A major aspect of the economic analysis of health and healthcare is its finance. This chapter is concerned with describing the generation and use of money for healthcare.

Spending on healthcare

Healthcare spending is one of the key topics of health economics. Taking the UK as an example, total healthcare expenditure in 2017 was £197.4 billion, accounting for 9.6 per cent of GDP, a significant part of all economic activity.

Absolute spending on health (in US dollars) differs hugely around the world. First, because there are vast differences in GDP per capita in different countries and second, because the percentage of GDP spent on health ranges from about 2 per cent (Myanmar) to more than 17 per cent (US). This translates into a range of health spending per capita (in 2015) from nominally $17 (Central African Republic) to $9,800 (US) (WHO Global Health Expenditure Database n.d.). See Figure 5.1 for an overview. Given this huge spread, the question arises about how much a country should spend on health.

This can be treated as a positive or a normative question. Taking a positive point of view, one could envisage a systematic bottom-up cost calculation. Starting with demographics and medical needs, researchers could try to put together cost data for standardized treatment protocols in order to gauge the expenditures necessary to achieve some reasonable level of medical care for the whole of the population. Such a calculation would take a societal view, looking at the necessary healthcare costs that society would pay for. The calculation would not take into account any forms of discretionary private/ individual spending (on, say, better teeth or travel health insurance).

From a normative perspective, two important goals have been set for global health spending. The first is by WHO, which states that 5 per cent of GDP should be spent on health. The second is the so-called Abuja Declaration: A declaration of African heads of state signed in 2001 in the Nigerian city of Abuja, pledging that their governments would spend at least 15 per cent of total government expenditure on health. In a 2011 progress review, WHO reported that only one African country had reached that target, while 26 had increased health expenditures and 11 had reduced them. Nine other countries had neither a noticeable negative nor positive trend. In 2014, only four countries had reached that target.