Challenges of Healthcare Financing: Economic and Welfare Effects of User Fees in Urban Ethiopia

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Addis Ababa University


This study examines the determinants of health care provider choice of urban households of Ethiopia. Particularly, it investigates the effects of user fees on the demand for health care by different segments of socio-economic group using multinomial logit model. The data source of the study is the Ethiopian Urban Socio-economic Survey conducted in 2004 by the Department of Economics of Addis Ababa University in collaboration with the Department of Economics, University of Goteborg in Sweden Cost recovery mechanisms were introduced based on the principle that health care demand in developing countries is price inelastic; so that more resources can be generated for the health sector without reducing the demand by the poor. But the results of this study reveal that for a given rise in health care cost, the poor will reduce the demand for health care significantly in greater proportion relative to the better off. In other words an increase in user fee is likely to drive out the largest portion of the poorest households from receiving medical care. The study also shows the poor are required to pay significantly greater proportion of their income to health care than the better off in order to get treatment. This will aggravate the existing inequality in access to basic health care services. Hence, even though the principle of cost recovery had been advocated as alternative means of health care financing in most developing countries, increasing user fee may drive the poorest population out of health care market or deepen their economic situation unless some reliable protective measures are taken



Cost Recovery, Equity, Financing, Health Care Provider