cent. Inequity: This refers to the needy sections (i.e. the poorest twenty percent of the population) receiving proportionately low share of public health spending. In most developing countries, it has been observed that the

poorest 20 per cent of the population receive less than 20 per cent of the benefits from public spending. Thus, if poor people are to benefit, more resources must go to primary health care. As an economy develops it can afford to spend less on primary health services; or, till such time an economy is still developing, a larger share of public spending should go towards primary health services. One of the indicators reflecting on the health status and consequently the development of an economy is child mortality rate (i.e. number of children dying before attaining age-five). In still extreme cases i.e. in countries where the child mortality rates are higher than 140, the poorest 20 per cent account for less than 10 per cent of hospital use while the richest 20 per cent get around 40 per cent of public health care. Egalitarian spending, however, requires that public investment in health should be more on providing the basic health services needed by the poor.The impact of inequity is more in rural areas where need for publicly funded health services is greater. There is severe shortage of medical personnel in these areas. The para medical personnel (comprising of nurses, trained birth attendants and community health workers) are regarded as the limbs and bones of the health system. Their ratio to doctors is considered to reflect the state of health services of the country. This is much adverse in developing countries as compared to the developed ones. Efforts to deploy medical personnel in underserved areas are usually unsuccessful. Measures suggested to redress such imbalances include: (i) increasing the number of nurses, paramedics and community health workers; (ii) using service contracts to require medical personnel to spend a certain number of years in public service; and (iii) having donors fund some recurrent costs in order to have the most essential minimum number of health personnel and other supporting infrastructure of health. Countries in Latin America, Philippines, Tanzania, Malaysia, etc. have successfully implemented some of these measures to achieve better equity standards in matters of health service delivery. Inefficiency: Many countries, for want of funds, have rationed health care by limiting overall budgets rather than directing resources to specific illnesses or diseases. Unless the performance or the efficiency of the health system improves, even extra funds could be wasted. One possible approach, where funds are inadequate, could be to ration funds based on essential interventions. The smallpox and malaria eradication campaigns of the 1960s started a trend towards donor-driven, diseasespecific vertical programmes. Since the 1980s, with the launch of structural adjustment programmes, donor countries have favoured extending assistance to programmes which are focused on disease eradication. It is argued that with such approaches, public health care efforts outside of such vertical structures may suffer. Also, even vertical programmes dependent on external funding would be threatened if donor funds disappear. Vertical programmes may be affordable and prudent only for diseases that offer a reasonable possibility of eradication in a foreseeable period. Maternal and child health services also need to be suitably integrated. In many countries, primary health care has focused on family planning to the exclusion of maternal and child health services. Individual Incomes and Health Investment The process by which the effect of increasing individual incomes and consequent expenditures on health services leads to economic growth and thereby to development. With increase in personal incomes, the demand for health services and capacity to self-finance the same will increase.This will reduce the marginal cost of health services contributing to a raise in the equilibrium level of health investment. The distribution of the benefits of economic growth will, however, be varied among the different sections of the society. The poorer members of society would experience smaller raise in their incomes and face greater constraints in their ability to meet the increasing cost of health expenditures. The expansion of labour market remains important as it will generate jobs providing income to the people. For developing economies, a growth strategy that improves rural transportation and communication, and encourages agriculture and labour intensive production, would have the desired effect of deriving the maximum returns from investment in health. The comparative advantage of the government (vis-vis the private sector) to invest the resources for maximum social benefit, a vision which the government alone can carry, should be directed towards increasing the infrastructural development of the health sector. Such an approach coupled with an efficient marginal cost pricing of both curative and preventive health services will result in the optimum improvement in health It is an established fact that the poor have higher incidence and prevalence of diseases due to poverty and poor knowledge of preventive steps needed for minimising the disease burden. To remedy this situation, investment in health systems ought to be strong enough, with right priorities on delivering essential interventions. There also should be expansion of education and institutional formations such as community involvement so that the poor can not only effectively access but are also motivated to seek out the essential interventions. In the absence of adequate provision for basic health services, around 85 per cent of the total health expenditure in countries like India and China are estimated to be out-of-pocket. Such huge out-of-pocket expenditure needs to be channelled into community financing to help cover the cost of health delivery. Towards this direction, the commission on macroeconomics and health recommends: (i) increased mobilisation of general tax revenues for health,

increased donor support to finance the provision of public goods and ensured access to essential services by the poor, (iii) conversion of current out of pocket expenditure into prepayment schemes, including community financing programmes, supported by public spending, (iv) initiative in providing debt relief for poor indebted countries, (v) efforts to address existing inefficiencies in the way government resources are presently allocated and used in health sector, (vi) reallocating public outlays by cutting down on unproductive expenditures and targeting subsidies to social sector programmes focussed on the poor. DEMAND AND SUPPLY OF MEDICAL CARE demand is governed by the utility derived from the consumption of goods and services. Planning of health facilities is based on estimates of need for medical care in the population. The reason for using need as a basis of public policy for medical care is that it happens to be the principal this point of view, need is defined as the amount of medical care that experts believe a person/population should receive to remain as healthy as possible. In developing countries like India, for every 5000 population residing in rural areas there is a norm that there should be a primary health centre (PHC). Such a norm is based on factors like existing conditions in the area, current medical knowledge, etc. Evidently, such factors are subject to change depending on developments in the medical field and the local conditions. Demand for health care can be viewed from two angles viz. (i) the time devoted to preventive and curative measures of health care and (ii) the cost of establishing the health care services which depends upon the infrastructural needs. In the light of this, the demand for health care, like in education, acquires connotation both as a consumption good as well as an investment good. It is a consumption good because its consumption makes the consumer feel more able and better. It is an investment good because it helps in acquiring a state of health decreasing the number of sick days thereby increasing the quality of life. Given the natural process of ageing, one of the important factors which influences the demand for health care is age. As the stock of health depreciates with age, people spend more on health care to offset the consequences of old age disabilities. However, such expenditures on medical care is strongly related to the income levels of persons. An yet another factor contributing to demand for health care is the educational level of persons. Education has a negative relationship with the demand for health care as knowledge of health care reduces the incidence of disease which in turn leads to lower demand for health care. Factors Influencing the Supply of Health Care the quality and quantity of inputs, the cost and/or quantity of health care provided (or required) An additional factor considered relates to the effect of substitutability of one factor or resource with the other. In the case of health care, for instance, while general practitioners can substitute each other without any major difference in output, specialists cannot be so substituted (e.g. an oncologist can not substitute a cardiologist or vice versa). Technical change is an important factor considered in the production function framework. In medical care this means that illness that could not be formerly treated can now be cared/cured with greater success. Like in any other system, in the case of health care also, it is necessary to combine information on the productivity of inputs with information on their relative prices. In the field of health, a great deal of emphasis is placed on the use of ratios of skilled manpower to the population. If there is substitution between skilled and other type of manpower to provide medical services, the use of such simple ratios is inappropriate. In medical field, it is difficult to provide for the elasticity of substitution in factors of production. This also means that in the health field, policy makers may have goals other than cost minimisation or output maximisation. The relative prices of inputs used in production may also be distorted. For instance, in the public good sector, government renders the subsidy or concession to production/supply of health care. While in a strict sense it amounts to disturbing the principles of competitive market structures, equity considerations would require the adoption of such policies. Such policies would enable the providing of many health services in government hospitals with far lower cost than charged by private service providers for comparable services. Efficiency is thus a major criteria for evaluating the health care market. If the markets within the health sector are competitive and efficient then, theoretically, the cost of health care stabilises at an optimum level. However,the economic efficiency of supply side of the medical care could be different due to imperfect market features. HEALTH INSURANCE AND ITS INTERACTION WITH MEDICAL MARKET Health insurance is a type of cost sharing whereby the insurer pays the medical costs if the insured becomes sick due to causes covered. Since a person does not know how he will be affected by an illness requiring a loss of wealth to pay for it, the individual seeks to maximise his or her expected utility by choosing from the two alternatives: (i) he can purchase insurance and thereby incur a small loss in the form of the insurance premium, or (ii) he can self-insure, which means either facing the small possibility of a large loss in the event of illness, or the large possibility that the medical loss will not occur.

(ii)

Given the above two choices, one can select ones choice by ranking the choices according to how much of one choice is preferred over the other. Though there is no unique point of origin for measuring the utility function, subject to a certain point of origin being accepted, the utility function of an individual can be described for varying levels of wealth. Thus, the choices facing the individual between purchasing the insurance and taking the risk of self-spending for the illness becomes: (a) purchase insurance for Rs. 200 and move to a marginally lower level of utility (i.e. U2) or; (b) not purchase insurance and face a 2.5 per cent chance that he will incur Rs. 8000 loss and thereby move to a much lower utility level of U1 associated with a reduced wealth position of Rs. 2000 or alternatively face a high probability of 97.5 per cent that a loss will not be incurred and thereby remain at a wealth position of Rs. 10000 with an associated utility level of U3 (say, equal to 100). In order to compare the relative positions of choices at a and b, we can calculate the expected utility levels (which is the weighted sum of the utilities of outcomes with weights being the probabilities of each outcome). Thus, the expected utility of choice b is: P(U1) + (1-P)(U3) = 0.025 (20) + 97.5 (100) = 98.To determine whether a person should buy health insurance, we compare the utility of choice a which represents purchasing insurance thereby leaving the person at utility level U2. Since the utility level of choice a is evidently greater than that of choice b, it is more advantageous to purchase the insurance. Note that in panel A of the diagram (i.e. Figure 1), the curve represents the expected utility for different probabilities that the illness will occur. Thus, the factors of demand for health insurance can be identified as: (i) how risk averse the individual is; (ii) the probability of occurring the event of illness; (iii) the magnitude of the loss associated with the event of illness for a person; (iv) the price of insurance; and (v) the income of the individual who will take the health insurance (i.e. question of affordability and capability of the cost of health care associated with the level of income). The demand for health insurance is therefore affected by variables like: (i) the cost or price of health care, (ii) income level of the individual, (iii) tastes towards risk aversion and thereby preference for buying insurance and (iv) the size of the probable loss. Demand for Health Care in the Presence of Health Insurance Cost of hospitalisation and surgery are far more likely to qualify as cases of high expected losses although possibly with relatively low probability of occurrence. Costs of medical cares such as physician visits at home or office, optometric service, drug and dental care, etc. are relatively smaller and therefore considered manageable without insurance coverage. The mode of the demand for health insurance suggests that the adequacy of health insurance coverage should be examined separately for each type of medical service. Thus, even if one were a risk averter, we would not expect him to buy health insurance for all of his medical needs. The price of insurance should not be so high as to make people worse off with its cost exceeding the benefits. The presence of health insurance might lead to indulgence in moral hazard in the health care demand behaviour of a person. In the presence of health insurance, moral hazard leads to higher demand for health care than that is really required An implication of the existence of moral hazard is also that although individuals with insurance tend to consume higher units of medical care, they may still be unwilling to purchase an insurance policy that provides such extensive coverage. Instead of paying the high prem ium that usually goes with such extensive coverage, an individual may well prefer to self insure or to purchase a less comprehensive insurance policy. With different types of the health insurance schemes and the elasticity of demand for health care, the impact of moral hazard needs to be assessed. Irrespective of whether moral hazard exists or not, and even if all individuals were risk averse, insurance coverage for 100 per cent of their medical expenses would not be preferred by all persons given the additional transaction costs associated with it. With people having different demand for medical care, no single insurance policy would be best for everyone. While some persons would prefer to have only some types of medical expenses covered, in the presence of moral hazard, insurance companies would prefer to have carefully designed cost sharing features. IMPACT OF TECHNOLOGICAL CHANGE ON THE COST OF HEALTH SERVICES Technological developments entail improvement in production/service frontiers either by providing cost benefit advantages with superior outputs (by replacing old products) or by providing new or improved products. However, the mix of products and services available in the market may raise the average cost of treatment with a consequent increase in the per capita health expenditure. they have also resulted in new methods of diagnosis and treatment giving the benefit of increased longevity, improved quality of life, less absenteeism from work, etc. Although the average cost of medical service increases with new developments in health services, with time and wider adaptivity of new methods, the cost of services tends to stabilise at an optimal level. In the meantime, however, lack of competition and other market failures inflate the cost of advanced medical facilities paving way for the medical insurance providers to gain ground in the market. Besides the angle of moral hazard associated with insurance coverage from the consumers side, the developments also provide opportunities for many medical malpractices (e.g., costly procedures advocated frequently). Thus, given the potential for misuse and the

welfare of so many at stake, protecting the interests of consumers becomes an important responsibility of the governments. Adoption of Technological Developments It takes time for a newly innovated product to be widely adopted. The adoption depends on two factors viz. higher profit and flow of information or dissemination of benefits. The former posits that physicians adopt a new technique if it increases their profits. The latter emphasises the role of dissemination through various forums/ channels (e.g., journals, conferences, colleagues, friends etc.). Apart from considerations of profits by the medical professionals, there is also information externalities inherent in adoption of a new technology. An externality is the uncompensated benefits for many persons by the actions of market behaviour.The process works through multiplication of practices. PUBLIC-PRIVATE DICHOTOMY IN PROVIDING HEALTH SERVICES There are several jurisdictional levels of government:from central to provincial to local. While some health services are provided at each level, the distribution of authority and responsibility among the levels differ. Ministry of Health (MoH) functions as the apex policy making body in matters of health in all the countries. While its main responsibility is confined to health, it usually pervades many areas like education, urban development, environment, etc. The public health care services provided by the government are also supplemented by several investment/charitable initiatives of the private sector. Their initiatives/motivations of functioning, however, are determined by the socio-economic status of the population and the political system in existence in a country. In free market economies, the role of private sector will be predominant. If the health system operates under imperfect market situations in such economies, monopolistic tendencies driven by profit motives create distortions in the system. In such a situation, if the health care services are exclusively left to be provided by the private sector players, the fundamental assertion of health as a basic human right will be violated. As a consequence, the needs of the poor and the deprived sections of the population will be severely compromised. Such a situation warrants a regulatory role to be played by the government to correct the market failures and to ensure inclusion of equity considerations in the provision of health services. Health is a public/merit good. It cannot be freely driven by profit considerations alone. Thus, it should not be allowed to fall into the domains of rivalry and exclusion. Eradicating communicable diseases through immunisation has positive externality but acquires negative undertones when the same is not universalised. Smoking which has a negative externality is another instance where the interests of nonsmokers needs to be protected by provisions of public governance or regulation. Even in market economies where health insurance is very much widespread and almost compulsory, health insurance markets quite often fail. From an economic point of view, such market failures occur because of cream skimming by private insurers who have incentives to insure mainly healthy people who will not need care, or because of adverse selection which arises when unhealthy people seek (or continue) insurance coverage more than healthy people. There is also the instance of moral hazard of patients who do not respond to the true cost of care (because they are insured) claiming quite often additional diagnostic testing and treatment. ROLE OF GOVERNMENT IN HEALTH CARE PROVISION In general governments have two roles viz. (i) preventing or correcting failures in the health sector markets, and (ii) ensuring equity. Government participation to ensure that the health needs of the poor are met is an intervention in the market for health care. It is warranted as the poor are unable to afford costly health care and the private sector is not motivated as much as the government by social concern. the poor are more likely to spend money on improving their health through non-health purchase such as better sanitation, nutrition, and housing. Where income is still lower, the purchase of health care is diverted in favour of other primary goods such as food. This means relatively rich people spend a far higher amount on health (including health related expenditures like going to health clubs and other forms of sports which are both recreational as also health promoting). A significant percentage of their income on health thus goes towards maintenance of health. But some basic health care is a necessity for all. One way by which the government tries to improve equity is through intervention in the form of government subsidy or provision of low cost health care services. The twin roles of correcting market failures and ensuring equity often overlap. Intervention Strategy There are five basic ways in which government can correct market failures and ensure equity: inform, regulate, mandate, finance and deliver health care services. Government informs by educating the masses through health promotion campaigns or dissemination of knowledge on health services through programmes like mass immunisation (e.g. campaign of pulse polio, HIV). Government regulates by legislation or executive order, as for instance, by restricting availability of antibiotic to correct negative externalities such as microbial drug resistance or by licensing providers and insurers to reduce induced demand by unscrupulous practitioners from doing unnecessary tests. Mandate is

also specified by law but unlike regulations they involve performance. Epidemiological surveillance reporting by hospitals and employee insurance benefits are examples of mandate designed to promote public interest. Financing public health campaigns such as for diagnosing TB and providing treatment for immunisation are examples of correcting externalities. Research and development is another type of public good that is generally financed with public funding. Once the government decides to finance a health service, the subsequent choice is whether it will also deliver. The delivery can be through a whole range of services from preventive to curative care. If the government is to act as a provider of health services, it should do so only if it can function more effectively than the private sector. Government provision often occurs when there is no alternative source of delivery as, for example, services in remote rural areas where it is unlikely that there will be private capital or demand to support private initiatives. ROLE OF PRIVATE SECTOR IN HEALTH CARE while public goods need to be financed by the government, they need not be directly provided by the government. Challe nges for the government is to decide on the appropriate areas and a suitable policy framework for having a shared public-private role in providing health services. the decision on delegating/demarcating the functional areas between the public and private service providers cannot be made easily. It requires considering the entire environment in which the tasks are to be undertaken. This needs to be based on the principle of make or buy (Musgrove, 1996). The principle requires looking into factors of cost and efficiency. is it preferable to be kept under the public domain or is it better to either have a mix or leave it entirely to the operation of private sector players? Although efficiency is usually the relevant criterion for deciding between the public and private mix, sometimes the decision may require a trade-off between efficiency and equity. Important programmes such as the immunization programme cannot be carried out by the private sector. Such programmes carry enormous social derivatives which can be addressed only by the government. The national AIDS programme, on the other hand, usually involves both public and private players. All education and communication programmes are generally retained with the public sector. Programmes like rehabilitation, family planning, etc. can be undertaken by the private sector with the ssistance/support of the government. Some of the other factors that need to be considered while allowing the private sector to function in health care services are identified below. Competition: When the private sector is driven by competition it tends to be more efficient. With competition, benefits like cost reduction, greater attention to consumer care, improved quality of service, etc. would ensue. Consumer can exercise the choice of selecting that service provider who provides the best quality for the price. Transparency in policies of customer care (e.g. adherence to equity norms) and optimum utilisation of resources (e.g. utilisation of subsidy or grant efficiently) are important in ensuring healthy competition among the different private players. When there is no pure competition, there often exists conditions of contestable market which motivates the private health care to be inefficient. Local Needs, Choices and Circumstances: High operating cost of the public health care system and its failure to achieve efficient delivery are the reasons behind the fast growth of the private sector. Contracting: Contracting can also free up scarce skilled government personnel who can devote their time to other managerial tasks which only the government can do. Such arrangements will also produce additional benefits beyond the considerations of cost and savings. It would promote the establishment of an environment in which there is a separate private market for health care infrastructure including manufacturers and distributors. By having contract clauses that ensure efficient delivery, contracting can influence healthy private market practices and prices. CHANGE OF HEALTH STATUS OVER TIME Health of a nation can be gauged from the available information on death. Disaggregated data by causes of death is more reflective of the status of health of a country. The main reasons for high mortality rates are: (i) acute food shortage resulting in famines and conditions of malnutrition; (ii) poor sanitation resulting in many endemic diseases, and (iii) prevalence of widespread epidemics like cholera, gastro-intestinal diseases, etc. In the pre-industrial phase, famines and food shortage were common as man had limited control over his environment. Food supply was severely affected by conditions like droughts, floods, etc. Due to these reasons, agricultural production was limited.In these situations, malnutrition rendered the bodys defence mechanism weak resulting in various infections causing death. People also suffered from communicable diseases like typhoid, tuberculosis, pneumonia, yellow fever, plague, cholera, etc. Childhood diseases like measles, whooping cough, scarlet fever, diphtheria, etc. were also common. Poor sanitary conditions contributed to extremely unhealthy environment leading to epidemics and diseases Some of these inventions were in the field of medicine (e.g. invention of antibiotics, elimination of small pox, etc.). Advances in agriculture resulted in increased food production. Industrial revolution led to invention of steam engines, telegraph and telephone, and better transport and communication

systems. Such improvements contributed to food surpluses being sent to countries with food deficiency. Improved sanitary conditions ensured potable water supply, better sewage disposal methods, etc. All these contributed to better personal hygiene practices leading to better health status. Education, particularly of girls and women, play a major role in improving the health status of the society. In most countries, women are responsible for a broad range of household activities that are important for better health Medical technology has helped in improving the health conditions by resulting in a decline in the mortality rates. This is easily evident in cases like smallpox which has since been eradicated through immunisation. Polio is likely to follow this stage soon. For instance, developments in anaesthetics have allowed for dramatic surgical interventions. Manipulation of genetic materials has made it possible to produce vast quantities of insulin. Despite improvements in socio-economic conditions of people and advancement in medical technology, newer threats and challenges impacting on the health statuses of people have emerged. Instances of cancer, HIV/AIDS, cardio-vascular and other degenerative disabilities have posed tremendous challenges in the health sector. DETERMINANTS OF HEALTH STATUS identification of the factors which determine the health status of a community. At a basic or fundamental level, the health status of people in a region or location are determined by their circumstances and environment. This would, in turn, depend upon factors like: (i) the socio-economic conditions of the people in the area; (ii) physical environment in terms of their living conditions; and (iii) individual characteristics and behaviours (which depend on genetical or inborn factors/traits). Income and Social Status: Higher income and social status lead to better health. Employed persons, having more control over their working conditions, are healthier than unemployed persons. Income levels also determine the food intake and the nutritional levels therein. In case of inequality in income, different sections of the community do not enjoy similar health standards. Although those with higher incomes can afford better health services, the expansion of public health services and the rising incomes of the poor would increase the availability of health services to the poor also. Education/Gender: Low education levels are linked with poor health, more stress and lower self-confidence. Men and women suffer from different types of diseases, specific to their biological and other factors, at different ages. Social Support Networks: Greater support from families, friends and communities is linked to better health. Culture (i.e. customs, traditions and beliefs) of the family and community influence the health status of the individuals in ways specific to each. Physical Environment: Safe water and clean air, healthy workplace, safe houses, communication and roads all contribute to good health. The choice of the location of ones living and work place is determined by the socioeconomic and educational background of the individual. Genetics: Hereditary factors inherited genetically play an important role in determining the quality of life vis-vis the health status and the likelihood of developing certain diseases. Personal behaviour and coping skills (which depends on factors like balanced diet, keeping oneself clean and active, keeping oneself away from habits like smoking/drinking, etc.) are important determinants of the health status of individuals. while the context of peoples lives are largely responsible for their health status, individuals would have little direct control over the factors influencing them. The governments and institutions play an important contributory role in promoting the health of the people and the society. At a macro level, factors like the level of economic development, opportunities for earning income and wealth, policies pursued for alleviating poverty and promotion of social sector institutions, etc., contribute to determining the health status of a community. ECONOMIC DEVELOPMENT AND HEALTH It is postulated in terms of: (i) nutrition links to labour productivity and growth; (ii) linkage between fertility and population dynamics to growth; and (iii) child and youth health links to growth. The history of modern economic growth since the early 19th century demonstrates that with growth, life expectancy has improved and infant mortality has declined. These indicators have improved due to an increased understanding of the causes of ill health, such as poor sanitation, as well as due to development of technologies (e.g. vaccines and antibiotics). Many diseases are not fatal, but disabling. The economic burden of such illnesses for the affected includes loss of income, and outofpocket expenditure on health. The economic burden for the country includes low productivity and the direct costs of treatment. Substantial improvements in health can occur even at low income levels. As a result of complex synergies among income levels and expenditure on education, better housing, clean water, sanitation systems, infrastructure, health services, etc., people all over the world live almost 25 years longer today than they did at similar income levels in 1900. However, it is equally important to note that the relationship between health and wealth is not linear. With the attainment of a critical threshold, health gains will result even at low income levels (Fig. 18.1). At such a point, even small increases in

economic growth would result in high improvement in health outcomes. shifts in demographic structure of a population can result by way of more children surviving to adulthood with a consequent increase in the proportion of economically active to dependent people. This demographic dividend is contended to have the potential to be a key driver of economic growth provided the broader policy environment allows these workers to find productive employment. With such synergic achievement of intra-sectoral linkages, the changing age-structure of the population is expected to result in rapid increases in the percapita income of the population. poor health can reduce economic development by reducing the quantity and the quality of labour available to an economy. This in turn reduces the number of hours worked impacting adversely on the national income generated. With such unhealthy trends continuing over a longer period, the rate of growth of an economy will be severely affected. Such weak growth trends, by extension, squeeze the amount of resources available with the government and individuals to invest on other essentials of progress viz. education, health, living conditions,etc. This would further exacerbate the vicious circle of poor health and poverty. L = Fn (Y, E, N, F, W, I, S...) L = Life Expectancy Y = Income E = Education N = Nutrition F = Fertility W = Womens Empowerment I = Infrastructure, Hygiene, Sanitary, etc. S = Spending on Health Care The relationship between economic growth and health is non-linear. The shape of the curve indicates that beyond a stage, economic growth does not yield additional benefits to health particularly in terms of its broad indicators like life expectancy. NUTRITION AND HEALTH In India, for instance, the poverty level nutritional requirement of a person living in rural areas was defined as 2400 calories while that in an urban area a s 2100 calories. Broad nutrients contained in food are: carbohydrates, fat, protein, vitamins and minerals. there are micro-nutrients like iron, iodine, etc. which are important for the balanced health of the individuals. Their deficiency will result in specific diseases like anaemia, goitre, etc. The ultimate determinant of the required nutritional status, in proper combinations of all the nutrients, is decided at the cellular level. This is determined by two broad sets of factors viz. (i) the diet, which is the food consumed providing the body with the nutrients specific to the type of food, and (ii) the ability of the body to absorb, assimilate and utilise the nutrients of the diet. The latter depends on the activity level and environmental factors, including the ability to ward off the effects of infections and the ability to cope with stress situations. The level of immunity enjoyed by an individual is a function of both inherent and acquired/ developed factors of life. The level of immunity is an important factor of the health status of an individual. While the lack of food and improper nutritional contents results in conditions of malnutrition (and diseases of poverty), higher income associated with sedentary life styles cause diseases specific to energy-dense food consumption (e.g. obesity, diabetes, hypertension, cardio-vascular diseases, etc.). It is therefore necessary to maintain active and healthy habits in the life style of an individual. High amount of fertilisers used, polluting the river waters with poisonous and highly toxic chemical wastes, air pollutants, etc. are making the air and food we consume deficient in their qualitative contents. They are becoming sources of many respiratory and gastro enteric diseases. While industrialisation and modernisation leads to increase in incomes and better standards of life, they are also accompanied by trends having adverse effects on health. Barkers In Utero Hypothesis The developmental origins of adult disease, often called as the Barker hypothesis, states that adverse influences early in development, particularly during the intrauterine life, can result in permanent changes in the physiology and metabolism of adults. Such changes could result in increased disease risk in adulthood. This hypothesis originally evolved from observations made in some regions of England which had the highest rates of infant mortality in the early twentieth century. Follow-up of adults from the region decades later revealed that a number of them suffered from highest rates of mortality from coronary heart diseases. As the most commonly registered cause of infant death at the start of the twentieth century was low birth weight, these observations led to the hypothesis that low birth weight babies who survived infancy and childhood might be at increased risk of coronary heart disease later in life. In the 1980s, the foetal origins of adult disease hypothesis got a new impetus when a link between the low birth weight and the incidence of cardiovascular disease was noted in many middle-aged men and women of U.K. Following this, there has been an emerging body of evidence from physiological, clinical and epidemiological studies. They support the Barker Hypothesis that what happens

during foetal development may be as important as the genetic makeup in determining the health of the infant. This evidence has led to the understanding that malnutrition in utero carries a far reaching impact on the future health of the newborn. The Barker hypothesis outlines a mechanism by which the undernourished foetus adapts to its environment by undergoing changes in the bodys structure, metabolism,hormonal sensitivity and physiology. While it thereby ensures the continued survival and growth of the foetus, there is also a compromise in the process. The disturbance in the nutrient balance results in intrauterine growth retardation (IUGR). In d developing countries, the major determinants of IUGR are identified as: (i) inadequate nutritional status of the mother before conception; (ii) short stature of mothers indicating under-nutrition and infection during childhood; and (iii) low gestational weight of the foetus/child primarily due to inadequate diet of the mother particularly during the pregnancy period. The causes of IUGR are also attributed to: (i) deep rooted causes related to status of women in society; (ii) access to quality health care; (iii) sanitation; (iv) household food security; (v) education; and (vi) poverty. However, the intergenerational and intra-generational effects of longstanding poverty and nutritional deprivation on maternal and foetal health cannot be addressed by narrowly focussing on single nutritional interventions during a few months in pregnancy. It needs a strategy that comprehensively addresses targeting at different points in the life cycle. POVERTY AND MALNUTRITION many elementary aspects of being poor like hunger, inadequate health care, unhygienic living conditions, and the stress and strain of precarious living tend to reflect on a persons nutritional status. In consequence, being poor almost always means being deprived of full nutritional capabilities i.e., the capabilities to avoid premature mortality, to live a life free of avoidable morbidity, and to have the energy for work and leisure. Malnutrition refers to the two sides of nutritional imbalance viz. under-nutrition and overnutrition. While the former usually characterises poverty, the latter refers to intake of energy dense food items (or overeating) which the body, in terms of its physical and mental activities performed, cannot metabolise completely. This leads to unburnt carbohydrates getting accumulated in the body as fats. Although a certain amount of fat, which serves as reserve energy is needed for the body, its excess tends to disturb the balance in the body system causing diseases specific to its accumulation (e.g. hypertension, diabetes, etc.). In the context of poverty, however, only aspects of under -nutrition are discussed. It is associated with a cluster of related, often coexistent factors. These factors together constitute the poverty syndrome. The major attributes of this syndrome are: (i) income levels that are inadequate to meet the basic needs of food, clothing and shelter; (ii) diets that are often quantitatively and qualitatively deficient; (iii) poor environment, poor access to safe water, and poor sanitation; (iv) poor access to health care; and (v) large family size and high levels of illiteracy, especially female illiteracy. It is noteworthy that some states in India with low food energy intake (e.g. Kerala, Tamil Nadu) have lower incidence of malnutrition compared to some states (e.g. Rajasthan and U.P.) which have higher per capita calorie intake but also higher burden of malnutrition. Further, in spite of a decline/stagnation in food energy intake across all classes in the 1990s in India, malnutrition has declined during this period. Studies have revealed that conditions of malnutrition depend on the conversion efficiency of food into energy which, in turn, depends on factors like access to safe drinking/potable water and the standards of environmental and personal hygiene habits. In view of this, it is hypothesised that severe malnutrition is attributable to inadequate diet while moderate to mild malnutrition could be due to environmental factors (Seckler, 1982). Increase in food intake would therefore reduce malnutrition only when other variables are controlled. The implications of poverty and malnutrition for policy planning are significant. Research has demonstrated a link between protein-energy malnutrition, iron-iodine deficiency, and lost productivity in adults. Children born to malnourished mothers or who are malnourished during childhood can suffer cognitive losses that are associated with lower productivity in adulthood. Malnourished children also place additional burdens on health and education systems. They need greater health care and more intensive teaching at school. Concerted efforts by planning are therefore needed to break the vicious circle of mother-child-mother malnutrition among the poor. Direct nutritional intervention is the short term answer for combating severe malnutrition. Broad-based, growthsupplementing and employment oriented food-for-work programmes are the principal instruments commonly adopted to reduce moderate malnutrition. Improvement of incomes of the poor and supply of environmental and health services are the long term solutions to the problem of malnutrition in general. Infectious and Chronic Diseases The most prevalent diseases of poverty, many of which are also infectious by nature, are malaria, tuberculosis, respiratory infections, water borne diseases and HIV/AIDS. cerebro and cardio vascular disease, depression, diabetes, many physical disabilities due to low nutrient food intake, etc. The diseases impact on the labour force is heightened by its political significance. This is attributed to

the massive diversion of resources away from fighting other diseases of poverty which exacerbates its economic consequences. This is also true of diseases prevalent among children like acute lower respiratory infections and diarrhoeal diseases. the problem of the needed funds to overcome its economic consequences. There is then an additional aspect of inefficiency in public health deliveries. Major reasons cited for this in the low income countries are: (i) Public health bureaucracies are generally woefully inefficient and corrupt, especially in low income countries. As a result, the proportion of investment ending up actually reaching the beneficiaries is often very low. (ii) Social programmes that are nominally targeted at the lowincome groups are frequently captured by the articulate and the influential rich Environment and Health: Impact of Air and Water Pollution Air pollution is caused by both natural and man-made sources. Major man-made sources of ambient air pollution include industries, automobiles, and thermal power generation. In indoor environment, tobacco smoke and combustion of solid fuels for cooking and heating are the most significant sources of air pollution. In addition, construction material, carpeting, and home cleaning agents like insecticides can also be significant sources of chemical and biological indoor pollutants. Air pollution has both acute and chronic effects on human health. Health effects range from minor irritation of eyes and upper respiratory system to chronic respiratory diseases (e.g. lung cancer, heart disease). The respiratory ailments attributed to air pollution have been shown to cause acute respiratory infections in children and chronic bronchitis in adults. It has also been shown to worsen the condition of people with pre-existing heart or lung disease. Among asthmatics, air pollution has been shown to aggravate the frequency and severity of attacks. Both short-term and long-term exposures have been linked to premature mortality and reduced life expectancy. Health impact of air pollution depends on the pollutant type, its concentration in the air, length of exposure, other pollutants in the air, and the susceptibility of the individual. Different people are affected by air pollution in different ways. Poor people, undernourished people, very young and very old, and people with pre-existing respiratory diseases are more at risk. Malnutrition, inadequate access to health services, etc. aggravate the susceptibility of poor to adverse health consequences of air pollution. Air pollutants can also indirectly affect human health through acid rain. This is caused by polluted water with chemical substances evaporating to the atmosphere. Such conditions are resulting in what has popularly come to be known as global warming with the resultant variations causing the sea level to rise. Consequent to global initiatives in response to the health concerns of increasing air pollution, many countries have adopted tighter emission standards. This has helped in the levels of certain types of air pollutants to decline in many developed countries. However, even at much reduced levels, air pollution continues to threaten public health in these countries. In developing countries, on the other hand, the ambient air pollution is a major health threat particularly in urban areas. Several factors contribute to the worsening air pollution which include rapid growth in urban population, increasing industrialisation, and rising demand for energy and motor vehicles. Other factors which add to the problem include: poor environmental regulation, less efficient production technologies, congested roads, and age and poor maintenance of vehicles. According to the 2002 World Health Report, indoor air pollution from combustion of solid fuels for cooking and heating is one of the eight most important risk factors in global burden of disease. In poor developing countries, indoor smoke from solid fuels ranks fourth (behind only under-nutrition, unsafe sex, and unsafe water/sanitation/hygiene) accounting for an estimated 3.7 per cent of the disease burden. The estimates are based only on the impact of air pollution on mortality. They do not account for morbidity impact or specific disease centred health outcomes which are also associated with indoor smoke. Health Impacts of Water Pollution Freshwater sources all over the world are threatened not only by over exploitation and poor management but also by ecological degradation. The main reasons for fresh water pollution can be attributed to discharge of untreated waste, dumping of industrial effluents, and run-off from agricultural fields due to the unscientific usage of pesticides and manures. Industrial growth, urbanisation and the increasing use of synthetic organic substances have serious and adverse impacts on freshwater bodies. Polluted water like chemicals in drinking water cause problems of health. Prevention of water-borne diseases therefore require taking measures both at the public and the household level. Untreated or inadequately treated municipal sewage is a major source of water pollution particularly in developing countries. Sewage carry microbial pathogens which are the basic source of many diseases. Domestic waste water and industrial effluents contain phosphorus and nitrogen which increase the level of nutrients in water bodies. They cause eutrophication in the lakes and rivers resulting in ecological imbalance by destroying the aquatic bodies. The nitrates mainly come from the fertilizers used in agriculture. Excessive use of fertilizers cause nitrate contamination of ground water. Also, a large number of chemicals (lead, fluoride, chlorine, arsenic, etc.) either exist naturally in the land or are added due to human activity. They dissolve in the water thereby contaminating it. Diseases that are caused by the presence of such chemicals include: diarrhoea, skin irritation, reproduction disorders, nervous system damage, vascular diseases, etc. Many diseases like cholera, hepatitis, amoebic dysentery,

poliomyelitis, etc., are caused by water contamination. Though these diseases are spread through agents like flies, water is also one of the chief mediums for the causing of these diseases. They are therefore commonly termed as wat er-borne diseases. Due to their potential to spread widely, these diseases assume epidemic proportion s and are basically attributed to improper management of water resources. Contamination of drinkingwater by microbial pathogens, chemical compounds or radiological agents has the potential to affect the health of millions of people. Good agricultural and industrial practices, proper management of water resources, regular checking of water pipes for leaks and cracks, boiling/filtering of water at home, etc., can contribute to maintaining a cleaner and healthier environment minimising the effects of ill health in the society. Indicators of Disability Burden: QALYs/DALYs quantitative indicators bringing out an assessment of disease burdens and the benefits realised due to medical interventions a re needed to allocate limited resources between alternative public programmes of differing objectives . The quality adjusted life years (QALYs) and the disability adjusted life years (DALYs) are two such measures which have become popular recently. Quality of life is a commonly used concept but has no universally accepted definition. It can be interpreted as the degree to which persons perceive themselves able to function physically, emotionally, and socially. In a general sense, it is the state of well being which makes life worth living. In a quantitative sense, it is an estimate of remaining years of life free of impairment, disability, or handicap. Quality of life has been measured in a number of different ways, ranging from more complex, multidimensional scales such as the SF-36 (8 subscales) to very simple, one-item instruments such as the Excellent/Very Good/Good/Fair/Poor (EVGGFP) measure. The latter measure, seemingly simple, has been found to carry high reliability and validity. Quality of life can be measured at a single point in time or over a period of time using measures like QALYs/DALYs. Quality Adjusted Life Years (QALYs) QALYs is a measure of the benefit of a medical intervention. It is based on the number of years of life that would be added by the intervention. Each year in perfect health is assigned the value of 1.0 down to a value of 0 for death. If the extra years would not be lived in full health, for example if the patient would lose a limb, or be blind or be confined to a wheelchair, then the extra life-years are given a value between 0 and 1 to account for this. The measurement is used to calculate the allocation of healthcare resources based upon a ratio of cost per QALY. As a result, some people will not receive treatment as it is calculated that the benefits to their quality of life do not justify expenditures involved. Disability Adjusted Life Years (DALYs) DALYs is a measure for the overall burden of disease. Originally developed by the World Health Organization (WHO) It is designed to quantify the impact of premature death and disability on a population by combining them into a single measure. Traditionally, health liabilities were expressed using one measure: expected or average number of years of life lost (YLL). This measure does not take the impact of disability into account, which can be expressed as years lived with disability (YLD). DALYs are calculated by taking the sum of these two components: i.e., years of life lost plus years lost to disability or DALY = YLL + YLD. The basic method of computing the DALYs is as follows. Suppose N is the number of deaths in a certain population and L is the standard life expectancy at age of death in years, then YLL = N * L (where the symbol * stands for multiplication). Because YLL measures the incident on the stream of lost years of life due to deaths, an incidence perspective is also taken for the calculation of YLD. To estimate YLD for a particular cause in a particular time period, the number of incident cases in that period is multiplied by the average duration of the disease and a weight factor that reflects the severity of the disease on a scale from 0 (perfect health) to 1 (dead). If I is the number of incident cases, DW the disability weight and L the average duration of the case until remission or death (in years), then YLD = I * DW * L. a 1990 WHO report indicated that 5 of the 10 leading causes of disability were psychiatric conditions. Psychiatric and neurologic conditions account for 28 per cent of all years lived with disability. Thus, psychiatric disorders, while generally not seen as a major epidemiological problem, are revealed by consideration of disability years to have a huge impact on populations. Both the methods, QALY and DALY, are critiqued for their drawbacks. It is pointed out that studies using QALY as an indicator of health measures the benefits from a health programme in terms of the increment in health status over the period for which the intervention was effective. Thus, the QALY methodology inherently assumes that the entire change in the health status of an individual, before and after the implementation of the programme, can be attributed solely to the programme in question. However, non medical factors like income and education also contribute to the effect (i.e. impact on health) of a programme. Decisions regarding the intersectoral allocation of resources, which make the resources available to one sector at the cost of the other, are important from the policy angle. On the other hand, such a policy choice will have an adverse effect on health owing to reduction in the allocation of funds for education, sanitation, etc. The

measures, QALY and DALY, by disregarding the influence of such factors do not help in analysing the effectiveness of such a policy choice. THE SOCIAL DETERMINANTS OF HEALTH The foursocial determinants on which a WHO report (The Solid Facts, WHO, 2003) dwells are: unemployment, social exclusion, transportation and food. Unemployment: That unemployment gives rise to social insecurity and psychological stress. Fears and uncertainties are known to cause anxiety related illnesses. Short term unemployment becomes inevitable when the state dominated industries or economies are liberalised and restructured. The proponents of increased governments role for mitigating the ill-health effects of unemployment suggest that one way of increasing the employment opportunities is to adopt measures by the state for smoothening out the highs and lows of the business cycle. The opponents of increased government role however argue against this approach and cite experiments world over that have revealed that such an approach would have a stifling effect on economic output, employment prospects and human health. Social Exclusion: Given that absolute poverty is a major determinant of ill-health, the resultant social exclusion is psychologically damaging, materially costly and harmful to health (WHO, ibid). The suggested path to cope with this is minimum wage legislation and labour market policies to reduce social stratification. However, when the economy is slowing down, employers first of all shed marginal workers (e.g. unskilled workers, those with disabilities, etc.). Austerity measures taken may also be by way of reduced holidays, rest breaks, pensions and other work place benefits. This will have the effect of adding to the work related stress. The suggestion made to deal with situations of social exclusion includes expansive welfare provision. However, there is evidence that such provisions created unemployment and poverty (in U.K.) contributing to breakdown of family structures Transport: Rising worldwide incomes have led to a massive use of automobiles and in particular cars. Cars are seen as a threat to health because of their links to obesity, air pollution and traffic accidents. Some health experts call for a wide range of government interventions designed to limit the use of cars, encourage alternative forms of transport (ranging from building cycle lanes to turning current roads into green spaces). Alternative methods like allowing cars with even numbered plates to ply on certain days and odd numbered plates on others For instance, restrictions on suburban development will constrain the housing supply, leading to rise in both general price level and the rental prices. Also, restricting the ability of retailers to operate from out-of-town locations where land is cheaper will stimulate price inflation in city centres. The higher rents will be passed on to consumers via price rises. Again, these will hit the poor the hardest. A range of alternatives are available to reduce the health consequences of air pollution. For instance, encouraging free trade in motor vehicles by eliminating import tariffs will incentivise local industries to produce better cleaner fuels. Traffic and congestion on roads increase when roads are used as a free good. The harmful effects of air ollution can be curbed by better roads allowed to be used against road pricing. Food: The twin paradox of food i.e., research showing excessive intake can lead to a variety of diseases whilst at the same time food poverty. It is held that because food is bought and sold by private actors, government agencies must intervene to help regulate supply and demand thereby removing the distortions that have set in food market. Others, however, argue that it is the unhealthy intervention of the governments by way of tariffs, quotas, and other trade restrictions that have created distortions in the food market. An important instrument used by the governments is the granting of subsidies. There is an indication that with growth and prosperity, both income inequalities and health inequalities will increase. This relationship holds good for both the rich and the poor countries alike. ECONOMIC DIMENSIONS OF FINANCING HEALTHCARE Establishment of adequate healthcare services, accessible/affordable to all sections of the society, is an important function of the state. The magnitude of its need, characterised in terms of population size and the budgetary requirements, is determined by the state of development of an economy. Low income countries are typically characterised by large population size, majority of them living in rural areas and dependent on low productive agricultural activities. Such economies experience greater fiscal stress to find the resources required for the establishment of suitable healthcare services. Higher public spending required in conditions of lower economic development paves way to services which can be established by pooling resources in ways suitable to the socio-economic level of different sections in the country. The suitability of a method to a given context bears an important relation to the institutional structures in place in an economy. FINANCING OF HEALTHCARE: PRINCIPLES AND CONSTRAINTS three basic public finance functions viz. collecting revenues,pooling resources, and supplying services The outcomes have to be achieved in such a way as to realise the principles of equity, efficiency and financial sustainability. There are four broad sources of funding for meeting the healthcare servicing needs of a country. These are: (i) state funded systems implemented through the budgetary allocations of the government; (ii) social health insurance schemes; (iii) voluntary or private health insurance schemes; and (iv) community-based health

insurance. At this stage, it is important to note that the revenue raising capacity of a country increases as its income increases. This process depends and is promoted by factors like: (i) greater formalisation of the economy; (ii) greater ability of the individuals and businesses to pay taxes; and (iii) better tax administration. With economic development, the growth rate of the population would decline and transfer of labour from low productive agriculture to more productive industry and service sectors would take place. This will result in a rise in the per capita income of the people. Higher levels of educational attainment, accompanying higher levels of economic growth, would result in increasing labour force participation rate. Health coverage linked to employment contracts, or by contributions to community/voluntary health service schemes/programmes, would become feasible with development. In other words, associated with the state of development of an economy, the methods that can be adopted to raise the required resources would become diverse and flexible. It is said that revenue collection in developing countries is the art of the possible, not the optimal, as the institutional realities of developing countries often preclude the use of most equitable and efficient revenue raising mechanisms. The efficiency of a system has important financial implications for long term fiscal sustainability. It is necessary to expand the available fiscal space in order to have large increases in public spending. Health financing policies need to be developed in the context of a governments available fiscal capacity. In principle, a government can create fiscal space in the following ways: (i) by widening the scope of tax collection and by strengthening the tax administrative machinery; (ii) cutting lower priority expenditures to make room for more desirable ones; (iii) borrowing resources, either from domestic or from external sources; (iv) by resorting to deficit financing i.e. asking the central bank to print money and lend to the government; and (v) receiving grants from outside sources. When financed by debt, the expenditure should be assessed for its impact on the underlying growth rate or its impact on a countrys capacity to generate the revenue for servicing the debt As the countries operate within highly different economic, cultural, demographic, and epidemiological settings/contexts, the development of a suitable healthcare financing system would also be heavily influenced by the contextual and other historical factors. They are also influenced by factors dominating the political economy in the country. In this context, the three basic principles of public finance which any method or approach should strive to ensure are: raise enough revenues to provide individuals with a basic package of essential services and financial protection against catastrophic medical expenses caused by illness and injury in an equitable, efficient, and sustainable manner; manage the revenues to pool health risks equitably and efficiently; ensure the production/purchasing of health services in ways that are allocatively and technically efficient. One of the major constraints to improve the healthcare delivery system in developingcountries is weak public sector management. These economies are characterised by the presence of large rural areas and high informalised labour markets which pose particular difficulties/challenges in the administration of effective taxation procedures. In view of this situation, it is necessary to improve/strengthen the delivery systems at the district and municipal levels where the systems are particularly weak. In the absence of efficient and adequate public sector health services, the out-of-pocket health expenditures are very high in these countries (estimated at 60 per cent of total health expenditure in low income countries and 40 per cent in middle income countries). The challenge for low and middle income countries is therefore to channelise the high levels of out-of-pocket spending into either public or private resource pooling arrangements. Policy planning in such situations needs to duly take into account the context to determine which method constitutes the best means for developing a strong health financing system ensuring the three principles of equity, efficiency and sustainability. The mechanisms chosen to govern the system must be aligned with country-specific economic, institutional and cultural characteristics. MAGNITUDE OF HEALTHCARE NEEDS/EXPENDITURE: IMPLICATIONS FOR RESOURCE MOBILISATION Developing countries account for 84 per cent of global population, 90 per cent of global disease burden, but only 12 per cent of global health spending. There is also an expected shift in demographics characterised by declining but still high population growth. This factor coupled with increasing life expectancy implies that developing countries will face significant increases in population of all age groups. As a result of this population momentum, large numbers of youth will enter the labour force with the numbers of elderly persons also increasing. To effectively aid such a growth/developmental path, new structures of resource mobilisation and health/ educational financing efforts need to be evolved. Global health spending in 2002 was $3.2 trillion amounting to about 10 per cent of global GDP. Only about 12 per cent of that (0.35 trillion) was spent in low and middle-income countries. In terms of per capita expenditure on health (population weighted), high income countries spend nearly 100 times more than low income countries. The low income countries thus suffer from the most inequitable distribution of health financing/spending. Increasing the share of public spending in health depends to a significant extent on the revenue generating capacity of the state. Although the revenue raising ability varies from one country to the other, in general, low-income countries face onerous constraints. This is due to factors like: low level of income, poorly developed administrative structures, large informal sectors, and

limited overall resources. Since large proportion of workforce in low-income countries are in the informal sector, not enjoying any form of income/social security guarantees, the potential to generate taxes from social security contributions is limited. This is inhibiting the expansion of health coverage to large number of such workers and their family by an economically viable system. This underscores the importance of increasing the efforts for the formalisation of employment structures and/or evolving appropriate government sponsored programmes in the low-income countries. Forced by the economic and institutional constraints, the developing countries adopt indirect taxation methods for generating the revenues. Sources of such taxation include consumption taxes on sales (e.g. general sales, value added, excise) and taxes on factors of production (e.g. payroll, land, real estate). In other words, the informal workforce, skewed toward the lower end of income distribution, fall out of the direct tax burden. This makes the direct tax policies progressive (i.e. its burden remains confined to the rich). Further, due to the relative small share of direct taxes generated, the net impact on the overall distribution effect of health and other services established out of such funds remain modest. The distributional impact of services established out of indirect taxes generated, is mixed as it depends on factors like tax base, rates, exemptions, and exclusions. The tax base in low income countries is usually less comprehensive than in richer countries as taxes like VAT are collected from businesses meeting minimum turnover threshold. To the extent that the poor buy from businesses that do not meet this criterion (e.g. stalls, bazaars, etc.), they remain exempt from the burden of indirect taxes. This alleviates the regressive character of indirect taxes (i.e. burden of taxes being concentrated on poor people in low income groups). It thus follows that generating the revenue by resorting to well-designed indirect taxes does not necessarily result in adverse equity implications as they can be structured to be progressive. Generating revenue through indirect taxation to finance increased health expenditure in low income countries can therefore be made efficient as taxes like value added and excise are implicit with preferred characteristics like broader base, lower price elasticities, etc. However, such features are dependent on the exact details concerning the tax base, rates, exclusions, exemptions, demand elasticities, and tax administration capabilities which are country specific. PRODUCTION OF HEALTHCARE The problems relate, among other things, to: (i) public accountability, (ii) informational asymmetry, (iii) abuse of monopoly power, and (iv) failure of strategic policy formulation. The failure of public production is usually dealt with by the adoption of one or more of the following approaches: (i) exit possibilities yielding place to market forces and consumer choice; (ii) allowing scope for client participation thereby providing a distinct role for public voice; and (iii) loyalty i.e., a structure in which significant weightage to responsibility is accorded. The broad aim is to generate benefits to the society by unleashing forces of competition to create an optimally functioning market The basic assumptions of a Walrasian model necessary to establish the desired equilibrium under the mechanisms of competitive market conditions are: (i) the goods involved behave like true private goods i.e. they are governed by the features of excludability, rivalry and rejectability; (ii rights are perfectly delineated; and (iii)the transaction costs are minimum. The application of these assumptions to the services of healthcare sector reveal that while the first of the three assumptions is met by most healthcare goods and services (at least to some degree), the remaining two are generally not met. the different arrangements for service delivery derive from four theories of organisation viz. (i) the principal-agent theory; (ii) transaction costs economics theory; (iii) property rights theory; and (iv) public choice theory. the theory points out to the need for effective incentive alignment. The relationship between patient and physician or governments and contracting agencies are cited as classic examples of the principal-agent structure. On the other hand, pointing out that both the principal and the agent are opportunists seeking to minimise production/transaction costs and maximise their benefits, the transaction costs economics theory emphasises the need for flexible means of coordinating activities. This theory advocates vertically integrated (i.e. unified ownership) organisational structures with features of simple spot contracts, franchises or joint ventures. Claiming that such arrangements provide discrete structural alternatives, the theory holds that governance arrangements can be evaluated by comparing the patterns of costs incurred in production and exchange. Pooling of risks and rewards for various activities undertaken, facilitating the sharing of information, pursuit of innovation, and promoting a culture of cooperation are considered thethe positive features of the transaction cost theory. The theory however, it is argued, suffers from characteristic weaknesses like the proliferation of influence activities. This is illustrated by the presence of provider organisations in the healthcare sector who try to gain advantage by influencing decisions on the distribution of resources (or other benefits) among the providers. Evidence of such activities is cited in the tendency to allocate resources to tertiary and curative care at the expense of primary, preventive and public health activities. The property rights theory attempts to find out why private ownership has strong positive incentives for efficiency. It identifies the prevalence of this feature to the scope for residual rights of control which refers to the rights of owners on the revenue remains of the total proceeds once the expenses and the contractual obligations have been met out. The public or the political choice theory focuses on the self-interested behaviour of influential segments (e.g. politicians, bureaucrats, and other interested groups). The theory points out that owing to the capturing of increasing portions of resources by powerful interest groups, institutional rigidities develop impactng adversely on the economic growth. The insights provided by the theories of

organisational behaviour emphasise the need for the establishment of institutional frameworks which provide for measurement yardsticks to facilitate governanceIn order to achieve this, policy promotion packages with features of contestability and measurability needs to be evolved. Enabling institutional frameworks must be developed by the state in order that factors conducive for efficient functioning of market are established. In order of increasing intrusiveness, some of these measures include: (i) requiring information disclosure; (ii) introducing regulations; (iii) contracting; (iv) subsidies or direct financing; and (v) public production. Contestability and measurability of goods and services are influenced strongly by the elements of systemic environment. The environment itself is directly affected by the policies of the government. The environment therefore directly determines the strategies to be adopted for the generation of increased revenue. Some of the major policy initiatives which contribute to increasing the contestability of firms in the market are: (i) unbundling large bureaucratic structures (i.e.modification in governance); (ii) outsourcing certain functions to specialised providers (i.e. modification in payment system); (iii) exposing the public and private actors to the same potential benefits and losses attributable to market exposure; (iv) decreasing barriers to entry caused by political interference or unwarranted trust in public production (i.e. modification in market structure); and (v) explicitly separating contestable commercial functions and non-commercial social objectives. Likewise, measurability can be enhanced by: (i) relying on quantifiable results (i.e. output or outcome indicators) for accountability and performance targets rather than emphasising on inputs and procedures; (ii) shifting from difficult-to-define long-term relationships (e.g. employment or service arrangements) to shorter-term but more specific contractual arrangements; (iii) using quantifiable monetary incentives rather than non-monetary incentives like consideration of ethics/ethos/status which are more difficult to measure; and (iv) tightening the reporting, monitoring and accountability mechanisms. Thus, when reforms to organisations such as hospitals entail a shift to earning revenue through the delivery of services in a market, the nature of the emerging market is crucial. In order to derive maximum gains from reforms (that expose the public sector to competition with the private sector) adequate steps should be taken to ensure neutrality. This requires: (i) monetisation of social functions (e.g. explicit subsidies that adequately cover costs plus a reasonable margin in the delivery of services to non-paying or non-insured patients; and (ii) achieving standardisation in the fee structure and cost of capital for both the public sector and private sector. The process should be accompanied by capacity-building in areas such as contracting, regulation and the coordination of non-governmental providers. HEALTHCARE DELIVERY: RISK POOLING involves the establishment of medical centres across the country in such a way that they are easily accessible/affordable to all sections of the people. Such needs can be grouped into two types of services: basic services for normal healthcare needs requiring treatment for short duration (referred to as OPD services) and long term treatment for complicated ailments requiring hospitalisation. The financial implications of meeting the requirement of such needs, both for the individuals as well as for the state, are of different kinds. Depending on the magnitude of the need as determined by the geographical boundary and the population size, the budgetary needs of the state also can be substantial. In the absence of adequate/ suitable facilities, the out-ofpocket expenses incurred by the individuals will be huge. Risk pooling, in this context, refers to the collection and management of financial resources so that large unpredictable individual financial risks are distributed among all members of the pool. Pre-payment is an essential component of risk pooling. This may be either in the form of normal tax paid (using which the government sets up public health facilities of both the primary and the specialised type; which is open for usage by all the persons in general) or in the form of payment of exclusive premium paid for health coverage (in which case the facilities are restrictively available only to the members of the system). There are various ways of meeting the financing needs of the health insurance programmes. Four main health insurance mechanisms used to pool health risks are: (i) state-funded systems; (ii) social health insurance; (iii) voluntary or private health insurance; and (iv) community-based health insurance. The features of each one of these financing mechanisms differ significantly with no one method being inherently superior to the others. There is therefore a need to find out which one of the methods is the best suited for developing a system serving the essentials of equity, efficiency and sustainability. As discussed before, it is important to align the schemes to the country-specific economic, institutional, and cultural characteristics. National Health Service Systems: Systems established under the national health service have three main features. First, their primary funding comes from general revenues. Second, they provide medical coverage to the countrys entire population. Third, their services are delivered through a network of public providers. In many low and middle income countries such system exists alongside that of other risk pooling arrangements. Thus, they are not the sole source of coverage for the entire population. The features of national health services give them the potential to be equitable and efficient. Their wider coverage means that risks are also pooled broadly, without the dangers of risk selection inherent in other fragmented systems. Their efficiency potential arises from the fact that they are integrated under government control and have less potential for the high transaction costs that arise from multiple players. But when power and responsibility is decentralised with local

authorities, coordination problems can ensue. Whether public provision is more efficient, equitable, and sustainable than private provision is a question not of ownership but of the underlying delivery structures and incentives facing the providers and consumers. Thus, although national health service systems have the theoretical benefit of providing health care to the entire population free of charge (except for any applicable user fees), the reality could be different. For instance, reliance on general government budgets is vulnerable to the vicissitudes of annual budget discussions and changes in political priorities. Further, health services in many low and middle income countries are primarily used by middle and high income households in urban areas because of access problems for the rural poor. Also, the poor tend to use less expensive local primary care facilities due to the costs involved in accessing the public facilities. For exactly the opposite reasons, the rich tend to disproportionately use more of the expensive hospital services of the public sector. Public provision of health services also face problems of corruption and inefficiencies caused by budgets that do not generate the appropriate incentives and accountability. To exploit the potential strengths of national health service systems it is, therefore, important for developing countries to improve the capacity to raise revenue, the quality of governance and institutions, and the ability to maintain the universal coverage and reach of the system. It is also important to take specific measures to target spending to the poor, such as by increasing the budgetary allocation for primary care. But the system must not neglect the needs of the middle and high-income populations (as they are capable of influencing the political support). They can also opt for privately financed system at the expense of supporting the public system Social Health Insurance Systems: The systems of social health insurance are generally characterised by independent or quasi-independent insurance funds. They rely on payroll contributions marking a clear link between their contributions and their right to a defined package of health benefits. The state generally defines the main attributes of the system although the funds are generally non-profit and supervised by the government. Unlike in the case of national health service systems, the payroll base for the social health insurance systems generally insulates the system from the uncertainties of budgetary allocations. However, social health insurance contributions alone may not be adequate to fully fund the healthcare costs, especially when the system is intended to cover a broader population than those who contribute. It may thus require an infusion of resources from general tax revenues too. Additional subsidies may also come from external aid or earmarked taxes. Social contributions (which also carries a component from the employers side) may have a deleterious effect on employment and economic growth if they increase labour costs. Some of the preconditions which might lead to the successful development of the social health insurance systems in developing countries are: (i) level of income and economic growth; (ii) dominance of formal sector vis--vis informal sector; (iii) population distribution with growing urban population; (iv) existence of room to increase labour costs; (v) strong administrative capacity; (vi) quality healthcare infrastructure; (vii) stakeholder consensus in favour of social health insurance along with political stability and rights; and (viii) ability to extend the system to informal workers with the institutional machinery required to collect regular contributions from them. Community-based Health Insurance Systems: Community based health insurance systems may be broadly defined as non-profit prepayment plans for healthcare controlled by a community that has voluntary membership. The systems operate according to core social values and cover beneficiaries excluded from other health coverage. There is evidence that such schemes reduce out-of-pocket spending. They may also fill gaps in the existing schemes (such as providing healthcare for informal sector workers) enabling a more universal coverage. However,the sustainability of most community-based health insurance schemes are questionable as they are often unable to raise enough resources because of the limited income of the community. The schemes size and resource levels, limited management skills available with the community, limited potential to negotiate with providers for quality and price, inability to cover the poorer sections of the population, etc. are some of the weaknesses of the system. While government intervention can help in improving the efficiency and sustainability of such systems, they can only be regarded as complementary systems to other forms of healthcare financing arrangements Private or Voluntary Health Insurance Schemes: Private health insurance systems are paid for by nonincome-based premiums while the voluntary health insurance premiums are paid for by voluntary contributions. Although the two types of coverage are distinct, most private health insurance markets are also voluntary. Private/voluntary health insurance markets are controversial as they often reach wealthier populations. They are also the subject of market failures such as adverse selection by covered individuals and cream skimming of better health risks by insurers. Premium volatility is identified to limit affordability acting as a financial barrier excluding many individuals from gaining access to such insurance schemes. In view of these complexities, the relevance of private/voluntary insurance schemesis particularly limited for low income countries. Although some of the challenges and market failures can be addressed by regulations and mandated insurer actions, such regulations are considered difficult to implement. This is because the presupposed regulatory resources, political backing, and well functioning financial and insurance markets may themselves be weak thereby posing challenges to strike an appropriate balance between the access and equity concerns as also the promotion of an efficient and competitive marketplace. Low-income countries, in particular, need to

increase the efficiency and equity of all public spending systems, including health spending. Given the budgetary constraints and difficulties in generating additional fiscal space, low-income countries are likely to have a larger and more equitable impact on health outcomes if they select a basic universal package of public and merit goods. Such a package should include treatment services that have been proven effective in advancing towards the millennium development goals. RESOURCE ALLOCATION AND PURCHASING It is clear that in attempting to reach the millennium development goals (MDG) for health, the government health expenditures will increase, while the budgetary constraints in raising the required resources would continue to remain particularly for the low-income countries. The targets of MDG could be achieved through a pattern that benefits primarily the better-off, while largely bypassing the poor. This is mainly due to the incentive that exists to use increased available resources in tertiary hospitals, where the utilisation trends tend to favour the rich. There is also evidence from studies focussing on the incidence of benefit in public spending on health that the richest 20 per cent of the population accessed primary care, as well as higher-level care facilities, more than the poorest. This therefore implies that shifting resources to primary services alone will not necessarily increase their use by the poor. Further, as the issues of public accountability and efficiency are low in publicly funded hospitals, it is important to consider alternative ways of providing the healthcare services. An important question that arises in this context is whether it is necessary that the services are produced by the state (i.e. through state funded/run hospitals and dispensaries) or whether the task of providing the health services should be de-linked from that of its financing. The latter brings to consideration the issue of purchasing the services from other non-governmental providers. In this context, purchasing which is also referred to as financing of the supply side, refers to the numerous arrangements used to pay the different medical care providers. It involves the consideration of alternatives like decentralisation, contracting, developing efficiency-based provider payment incentives and systems, etc. Resource allocation and purchasing togetherThese questions together focus on aspects of allocating the limited resources so as to maximise the health outcomes. The procedures of resource allocation and purchasing have important implications for cost, access, quality, and consumer satisfaction. Efficiency gains (both technical and allocative) from purchasing arrangements provide better value for money thereby becoming a means of obtaining additional financing for the health system. What services should the government finance? In low income countries, budget constraints impose restrictions or become binding at relatively low levels of per capita expenditure. The states must therefore make their financing choices with careful considerations on whether the goods/services are merited. Usually, a small but important collection of health related activities must be financed by the state, that too at the socially optimum level of consumption. Such public health activities are particularly important at low income levels, for both epidemiological and economic reasons. More importantly, from the perspective of reaching the millennium development goals (MDGs), effective health interventions to combat child malnutrition, child mortality, maternal mortality, and communicable disease mortality have been charted for all health targets. These interventions must be financed by the public sector as they provide public goods or generate externalities. Howeveras many of these services are underused especially by the poor, measures to encourage their use by the poor must also be taken up. For a targeted population, public financing of interventions which are private goods may also be justified from an equity perspective. The decision on which health services the government should purchase in low income countries is usually made not only on economic considerations but also on social and political factors. The decisions also have important implications for the opportunity cost of the resources used (i.e. other investments not undertaken). Ideally, it is best for low income countries to first finance a universal, small package of services, essentially encompassing public goods, goods with externalities, and other interventions with proven impact on the MDGs of health. Other investments for clinical care involving higher expenditures should be financed for the poor through the targeting mechanism. How and from whom should the government purchase services? Public funds may be used to pay for the provision of services by public providers (budget allocation), or to purchase services from private or public providers. Once resources are available, restrictions on how to use them are determined by the countrys absorptive capacity. Absorptive capacity includes the ability of the public sector to design, disburse, coordinate, control, and monitor public spending. The coordination is both vertical (i.e. between the national and local governments) and horizontal. Absorptivecapacity also takes into account situations where an allocated resource may not be spent within the time limit (usually the financial year) and also the effective execution of a budget. The crucial question is whether the governments (and the institutions) have the capacity to manage a large increase in real expenditures. The issue relates to effective public expenditure management, free from or having minimum of leakages. The perception of corruption, payment delays and difficulty in adhering to contractual agreements, and the overall lack of absorptive capacity negatively affect prices for medical supplies. They result in delays and sometimes even cancellation of donor financing to the health sector. This is important as the term absorptive capacity is more particularly used in cases of external funding where the donor countries may insist on a level of public expenditure management expertise in the recipient countries. It may, therefore, even constitute a necessary precondition for scaling up programmes in health or other social sectors. Well-designed health plans need to be

part of a multi-sectoral strategy, reflected and costed as part of poverty reduction strategies. The instruments and policy options available to governments to improve expenditure performance are: poverty reduction strategy papers (PRSPs), poverty reduction support credits (PRSCs), medium-term expenditure frameworks (MTEFs), public expenditure reviews (PERs), and public expenditure tracking surveys (PETS). For whom should the government purchase services? A major problem with allocations of resources is that increased expenditures often may benefit the betteroff more than the poor. Studies have repeatedly shown that the poor benefit much less than the non-poor from government health expenditures in many countries. Supply-side subsidies (like financing of public hospitals) and gratuities (payments to physicians for favours) are common in many countries. Together they imply a subsidy to the rich, who take advantage of a public facility by paying an amount that does not cover the full cost while receiving a privileged service because of their ability to pay the gratuity to the doctor. Similarly, supply-side subsidies to deficit-ridden social insurance institutions imply a subsidy to the non-poor, as such institutions cover mostly formally employed urban workers. In this context, the question of how to and for whom the government must purchase the health services assumes relevance. There is no conclusive evidence that either of the collective resource generation mechanisms for health services [viz. social insurance (Bismarck model) or general taxes (Beveridge model)] works better for the poor. Both require some level of cross-subsidy, through either differential premiums or progressive taxes, to favour the poor. However, in a low-income country, given the limits of the formal economy, as well as the binding constraints faced by government at low levels of per capita expenditures, the options for reaching the poor are less clear. In view of this, beyond a basic universal package, special targeting mechanisms are needed to ensure financing of needed services for the poor population. Evolving a suitable framework for resource allocation and purchasing thus involve many issues surrounding purchasing decisions. It requires financial sector reformsCentral to such reforms is the issue of separating purchasing from provision. There is a need to evolve incentive based payment systems which rely on features like capitation and managed care, case-based payments to hospitals, and mechanisms to ensure a more equitable sharing of financial risk between the purchaser and the provider. USER CHARGES refer to charges levied on the users of public healthcare services. The fee charged in public health facilities, in a more general sense, it includes expenses I ncurred for availing health services in private centres too. An underlying distinction is also brought out by the nature of its (i.e. the user fees) subsequent availability for improving the healthcare services. For instance, in the case of public healthcare services, the fees generated goes to the public exchequer and therefore may not necessarily get redirected for improving the services in the public facilities. But in the case of private health services, such collections may be invested in the improvement of health services. This reinvestment may take the form of stocking drugs, payment of bonus to medical personnel, etc. In a much larger context, the various indirect expenses incurred by the people (e.g. cost of transportation to and from the hospitals, travel and staying expenses of accompanying relatives and friends, expenses on food purchase, opportunity costs lost by way of study time/wages/home duties, etc.) also constitute important components of expenses incurred on healthcare, even though not directly as user charges in the restricted sense. Limiting the scope of user charges levied in government/public healthcare centres and relating it to the more fundamental question of equity concern (i.e. the extent to which such charges serve to dissuade the poor from availing the services in public hospitals), therefore, provides a narrow view of the concept. The concept merits to be viewed from a much larger perspective i.e., one of resources required for expanding the healthcare services. In other words, in the absence of a proper perspective of distinctions (e.g. distinguishing the goals from the instruments, or distinguishing the user fees for public services from the overall and much largerout-of-pocket spending on health needs, etc.) the larger issue of improving the access to healthcare services in an equitable, efficient, and on a sustainable basis remains inadequately focused. Further, the objective of finding the resources for achieving the millennium development goals of health, needs to be especially distinguished from the different instruments available for raising the resources (e.g. domestic resource mobilisation, external/donor assistance, improving the technical/ allocative efficiency of spending, etc.) of which the levying of user charges is one of the options. Evidence of the impact of user fees on access to quality health services by the poor is mixed. While in some cases, the evidence shows that where user fees have been removed, demand for the health services by the poor increased, in some others there are reported decreases. Nonetheless, there is growing evidence that the demand for healthcare is more price-responsive among the poor. This underscores the need to find well-functioning waiver systems for better targeting of subsidies to the poor. There is also evidence that implementation of user fees can lead to quality improvements, but such a link is not automatic and needs careful design and implementation. As low-income countries emerge from poverty, they move toward greater public financing of healthcare and universal coverage. This would be done either through the establishment of national health service systems or through social health insurance systems. At such a stage, policies for promoting demand for preventive, primary and other health services would need to be adopted. Policies for enabling the poors access to medical care without jeopardising their consumption of basic goods and services would also be needed. Again at such a stage, the implementation

of user fees for achieving overall operational sustainability of health systems may become warrante d. Policies for adopting user fees need to be harmonised with exemption and waiver systems to foster access by poor to health enhancing services and protect them from catastrophic health spending. Achieving improvement in the quality of public services, reducing waiting time, reducing the need for costly self medication substituting lower-priced quality public services for more expensive private care, etc., are the directions in which focused attention is needed.( chart page 53) DEVELOPMENT ASSISTANCE FOR HEALTHCARE development assistance for health by donor countries assumes significance. The effectiveness of such aid depends upon the absorptive capacity of the recipient countries. Absorptive capacity has macroeconomic, budgetary, management, and service delivery dimensions. It rests on critical macro conditions like: good governance, controlled corruption, and sound financial institutions. Of crucial importance is the need to have trained human resources in public sector management and service delivery. In order to ensure the adherence to the desired norms of efficient spending, aid recipient countries must base their macroeconomic and sectoral reforms on poverty reduction strategies. Studies focusing on examining the effectiveness of health expenditure received from donor countries record a range of effects: from no impact to limited impact and to impacts limited to specific interventions. The association of stronger institutions and higher investments in other health related sectors (e.g. education and infrastructure) to improved health outcomes is established by many studies. While the impact of developmental assistance on under-five mortality is found to be direct, that on maternal mortality is indirect. The latter is linked to government health spending (through budgetary support). A study of 14 countries receiving development assistance for health has found that 30 per cent of external aid was not reflected in the balance of payments(BoP), while another 20 per cent entered the BoP but not through government budget. Of the remaining 50 per cent, only 20 per cent was routed through general budget support. The offbudget nature of a significant amount of external aid, the exclusion of much aid from the BoP etc., are, however, considered essential features in funds management. Such flexibilities are needed for the recipient countries to implement their country-owned programmes effectively. Referred to as aids fungibility, such features of funds management/accounting, is described to imply that governments may divert domestic resources to other uses in the presence of donor funding in areas like primary healthcareFor instance, it is pointed out that analysis must take into consideration that higher levels of spending in a sector, when financed from external grant flows, may have a ripple effect on spending in other sectors. As grant financing may not be available for those sectors, the demand needs to be met through internal resources. Also, increases in expenditures at a point of time may need to be limited as funds may not be available to cover the increased expenditures when grant financing becomes unavailable at a later time point. Changes in accounting practices cannot, by themselves, create additional scope for expenditure by providing increased fiscal space. In the light of these possibilities, it is necessary that fiscal analysis at the country level must take into consideration the spill over effects of expenditure decisions. This can be done either by strict adherence to sector expenditure ceilings or by meeting the additional offshoot expenditures through internal financing. The implementation bottlenecks arising out of funding by external sources have important implications for the resource allocation by donor countries in general and for its effective utilisation by the recipient countries in particular. Donors as well as recipients need to hold themselves mutually accountable for their promises,commitments, actions and results. Donor countries need to reconcile and harmonise their national political interests with the global needs. They also need to increase the predictability and longevity of aid flows. Recipient countries, on their part, needto improve governance, their macroeconomic and budgetary management capacity,reduce corruption, and ensure that they have well functioning health systems supported by long-term sustainable financing systems. Partnerships with international aid giving agencies must be effectively combined with suitable institutional arrangements in the recipient countries. Such arrangements should involve national nongovernmental service providing agencies. Together, the efforts must aid the achievement of objectives in terms of improved human development indicators summary The issues relating to the financing of healthcare encompasse many dimensions of tax administration and governance viz. collection, strengthening of institutions, quality of governance, establishment of incentive structures to allow for private sector participation, appropriate regulatory mechanisms, efficient public expenditure management system, etcEstablishment of the required ideal conditions in which the healthcare needs of all sections of the people are met is, however, linked to the pace of economic growth and better income distributions in the society. In countries with low income level, the emphasis of the government should be to provide essential/primary healthcare services through the general budgetary allocations of the government. In such a situation, the out-of-pocket expenditures incurred by the people to meet their major health needs would be substantial. With

improvements in the institutional and finance sector reforms, establishment of prepayment based insurance systems to cover for the costlier health needs would become feasible. Attainment of the millennium development goals relating to the health sector requires massive resources for which low income countries would need external assistance from donor countries and international financial institutions. However, investments from such assistance need to be effectively serviced for which the absorptive capacity of the economies needs to be strengthened. Ensuring the financial sustainability of health sector investments by methods like the collection of user charges is an available option in this regard.