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Mr. Peter S. Heller and Mr. William C. Hsiao

impair the efficient operation of insurance markets. Moral hazard from insurance also produces inefficiency. In the service-provision market, physicians have the market power to practice price discrimination ( Kessel, 1958 ) and induce demand ( Yip, 1998 ). In factor markets, patent law protections offer monopolistic profits for pharmaceutical products. Licensing laws restrict free entry and competition. These market failures cause inefficiency, high health expenditure inflation, and inequity. International experience has taught us that some of these market failures

Mr. Peter S. Heller and Mr. William C. Hsiao

services. Incentives . The insurance funds usually pay hospitals and clinics on a fee-for-service basis. Although fees are negotiated between payers and payees, private providers can induce demand and increase the quantity of services, and can—and often do—charge patients additional amounts above the fees received from the insurance funds (that is, balance billing). Consequently, these countries face high rates of health expenditure inflation. In short, they experience what the United States went through in its earlier years of insurance development. To address these

Mr. Peter S. Heller and Mr. William C. Hsiao

age. The rapidly aging populations in advanced economies will further exacerbate the pressures associated with a high health expenditure inflation rate. 1 China in particular will, within the next few decades, face an increasing share of its population becoming elderly. Yet few countries have a coherent policy strategy to deal with the fiscal problems arising from an aging population. A “double disease burden” and equity issues face middle-income countries . The epidemiological transition confronts most middle-income countries. Such countries have to fund and

Mr. Peter S. Heller and Mr. William C. Hsiao

medical practitioners. 4. Control Knobs for Managing Health Expenditure Inflation Steadily rising per capita health expenditure, which has exceeded the growth rate of per capita GDP, has exerted pressure on government budgets and household incomes. In the past 25 years, all advanced economies have tried to constrain the level of health expenditure inflation to a socially acceptable level. With the exception of the United States and Switzerland, the major advanced economies have, at least to date, found effective ways to manage health expenditure inflation. The

Mr. Peter S. Heller and Mr. William C. Hsiao

Abstract

This primer explains why macroeconomists need to be concerned with issues of health policy and elaborates the essential information that a macroeconomist should know in providing inputs to discussions on health sector policy. The primer illustrates how these issues and the range of appropriate policy options may differ depending on the state of development of an economy and the particular approach taken by a country in structuring its health system. The primer also highlights the appropriate roles for the state and market in health care financing and provision, taking account of the various sources of market failure in the health sector.

Mr. Peter S. Heller and Mr. William C. Hsiao

Abstract

As a general rule, issues of health care policy have not generally been seen as the domain of macroeconomists. Only in recent years, with the report of the World Health Organization’s (WHO) Commission on Macroeconomics and Health (CMH) (WHO, 2001, 2002), has there been a greater focus on why health issues are relevant to macroeconomic policymakers and, in particular, ministers of finance. That report also provided further support for the prominence of health goals (for example, reduced infant and maternal mortality rates as well as reduced prevalence rates for HIV/AIDS, malaria, and tuberculosis) in formulating the MDGs. The CMH initiative principally sought to demonstrate that progress in improving health in low-income countries could be a critical factor influencing the growth potential of a country. In particular, the CMH report explored the various ways in which better health status could improve the quality of the labor force; enhance productivity, in both the short and the long run; limit the extent to which catastrophic illnesses can lead to households falling into poverty; raise household saving rates; and reduce fertility rates.3

Mr. Peter S. Heller and Mr. William C. Hsiao

Abstract

Although specific issues confront nations at different stages of development, several issues confront all nations throughout the world. We first present the universal issues, then the ones for each stage.

Mr. Peter S. Heller and Mr. William C. Hsiao

Abstract

The CMH was initiated by the WHO as a means of providing an evidence base for economic and financial policymakers in low-income countries on why spending on health was more than simply a consumption good. It sought to make the case that higher spending on health could have significant economic benefits—in fostering higher productivity and growth, over both the short and long term; in making greater use of both available labor resources and even natural resources (where disease vectors may be limiting the capacity to utilize land or resources effectively); as a key instrument in addressing high rates of poverty; and in influencing critical demographic variables (in particular fertility rates) that may be a source of low productivity, dissaving, and low human capital formation.

Mr. William C. Hsiao
This primer aims to provide IMF macroeconomists with the essential information they need in situations where they must address issues concerning health sector policy and when they have significant macroeconomic implications. Such issues can also affect equity and growth and are fundamental to any strategy of poverty reduction. The primer highlights the appropriate roles for the state and market in health care financing and provision. It also suggests the situations in which macroeconomists should engage health sector specialists in policy formulation exercises. Finally, it illustrates the different health policy issues that confront countries at alternative stages of economic development and the range of appropriate policy options.
Mr. Peter S. Heller
This primer aims to provide IMF macroeconomists with the essential information they need to address issues concerning health sector policy, particularly when they have significant macroeconomic implications. Such issues can also affect equity and growth and are fundamental to any strategy of poverty reduction. The primer highlights the appropriate roles for the state and market in health care financing and provision. It also suggests situations in which macroeconomists should engage health sector specialists in policy formulation exercises. Finally, it reviews the different health policy issues that confront countries at alternative stages of economic development and the range of appropriate policy options.