question 3

Assume a country's health care expenditure (HCE) is financed from two sources: (1) public expenditures (PE) and (2) out-of-pocket payments (OOP). Thus, HCE= PE +OOP. Given the following relationships: (PE/HCE) + (OOP/HCE) =1 and HCE/GDP = (PE/GDP) + (OOP/GDP), where GDP represents the gross domestic product. Suppose this country currently spends 5 percent of GDP on personal healthcare and services, and out-of- pocket payments account for 60 percent of the country's total health care expenditures. Use the above-mentioned information and relationships to answer the following: a) If the government increases funding for personal health care services by adding 1 percent of GDP to health care, and assuming that other things remain constant (i.e., HCE/GDP remains unchanged), will this policy reduce the share of out-of-pocket payment on health care expenditure (OOP/HCE)? (5 marks) 6 ) If the new funds injected into the healthcare sector lead providers to raise fees, with the result that HCE/GDP increases from 5 percent to 6 percent, will this policy reduce the share of out-of-pocket payment in the healthcare expenditure? Calculate the new value for OOP/HCE under this scenario. (3 marks) C) If the new funds injected into a healthcare system induce a high rate of healthcare inflation caused by increased wasteful healthcare spending, with the result that HCE/GDP increases from 5 percent to 10 percent, will this policy reduce the share of out-of-pocket payments in total healthcare expenditures? Calculate the new value of OOP/HCE under this scenario. (3 marks) d) Based on the scenarios in part (a) to (c) above, explain how a government could use new funds to promote effective and efficient health care provision so that the new public sector funds lead to a reduction in the share of out-of-pocket payment in total healthcare expenditures. Under what conditions would the government fail to achieve this policy goal, with the new funds being captured by providers in the form of higher income and profits? (4 marks)