The welfare implications of public healthcare financing: A Macro-Micro simulation analysis of Uganda

Studies on global heath and development suggest that there is a strong correlation between the burden of disease and a country’s level of income. Poorer countries tend to suffer more deaths from preventable causes such as communicable, maternal, perinatal and nutritional conditions when compared to high-income countries. In low-income countries the government health expenditure share in the general government budget is also low and out-of-pocket payments for healthcare relatively high. They also rely heavily on external resources for health funding, yet sustainability of external resource flows is not guaranteed. This paper explores increasing public healthcare funding from domestic resources mobilisation, and evaluates the impact of measures to achieve this on sectoral growth and poverty reduction rates in Uganda using a dynamic computable general equilibrium model. The paper shows that increasing the government health budget share to facilitate expanded healthcare services which translate into improved population health, is likely to generate higher sectoral growth and reduce poverty in Uganda. The agricultural sector is predicted to post the highest growth when compared to services and industry sectors under both the taxation and aid funding scenarios while national poverty is predicted to decline to less than 10% of the population by 2020. The paper demonstrates that the most effective measure is to generate additional funding for health from a household tax earmarked for health. Policy makers should frontload investment in healthcare and consider domestic resource mobilisation through direct taxation on eligible households.