NOTE: This article is the eighth in a series of 10 articles and is part of our Health Economics 101 course. You can find a course overview and links to all 10 course modules here:

Equity and Efficiency in Health Economics

Health care systems worldwide strive to achieve two fundamental goals: equity and efficiency. Equity refers to the fairness with which health care resources are distributed, ensuring that individuals have access to necessary services regardless of their socioeconomic status, geography, or other demographic factors. Efficiency, on the other hand, focuses on maximizing health outcomes with the resources available. Balancing these goals is a central challenge for policymakers who must design systems that are both just and economically sustainable.

Equity

Equity in health care refers to fairness in the distribution of health and health care resources. It encompasses both:

  • Horizontal equity: Equal treatment for equal need. For example, individuals with similar health conditions should receive the same standard of care regardless of income, location, or ethnicity.
  • Vertical equity: Unequal treatment for unequal need. This principle recognizes that individuals with greater health needs should receive more resources.

Equity can also be conceptualized in terms of:

  • Equity in health outcomes: Reducing avoidable and unjust disparities in health status across socioeconomic or demographic groups.
  • Equity in access to care: Ensuring that all individuals have access to necessary health services regardless of their ability to pay.

In practice, achieving equity involves addressing disparities that arise from differences in income, education, ethnicity, or geographic location. Equity is closely related to the ethical imperative of social justice, ensuring that no group is systematically disadvantaged in accessing care.

Importantly, equity differs from equality, which implies uniform distribution regardless of need.

Efficiency

Efficiency in health economics relates to the optimal use of resources to achieve the best possible health outcomes. Key types include:

  • Technical efficiency: Providing services using the least amount of resources (inputs).
  • Allocative efficiency: Allocating resources in a way that maximizes societal welfare, ensuring that interventions are directed where they yield the most value.
  • Productive efficiency: Producing the best outcomes for a given cost.

In an ideal system, resources are allocated to interventions that yield the highest health benefit per unit cost. However, the pursuit of efficiency often creates tension with equity objectives. For example, targeting high-cost, low-yield interventions for marginalized populations may not appear “efficient” by conventional cost-effectiveness metrics but is crucial for reducing health inequalities. In economic evaluations, efficiency is often assessed through cost-effectiveness analysis or cost-utility analysis, measuring health gains per unit of expenditure.

Measuring Health Inequality and Access to Care

Assessing equity requires robust metrics and data that reveal disparities in health status, service utilization, and financial protection. Measuring health inequality and access is essential for understanding disparities and evaluating policy interventions. Health economists use several quantitative tools to capture these dimensions:

1. Health Inequality Measures

  1. Concentration Index (CI): Measures the degree of socioeconomic-related inequality in health outcomes. A negative CI indicates that ill health is more concentrated among the poor.
  2. Gini Coefficient: Commonly used in income inequality, it can also apply to the distribution of health outcomes.
  3. Slope Index of Inequality (SII) and Relative Index of Inequality (RII): Quantify absolute and relative differences in health across socioeconomic gradients.
  4. Rate Ratios and Rate Differences: Comparing health indicators (such as infant mortality rates or disease prevalence) between the highest and lowest socioeconomic groups can reveal stark inequalities.

These measures help track trends and identify priority areas for intervention.

2. Access to Care

Access is a multi-dimensional concept, often measured by:

  • Availability: Are services physically present and operational?
  • Affordability: Are services financially accessible, particularly in systems with high out-of-pocket costs?
  • Acceptability: Are services culturally and socially appropriate?
  • Geographical and time barriers: Are travel times or waiting periods excessively burdensome?

Empirical studies may examine utilization rates, unmet needs, or catastrophic health expenditures to evaluate equity in access.

Key measures for access to care include:

  • Utilization Rates: These measure how frequently different groups use health care services. Low utilization among certain populations may indicate barriers such as cost, distance, or cultural factors.
  • Insurance Coverage: The proportion of the population covered by health insurance is a key metric, particularly in systems where out-of-pocket payments can deter care-seeking.
  • Geographic Distribution of Services: Mapping the availability of health facilities helps identify “deserts” where access is limited, often affecting rural or underserved urban communities.

These measures provide a data-driven basis for assessing whether health care systems meet the twin goals of equity and efficiency. However, capturing intangible aspects—such as perceived quality of care or cultural competency—remains a challenge.

Policy Interventions to Improve Equity

Addressing inequities in health care requires targeted and often multi-sectoral strategies. Some of the most impactful policy levers include:

1. Universal Health Coverage (UHC)

UHC aims to ensure that all individuals receive needed health services without suffering financial hardship. Countries that adopt UHC typically see improvements in both equity and overall health outcomes. Key elements include:

  • Risk pooling through taxation or insurance
  • Essential benefits packages
  • Subsidies for vulnerable populations

Countries that have adopted UHC models, such as Thailand, Rwanda, and Costa Rica, have demonstrated significant reductions in health disparities.

2. Progressive Financing Mechanisms (e.g. subsidies, income-based financing)

Progressive taxation and income-based contributions to health insurance help redistribute resources from high-income to low-income groups. This is a core feature of equitable systems like the UK’s NHS or Scandinavian welfare states. Programs that subsidize health care costs for low-income individuals help reduce disparities. For instance, sliding scale fees and targeted subsidies can improve access for marginalized groups.

3. Targeted Health Programs

Programs focused on disadvantaged populations can close equity gaps. Investing in primary health care facilities, especially in underserved areas, can reduce geographic disparities in access. Community-based services often integrate preventive, curative, and educational functions. Examples include:

  1. Immunization campaigns in low-income communities
  2. Nutritional programs for children
  3. Conditional cash transfers (e.g., Brazil’s Bolsa Família) tied to health service use
  4. Mobile clinics or telemedicine in rural areas
  5. Culturally tailored outreach for minority communities

4. Reducing Out-of-Pocket Payments

OOP spending is regressive and a major barrier to access, especially in low- and middle-income countries. Removing user fees for primary care, maternal health, and essential medicines can significantly increase utilization and reduce financial strain.

5. Health Workforce Distribution

Equitable access requires a well-distributed health workforce. Incentives for rural service, task shifting, and community health worker programs can improve reach and responsiveness.

6. Social Determinants of Health (SDH)

Addressing upstream factors such as education, housing, and employment is essential for achieving health equity. Policies that address housing, education, employment, and environmental conditions can have a significant impact on health outcomes, reducing the broader social gradients in health. Health-in-all-policies (HiAP) frameworks encourage cross-sector collaboration to tackle SDH.

6. Expanding Coverage and Reducing Financial Barriers

  • Performance-Based Incentives: Programs such as pay-for-performance (P4P) can be designed to reward providers for reducing disparities and improving outcomes among disadvantaged populations. When paired with robust quality metrics, P4P has the potential to drive improvements in both efficiency and equity.
  • Data Monitoring and Transparency: Establishing comprehensive data systems to monitor health outcomes and service utilization can help identify inequities and track the success of interventions. Transparent reporting encourages accountability and continuous quality improvement.

Conclusion

Equity and efficiency are foundational yet sometimes competing objectives in health care. While efficiency seeks to maximize the health benefits generated from available resources, equity ensures that these benefits are distributed fairly among all segments of society. Measuring health inequalities and access using quantitative indicators is critical for informed policymaking. Moreover, a range of policy interventions—from expanding insurance coverage and strengthening primary care to addressing broader social determinants—can help reconcile the tension between these two objectives. As health systems continue to evolve, a balanced approach that embraces both efficiency and equity will be key to achieving sustainable, just, and high-performing health care.

References

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  • Whitehead, M. (1992). The concepts and principles of equity and health. International Journal of Health Services, 22(3), 429–445.
  • O’Donnell, O., van Doorslaer, E., Wagstaff, A., & Lindelow, M. (2008). Analyzing Health Equity Using Household Survey Data: A Guide to Techniques and Their Implementation. World Bank.
  • World Health Organization (2010). Health Systems Financing: The Path to Universal Coverage. The World Health Report 2010.
  • Marmot, M. (2005). Social determinants of health inequalities. The Lancet, 365(9464), 1099–1104.
  • Wagstaff, A., & van Doorslaer, E. (2000). Equity in health care finance and delivery. Handbook of Health Economics, Volume 1, Elsevier.
  • Wagstaff, A. (2002). Inequality in the delivery of health care services: An international perspective. Journal of Health Economics, 21(5), 823–832.
  • Murray, C. J. L., & Lopez, A. D. (1996). The Global Burden of Disease: A Comprehensive Assessment of Mortality and Disability. Harvard School of Public Health.
  • Cookson, R., et al. (2016). Using cost-effectiveness analysis to address health equity concerns. Value in Health, 19(5), 610–617.
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