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