International Journal of Healthcare Management

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Healthcare financing in South-East Asia: Does

fiscal capacity matter?

Deepak Kumar Behera & Umakant Dash

To cite this article: Deepak Kumar Behera & Umakant Dash (2018): Healthcare financing in
South-East Asia: Does fiscal capacity matter?, International Journal of Healthcare Management,
DOI: 10.1080/20479700.2018.1548159

To link to this article: https://doi.org/10.1080/20479700.2018.1548159

Published online: 25 Nov 2018.

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INTERNATIONAL JOURNAL OF HEALTHCARE MANAGEMENT
https://doi.org/10.1080/20479700.2018.1548159

Healthcare financing in South-East Asia: Does fiscal capacity matter?

Deepak Kumar Behera and Umakant Dash
Department of Humanities and Social Sciences, Indian Institute of Technology Madras, Chennai, India

ABSTRACT ARTICLE HISTORY

Financing healthcare and achieve sustainable development goals by 2030 is the prime focus of Received 20 June 2018
many low-income and middle income countries. Improved public healthcare and reduce the Accepted 9 November 2018
burden of out-of-pocket health expenditure is the overarching public health policy objective
KEYWORDS
across the Asia-Pacific region. This study examines the impact of fiscal capacity on health Healthcare financing; South-
expenditure by controlling socio-economic factors in South-East Asia for the period of 1995– East Asia; fiscal capacity;
2013. We have employed a panel fixed effects regression model in order to capture country- Health expenditure; fixed
level unobserved heterogeneity and macroeconomic policy changes in the health sector. effects model
Overall result shows that annual change in per capita government health expenditure
(pooled financing) is influenced positively by the per capita income, fiscal capacity, ageing, JEL
and the prevalence of tuberculosis and rate of urbanization. The income elasticity of I130; H510; H3; C330; H510
government health expenditure is less than one, which implies that the health expenditure is
treated as a necessity for the public health providers. Overall empirical analysis concludes
that pooled financing mechanism positively influenced by the size of fiscal capacity thereby
the share of out-of-pocket health expenditure to total health expenditure declines over the
period. The result suggests that the faster movement towards health financing transition
would possible through the generation of fiscal capacity by improving public finance policies.

1. Introduction
Improved public healthcare and reduce the burden of
out-of-pocket health expenditure is the overarching
public health policy objective across the Asia-Pacific
region [1]. The World Health Organization (WHO)
framework on the health system1 argues that financing
healthcare plays an influential role for the attainment
of Universal Health Coverage (UHC2) and reduce the
financial burden of households by protecting them
against the costs of illness [2]. In this study, we have
adopted health financing framework as suggested by
Fan and Savedoff [3]. They have argued that most
low-income and middle-income countries show two
basic health financing trends over time. First, per capita
total health expenditure increases due to annual incre-
ment in the share of public financing towards health-
care. Second, total out-of-pocket health expenditure
as a share of total health expenditure declines due to
the incremental change in the resource mobilization
capacity of economies. Therefore, they have described
the trends and patterns of health expenditure move-
ment over the time period as the health financing tran-
sition. By following this argument, we have examined
the trends and patterns of health financing transition
movement in the South-East Asia Region (SEAR)
such as Bangladesh, Bhutan, India, Indonesia, Mald-
ives, Myanmar, Nepal, Sri Lanka, and Thailand for
the period 1995–2013. Basically, this study has empiri-
cally examined the determinants of health expenditure
and tested whether the health financing transition is
observed on average in SEAR during this relatively
shorter-time period.
This study has selected the SEAR due to the follow-
ing four reasons. First, SEAR capture not only to a
quarter of the world’s population but also to a daunting
range of both communicable and non-communicable
diseases. The health status of the world is significantly
influenced by the health status of the SEAR [1]. Second,
the distinctive characteristics of this region are that
there is a huge diversity in terms of geography, linguis-
tic, and political structure but these countries generally
face common health challenges. The countries like
Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan,
and Sri Lank face the triple burden of persisting infec-
tious diseases, incomplete demographic transition,
HIV and AIDS, massive unplanned urbanization.
Further, the health system of SEAR is very weak such
as limited national health insurance schemes and a lar-
ger role of the private providers of health payments [2].
Third, SEAR has gained substantial improvement in
health-related millennium development goals from
2000 to 2013 such as reduction of under-five mortality
rate and maternal mortality ratio, reduction in the
incident of malaria and HIV but it has been limited
progress in the percentage of antenatal coverage and
access to sanitation facilities. The countries such as
Bhutan, Indonesia, Maldives, Sri Lanka and Thailand
have made good progress in placing primary healthcare

CONTACT Deepak Kumar Behera deepakkumar.behera59@gmail.com

© 2018 Informa UK Limited, trading as Taylor & Francis Group
2 D. K. BEHERA AND U. DASH
oriented health systems in order to strengthen the goal
of UHC while other countries of this region are now
preparing for success [5]. Fourth, as the best of author’s
knowledge, the examination of the determinants of
health financing transition (four composition- per
capita total health expenditure, per capita government
health expenditure, per capita out-of-pocket health
expenditure and out-of-pocket as percent of total
health expenditure) and their movement over the
period has unnoticed by the existing literature.
The study has applied panel fixed effects regression
model in order to examine the determinants of health
financing transition by controlling economic, political,
and demographic factors. Overall result shows that
annual change in per capita government health expen-
diture (pooled financing) is influenced positively by an
economic factor (per capita income), political factor
(fiscal capacity), demographic factor (ageing), the
prevalence of disease (Tb) and urbanization in the
SEAR for the period of 1995–2013.
This paper is organized as follows. Section 2 con-
tains a brief overview of health financing trends and
patterns in the SEAR. Section 3 reviews the existing lit-
erature. Section 4 discusses the data and methods. Sec-
tion 5 discusses the empirical results. Section 6 contains
the conclusion.
2. Brief overview of health financing trends
in South-East Asia
Healthcare financing plays a critical role in progressing
towards the goal of UHC in SEAR but the region
suffers huge financial constraint resulting in inadequate
public investment in health. In other words, govern-
ment revenue which mediates the allocation of health
expenditure is limited in this region. As a result of
which there is high and even improvising out-of-
pocket expenditure by households [5].
Fan and Savedoff [3] argues that in most low-
income and middle-income countries, out-of-pocket
expenditure increases in absolute terms but its share
of total health expenditure declines because pooled
expenditure grow faster. In this study, we have
observed a similar pattern of transition in the context
of SEAR. Figure 1 presents trends in the health finan-
cing transition – the increase in total health expendi-
ture on the left y-axis and the decline of out-of-pocket
expenditure (OOPE) as a percent of total health
expenditure (OOPE%THE) on the right y-axis in
SEAR. The result implies that total health expenditure
has been increased and the share of OOPE%THE
declined in between 1995 and 2013.
Further, Fan and Savedoff [3] has argued that it is
not necessary for all countries move towards health
financing transition in the same speed over the time
and would be influenced by the public policy of the
government. In order to examine the health
expenditure trends in SEAR, we have observed three
important patterns of health financing transition by
comparing the annual change in pooled (government)
per capita health expenditure with the annual change
in out-of-pocket health expenditure (Figure 2). Pattern
1: When pooled health expenditure rise and out-of-
pocket expenditure declines or stays the same,
countries move rapidly through the health financing
transition (countries such as Thailand, Maldives, and
Bhutan). Pattern 2: When pooled health expenditure
rises faster than the pace at which out-of-pocket expen-
diture rises, countries progress through the health
financing transition more slowly (countries such as
India, Nepal, Sri Lanka, and Indonesia). Pattern 3:
When pooled health expenditure grows more slowly
than the out-of-pocket expenditure, countries regress
(countries such as Bangladesh and Myanmar).
In Figure 3, we have examined the sources of health
financing in SEAR for the period of 1995–2013. WHO
[1] has proposed two important health financing tar-
gets in order to attain UHC in the Asia-Pacific region.
First, out-of-pocket health expenditure should not be
exceed the 30 percent-40 percent of total health expen-
diture; second, over 70 percent of the population
should be covered by prepayment and risk pooling
schemes. We have found three important insights
from Figure 3. First, countries such as Bangladesh,
India, Indonesia, Myanmar, and Nepal have shown a
higher out-of-pocket expenditure (above the threshold
limit of 30 percent-40 percent) associated with a lower
government health expenditure. The result implies that
these countries provide less financial protection to their
people and limited coverage of prepayment schemes.
Second, countries such as Bhutan, Maldives, and Thai-
land have shown a lower out-of-pocket expenditure
(below the threshold limit of 30 percent-40 percent)
associated with a higher government health expendi-
ture. It implies that these countries have been provided
financial coverage under various prepayment mechan-
isms. Third, countries like Indonesia, Maladies, and
Thailand have raised their total health expenditure
through private insurance while other SEAR countries
just started their dependency through private insur-
ance mechanisms.
In this paper, we have also examined why pooled
health financing of countries such as Thailand, Bhutan,
and the Maldives shows a faster movement towards
health financing transition than the other SEAR
countries. Therefore, we have shown the fiscal capacity
trends of SEAR. Existing literature includes Heller [6],
Durairaj and Evans [7], and Mclntyre and Kutzin [8]
argue that fiscal capacity (i.e. the overall level of
government expenditure) shows the current size of
the public sector in the economy. They suggested cer-
tain “rule of thumb” for assessing the fiscal capacity
of an economy such as low fiscal capacity (<20%), med-
ium (20%-35%), and high (>35%).

Figure 1. Total health expenditure and out-of-pocket as a share of total health expenditure, 1995–2013.
Figure 4 shows that countries like Bhutan and
Maldives have been a high level of fiscal capacity;
countries like India, Sri Lanka, and Thailand have
been a medium level; and countries such as Bangla-
desh, Indonesia, Myanmar, and Nepal have been a
low level of fiscal capacity. We have found two
insights. First, despite the medium level of fiscal
capacity, the fiscal capacity for health (ratio of govern-
ment health expenditure to general government
expenditure) is larger in Thailand than the Bhutan
and Maladies. Second, fiscal capacity is one of the
potential sources of health sector financing in SEAR.
Overall trends analysis of health financing transition
concludes that pooled financing mechanism positively
influenced by the size of fiscal capacity thereby the
share of out-of-pocket health expenditure to total
health expenditure declines over the period.
3. Review of literature
There has a bulk of literature examines the determi-
nants of total health expenditure and find that rising
income is the major source of health expenditure
growth [9–13]. They argue that if the income elasticity
of health expenditure is more than 1 percent, then we
assume that the incremental change in healthcare
expenditure is more than the incremental change in
per capita income and healthcare treated as a luxury.
On the other hand, if the income elasticity of health
expenditure is less than 1 percent, then we assume
that the incremental change in healthcare expenditure
is less than the incremental change in per capita
income and healthcare treated as a necessity. They
argue that income elasticity is less than 1 percent that
implies healthcare expenditure increases more slowly
than income and suggests that the government needs
to intervene in health system financing. There is a pau-
city of literature who examines the determinants of the
total health expenditure and its composition using
panel data econometric methods. Farag et al. [14];
INTERNATIONAL JOURNAL OF HEALTHCARE MANAGEMENT 3
Schiber and Maeda [15]; Musgrove et al. [16] have
categorized countries in different income panels.
They find that the share of pooled health financing
(government health expenditure) to income moving
very slowly towards health financing in the lower
middle-income countries, while the share of pooled
health financing increases rapidly and share out-of-
pocket expenditure decreases in high-income
countries.
Earlier literature has emphasised that per capita
income is the ultimate source of health sector financing
and they have given less importance to the role of pub-
lic finance policies on health financing. In the emer-
gence of United Nations Sustainable Development
Goals and international pressure for achieving health
financing coverage in low-income and middle-income
countries, the role of fiscal resources became crucial
to ensure better access to essential healthcare services
and financial protection [4,7]. Fan and Savedoff [3],
Hitiris [17], Hartwig and Sturm [18], Ke et al. [19],
and Behera and Dash [20] have used government
expenditure as percent of GDP (fiscal capacity) as
one of the explanatory variables to explain the determi-
nants of government expenditure on health . They have
found that the fiscal capacity shows a positive and stat-
istical significant relationship with the per capita gov-
ernment health expenditure in low-income and
middle-income countries. Fiscal capacity measure the
resource mobilization capacity of the government
towards healthcare financing that leads to reduce the
share of out-of-pocket health expenditure to total
health expenditure [3,4,19].
The increasing share of older people to the total
population called ageing and the effect of ageing on
the growth of government health expenditure as well
as the growth of out-of-pocket health expenditure is
the subject of scholarly debate among the health
researchers because of its mix impact on the growth
of total health expenditure. Lai [13], Crivelli et al.
[21]; Cantarero and Lago-Penas [22]; Khan and
4 D. K. BEHERA AND U. DASH
Figure 2. Changes in pooled and out-of-pocket health expenditure, 1995–2013.
Mahumud [23]; find that the large share of older
people (age on and above 65) tends to increase health-
care costs. They argue that an older population tends to
cause higher health expenditure because of the increase
incidence of illness as well as proximity to the time of
the death of the elderly. While Fan and Savedoff [3],
Barros [23], Sen [24], find that ageing show an
insignificant impact on total health expenditure.
Cutler and McClellan [25], Fan and Savedoff [2],
De Meijer et al. [26], Sorenson [27], find medical tech-
nology, rising wages of health personnel, and prices of
the medicine are increased healthcare cost and influ-
ence the financial allocation of the government. Their
argument is that changes in medical practices and tech-
nological innovations in terms of replacing traditional
drugs, diagnostics and procedures have led to an
increase the cost of medicine. Mohapatra and Murarka
[28] argues that technology up-gradation reduced the
cost of healthcare and improved the quality of health-
care services. They suggested that health financing
strategy should prioritize the resources allocation by
judging the economic scale of the decision making
units such as hospital and health center in order to
90
as % of Total health expenditure
80
70
60
50
40
30
20
10
0
Government health expenditure
Figure 3. Source of health financing in SEAR, 1995–2013.
move towards universal health coverage. Crivelli et al.
[21], Cantarero and Lago-Penas [22], Farag et al.
[14], and Lai [13] have included ‘time’ trend as proxy
for changes in medical technology and captures the
cost difference over time due to changes in medical
technology or other factor that may affect the growth
of health expenditure at the national level. The techno-
logical change increases in the medical care cost over
time, it does not necessarily mean that technological
change is bad because often bring health improvement
and it seems to bad only if the cost increases more than
the benefits.
Nistico et al. [29] argue that reduction of epidemics
of infectious diseases improves the quality of life of the
people and increase the life expectancy. They argued
there is a positive correlation between socio-economic
vulnerability and mortality due to the prevalence of
diseases. They suggested that healthcare system should
consider socio-economic factors before financing uni-
versal healthcare in an economy. Blanco-Moreno
et al. [30] argue that death-related cost diminishes as
health status improves and intensity of healthcare use
is the main driver of health expenditure in Spain.
1995-2013
Out-of-pocket expenditure Private insurance

40
35
30
25
Percent 20
15
10
0
h
n
ve
es
si
ta
di
ne
ad
hu
In
di
do
al
gl
M
an
In
B
GGE as % of GDP (Fis cal capacity)
GHE as % of GGE (Fis cal capacity for health)
Ratio (GHE/GGE)
Figure 4. Trends of Fiscal capacity towards health financing in SEAR, 1995–2013.
They suggest that keeping expenditure under control
country should be focused on factors such as popu-
lation’s health status, economic growth and develop-
ment, new technologies and medical progress, and
the organization and management of the healthcare
system. Dickov and Dickov [31] argue that health sys-
tem management and organizational strategy creates
the investment environment in the healthcare sector
both at the global and the local level. They argue that
health system required auditing of financial statements
by healthcare institutions at the local level and the
operational audit of economic policy in the healthcare
institutions at the national level. Reddock [32] argues
that supply-side and demand-side perspective should
be included in the assessment of financial coverage of
healthcare cost, thereby it could reduce the share of
out-of-pocket health expenditure. They suggest that
the supply-side and demand-sides of health services
are complementary each other that should be con-
sidered before designing the healthcare financing fra-
mework for UHC.
4. Data and methods
This study has examined the elasticity of health expen-
diture with respect to fiscal capacity by controlling
other pertinent factors such as per capita Gross Dom-
estic Product (PCGDP), ageing, the prevalence of
Tuberculosis (Tb) and rate of urbanization in SEAR.
PCGDP shows the level of income of a country, fiscal
capacity shows the government’s ability and willing-
ness to spend on healthcare; ageing shows the demo-
graphic structure of the country; the prevalence of
Tuberculosis shows the morbidity situation, and rate
of urbanization shows the demand for healthcare ser-
vices. In this study, we have selected nine South-East
INTERNATIONAL JOURNAL OF HEALTHCARE MANAGEMENT 5
ka
ar
s
nd
al
nm
ep
an
la
ai
iL
ya
Th
M
Sr
Asia Region (SEAR) countries such as Bangladesh,
Bhutan, India, Indonesia, Maldives, Myanmar, Nepal,
Sri Lanka, and Thailand for the period of 1995–2013.
The countries such as the Democratic People’s Repub-
lic of Korea and Timor-Leste are excluded due to non-
availability of data of entire study period. We have
included four types of health financing indictors3
such as per capita total health expenditure (PCTHE),
per capita government health expenditure (PCGHE),
per capita out of pocket health expenditure (PCOOPE),
and out-of-pocket expenditure (OOPE) as a percent of
total health expenditure (OOPE%THE). Mclntyre and
Kutzin [8] argued that the assessment of these health
finance indicators is critical for moving towards
UHC. They argued that the PCGHE provides insights
into the level of government expenditure on health
and it is the strong predictor of the extent to which
the health system depends on OOPE. On the contrary,
OOPE%THE is of critical importance in assessing the
extent of financial protection within a country.
Hence, reducing the share of OOPE to total health
expenditure and increasing the pooled government
health expenditure (PCGHE) should be a policy pri-
ority of many countries for achieving UHC.
Table 1 shows the result of descriptive statistics and
pair-wise correlations. We have obtained the data of
variables for the period of 1995–2013 from the Global
Health Expenditure Database of WHO [33] and World
Development Indicator of World Bank [34]. The mean
value of PCTHE is 194.39 US$, PCGHE is 107.82 US$,
PCOOPE is 68.69 US$ and OOPE %THE is 47.79 per-
cent respectively. So, on an average of around 48 per-
cent of health expenditure is sourced from
household’s finance which seems to be a financial bur-
den due to huge medical expenses. The higher standard
deviation (Std. Dev.) result shows that there is huge
6 D. K. BEHERA AND U. DASH

Table 1. Result of descriptive Statistics and Pair-wise correlations.

Descriptive Statistics Pair-wise correlations
Variable Mean Std. Dev. Min Max PCTHE PCGHE PCOOPE OOPE % THE
PCTHE 194.39 180.28 8.76 1124.34 1
PCGHE 107.82 123.98 0.98 641.48 0.960*** 1
PCOOPE 68.69 57.09 7.45 426.56 0.814*** 0.631*** 1
OOPE % THE 47.79 20.7153 11.22 90.64 −0.652*** −0.742*** −0.256*** 1
PCGDP 4393.99 3004.2 444.24 12418.77 0.814*** 0.792*** 0.596*** −0.707***
Fiscal Capacity 23.42 9.23 3.52 49.72 0.571*** 0.596*** 0.397*** −0.618***
Ageing 5.07 1.34 3.14 9.71 0.321*** 0.333*** 0.198*** −0.251***
Tb 198.58 112.82 38 563 −0.527*** −0.411*** −0.545*** 0.398***
Urban 29.10 9.47 10.9 52.25 0.429*** 0.427*** 0.291*** −0.285***
Notes: Balanced panel of nine countries such as Bangladesh, Bhutan, India, Indonesia, Maldives, Myanmar, Nepal, Sri Lanka, and Thailand over the period
1995–2013. PCTHE: Per capita total health expenditure, PCGHE: Per capita general government health expenditure, PCOOPE: Per capita out-of-pocket
health expenditure, OOPE % THE: Out-of-pocket health expenditure as percent of total health expenditure, PCGDP: Per capita gross domestic product,
Fiscal Capacity: General government expenditure as percent of GDP, Ageing: Population ages 65 and above as percent of total population, Tb: Prevalence
of tuberculosis per 100,000 people, and Urban: Urban population as percent of total population. GDP and health expenditure are in million constant 2005,
US$. PCTHE, PCGHE, PCOOPE, PCGDP are in US$. *** denotes level of significant at 1%.
Source: Author’s estimation from the Global Health Expenditure Data Base of WHO [33] and World Development Indicators of World Bank [34].

variability in economic indicators such as fiscal
capacity and per capita GDP in SEAR. Further, there
is a huge disparity in health financing indicators such
as PCGHE and PCTHE by comparing the minimum
and maximum values in SEAR. The minimum value
of OOPE%THE is 11.22 percent and the maximum
value is 90.64 percent which shows the ranges of the
data over the period. The pair-wise correlations results
illustrate three preliminary finding before doing any
impact analysis through regression methods. First,
there is positive relationships between PCTHE,
PCGHE, PCOOPE and PCGDP; second, there is a
negative relationship between OOPE%THE and fiscal
capacity; Third, there is a negative relationship between
PCGHE and OOPE%THE. Hence, these results pro-
voke us to examine the extent and nature of relation-
ships between variables using advanced econometric
methods.
This study has applied panel fixed effects (FE) model
to examine the impact of fiscal capacity on health
expenditure by endogenizing per capita income, age-
ing, Tb and urbanization in SEAR for the period of
1995–2013. We formulated the following panel
regression methods.
One-way fixed effects
yit = ai + bx′it + vi + 1it
Two-way fixed effects
yit = ai + bx′it + gt + vi + 1it
For i = 1, . . . , N and t = 2, . . . , T, Where
yit is the dependent variable; xit is the ((k − 1) × 1) vec-
tor of strictly exogenous explanatory variables; vi is an
unobserved individual effect/homoscedastic country-
specific effects; and 1it is an unobserved white noise
disturbance/the stochastic disturbance term. The FE
model assumes that the country effects vi is constant
over time and space while the slope estimates b are
constrained across units. It is also called within
estimators because cross-sectional unit has its own
constant term and it varies within the cross-sectional
unit. While the individual country-specific intercept
vi is not constant over time rather random, called as
random effects (RE) model. The RE model assumes
that vi are uncorrelated with regressors. If the regres-
sors are correlated with vi and they are correlated
with the composite error term (vi + 1it )and RE estima-
tor will be inconsistent [35].
The appropriateness of using FE and RE model in
the empirical estimation will be verified through the
Hausman test. The Hausman test shows whether the
regressors are correlated with the vi (in case of FE) or
uncorrelated with the vi (in case of RE). The null
hypothesis of the Hausman test says there is no sys-
tematic difference in the coefficient of FE and RE esti-
mation. The rejection of the null hypothesis implies
that there is a systematic difference in the coefficient,
so we need to apply the fixed effects model rather ran-
dom effects model and vice versa [36]. In this study, we
have estimated the fixed effects model after the rejec-
tion of the null hypothesis through the Hausman test
and aim of the FE model is to eliminate vi to give
efficient estimators.
Eq. (1) shows, the one-way FE model without time
dummy and Eq. (2) shows the two-way FE model
(1) with time dummy along with other explanatory vari-
ables. The one-way FE model which controls for
time-invariant country-specific unobservable effects.
(2) The two-way FE model is very relevant because
there are time trends and year specific shocks such
as war, epidemics, droughts which could be biased
our empirical estimation [14]. In Eq. (2) the coeffi-
cient g will measure an annual rate of change over
time ′ t ′ in the dependent variables. This time trend
measures any consistent annual changes of some
unobservable factors such as changing technology
and medical practices, cost pressures and public pol-
icies, may contribute to the growth of health
expenditure.

5. Empirical results and discussion
Table 2 represents the results of panel FE model which
estimates the elasticity of health expenditure (i.e.
PCTHE, PCGHE, PCOOPE, OOPE%THE) with
respect to per capita GDP (per capita income) by con-
trolling fiscal capacity, ageing, prevalence of Tubercu-
losis and rate of urbanization. Table 2, we have
shown the result of both panel one-way FE (without
time trend) and panel two-way FE (with time trend)
models for robustness of our results.
5.1. Health expenditure and income
Table 2 shows that per capita GDP (PCGDP) shows
positive and statistically significant relationships with
PCTHE, PCGHE, and PCOOPE in both one-way FE
and two-way FE regression model. The result implies
that at 1 percent incremental change in PCGDP, total
health expenditure (PCTHE) increases at less than 1
percent and the coefficient of PCTHE is 0.76 percent
(column 2). The regression result of per capita govern-
ment health expenditure (PCGHE) shows that at 1 per-
cent incremental change in PCGDP leads to 0.65
percent change in PCGHE and the elasticity is less
than 1 percent (column 4). The regression result of
per capita out-of-pocket expenditure (PCOOPE)
shows that at 1 percent incremental change in
PCGDP leads to 1.09 percent change in PCOOPE
and the elasticity is greater than 1 percent (column
5). On the other hand, the elasticity of PCOOPE with
respect to PCGDP is less than 1 percent after control-
ling both country and year effects (column 6). The
result implies that at 1 percent incremental change in
PCGDP leads to 0.59 percent change in PCOOPE (col-
umn 6). Overall results show that per capita income
growth is the most important factor in order to finan-
cing healthcare.
The economic interpretation of these findings is that
the elasticity of health expenditure with respect to
income is equal to or greater than 1 percent indicating
that healthcare is a luxury rather than a necessity.
When the elasticity is less than 1 percent, healthcare
is closer to being a necessity and hence needs more
government intervention. Our results find that health-
care expenditure is treated as a necessity in SEAR
because the elasticity of both total health expenditure
and composition of health expenditure are less than 1
percent. This result is similar to other studies such as
Sen [25], Cantarero and Lago Penas [22], Baltagi and
Moscone [12], Ke et al. [19], Farag et al. [14], Fan
and Savedoff [3] and Khan and Mahumud [23], and
Behera and Dash [20,37]. They have also used the
panel fixed effects model and find the elasticity of
health expenditure with respect to income is less than
1 percent and the coefficient varies in between 0.40-
0.89 percent. Therefore, our study concludes that
INTERNATIONAL JOURNAL OF HEALTHCARE MANAGEMENT 7
both public providers through government financing
healthcare and private providers in terms of house-
hold’s medical expenditure are simultaneously contrib-
uted towards rising overall health expenditure in
SEAR.
5.2. Health expenditure and fiscal capacity
Table 2 examines the impact of fiscal capacity on health
expenditure (i.e. PCTHE, PCGHE, PCOOPE, and
OOPE%THE). The result shows that fiscal capacity
shows a positive and statistically significant relation-
ship with per government health expenditure
(PCGHE). It implies that at 1 percent incremental
change in fiscal resources leads to 0.015 percent change
in the public sources of financing towards healthcare.
On the other hand, the fiscal capacity shows a negative
and statistically significant relationship with OOPE%
THE. It implies that at 1 percent incremental change
in the resource mobilization leads to 0.29 percent
reduction in OOPE%THE. This result exhibits two
major insights. First, the mobilization of resources
through increasing overall government expenditure
would be capable of reduce the out-of-pocket health
expenditure. Second, fiscal capacity has a marginal
impact on pooled sources of financing and it needs to
be improved further. Our results are similar to those
of Hartwig and Sturm [18], Ke et al. [19], Lu et al.
[38], Palangkaraya and Yong [39], Hitiris [17], Gupta
and Mondal [4], Behera and Dash [20], who find a
positive and significant relationships between govern-
ment health expenditure and fiscal capacity. They
argued that the government expenditure as a ratio of
GDP shows the size of government and the ability of
government to finance healthcare. We find that the
fiscal capacity shows an insignificant impact on per
capita out-of-pocket health spending and the result is
obvious because fiscal capacity is the part of public pro-
viders of healthcare services. So, our result proves an
inverse relationship between the annual change in
PCGHE and annual change in the share of OOPE%
THE that follows the health financing transition argu-
ment of Fan and Savedoff [3].
5.3. Health expenditure and ageing
In Table 2, we have regressed health financing indi-
cators (i.e. PCTHE, PCGHE, PCOOPE, OOPE%
THE) with the population ages 65 and above as a per-
cent of total population (ageing). We find two interest-
ing results. First, there is a positive and statistically
significant relationship between PCGHE and ageing
and the result implies that at 1 percent increment in
the share of the aged population to the total population,
leads to 0.06 percent change in government expendi-
ture on health. Second, there is a negative and statistical
significant relationship between out-of-pocket health
8 D. K. BEHERA AND U. DASH

Table 2. Result of panel fixed effects model.

ln(PCTHE) ln(PCGHE) ln(PCOOPE) OOPE % THE
One-way Two-way One-way Two-way One-way Two-way One-way Two-way
Variables 1 2 3 4 5 6 7 8
ln (PCGDP) 0.846*** 0.763*** 0.738*** 0.651*** 1.093*** 0.595** 2.464 0.708
(0.058) (0.123) (0.082) (0.169) (0.118) (0.239) (2.707) (5.549)
Fiscal Capacity 0.002 0.002 0.014*** 0.015*** −0.003 0.001 −0.319** −0.294**
(0.002) (0.003) (0.003) (0.004) (0.005) (0.005) (0.124) (0.135)
Ageing −0.049* −0.064* 0.068* 0.057 −0.272*** −0.357*** −6.309*** −6.624***
(0.026) (0.032) (0.037) (0.045) (0.053) (0.063) (1.217) (1.482)
ln (Tb) 0.370*** 0.335*** 0.385*** 0.359*** 0.124 −0.093 −9.716*** −10.79**
(0.080) (0.093) (0.112) (0.129) (0.160) (0.182) (3.677) (4.220)
Urbanisation 0.035*** 0.032*** 0.034*** 0.031*** 0.025** 0.006 −0.018 −0.098
(0.005) (0.006) (0.007) (0.009) (0.010) (0.012) (0.232) (0.297)
Constant −4.734*** −3.840*** −5.734*** −4.854** −4.774*** 0.860 117.5*** 139.3**
(0.660) (1.383) (0.922) (1.901) (1.325) (2.686) (30.35) (62.27)
Country fixed effects Yes Yes Yes Yes Yes Yes Yes Yes
Year fixed effects No Yes No Yes No Yes No Yes
Hausman fixed [41.22]*** [12.26]** [14.44]** [45.35]***
R2 (within) 0.864 0.870 0.817 0.830 0.550 0.595 0.292 0.347
F-test 77.49*** 66.47*** 136.86*** 131.95*** 21.22*** 16.86*** 69.64*** 65.05***
Number of country 9 9 9 9 9 9 9 9
Observation 171 171 171 171 171 171 171 171
Notes: Standard errors in parentheses; Chi (square value) in square brackets; *** indicates significant at 1 percent level; ** indicates significant at 5 percent
level; * indicates significant at 10 percent level; One-way: Country fixed effects model, Two-way: Country and year fixed effects model; ln: Natural logarithm.
Source: Author’s estimation.

expenditure and ageing population and the result
implies that a 1 percent increment in the share of the
aged population to the total population, leads to
0.035 percent reduction in household expenditure on
healthcare. The economic interpretation of a negative
association between out-of-pocket health expenditure
and ageing implies that above 65 age people do have
the income to spend on healthcare and they depend
on earning members of the family. Further, the result
shows a reduction of total health expenditure that is
because the impact of aging is more on the reduction
of out-of-pocket expenditure and less on the rise of
government health expenditure. Our result is similar
to Sen (2005) that finds that ageing shows a negative
relationship with per capita out-of-pocket health
expenditure. On the contrary, our result is similar to
those such as Crivelli et al. [21], Cantarero and Lago-
Penas [22], Khan and Mahumud [23] and Di Matteo
[11] who find that large share of old people tends to
increase healthcare costs thereby increases government
expenditure on healthcare.
5.4. Health expenditure and disease pattern
In Table 2, we have regressed health financing indi-
cators (i.e. PCTHE, PCGHE, PCOOPE, OOPE%
THE) with the prevalence of tuberculosis per 100,000
people (Tb). We find two interesting results. First,
there is a positive and statistically significant relation-
ship between PCGHE and prevalence of Tb and the
result implies that at 1 percent increment in the share
of Tb patient, leads to 0.35 percent change in govern-
ment expenditure on health. Second, there is a negative
and statistically significant relationship between OOPE
%THE and prevalence of Tb and the result implies that
a 1 percent increment in the share of Tb patient, leads
to 6.62 percent reduction in out-of-pocket expenditure
as ratio a of total health expenditure. Further, there is a
positive relationship between per capita total health
expenditure and prevalence of Tb, which implies that
rising government health expenditure in order to pro-
vide financial incentives in the disease programmes
leads to raise overall health expenditure in the SEAR.
5.5. Health expenditure and urbanization
In Table 2, we have regressed health financing indi-
cators (i.e. PCTHE, PCGHE, PCOOPE, OOPE%
THE) with the proportion of urban population to the
total population (Urbanization). We find that urbaniz-
ation shows a positive and statistically significant
relationship with per capita government health expen-
diture and its contribution more towards the rising in
total healthcare expenditure in the SEAR. It implies
that growing urbanization leads to an increase in
healthcare demand such as a number of hospitals, a
number of medical staff etc. The result shows at 1 per-
cent increase in the urban population leads to 0.03 per-
cent change in per capita government health
expenditure. On the other hand, urbanization shows
a negative relationship with OOPE% which implies
that rising urbanization promotes accessibility of pub-
lic healthcare services and reduces household’s out-of-
pocket health expenditure. Our results similar to Gerd-
tham et al. [10] who finds that urbanization shows a
positive and significant relationship to government
health expenditure.
The overall result of Table 2 shows that annual
change in per capita government health expenditure
(pooled financing) is influenced positively by an econ-
omic factor (per capita income), political factor (fiscal
capacity), demographic factor (ageing), prevalence of

disease (Tb) and urbanization in the SEAR over the
period 1995-2013. While, the annual change in the
share of OOPE%THE is influenced negatively by
fiscal capacity, ageing, and Tb.
6. Conclusion and policy implications
The objective of this study was to observe the pattern of
health financing transition in SEAR over the period
1995–2013 and examine the impact of fiscal capacity
on the growth of health expenditure by endogenizing
per capita GDP, ageing, the prevalence of tuberculosis,
and urbanization. We observed that Thailand is mov-
ing rapidly through the health financing transition in
which per capita government health expenditure
increases while per capita out-of-pocket health expen-
diture decline rapidly as showing negative. In a low-
income country like Nepal is moving towards the
health financing transition in the overall period. The
lower middle-income countries such as Bhutan,
India, Indonesia, Myanmar, and Sri Lanka are moving
towards the health financing transition at the slower
pace.
The empirical results show that annual change in
per capita government health expenditure (pooled
financing) is influenced positively by an economic fac-
tor (per capita income), political factor (fiscal capacity),
demographic factor (aging), a prevalence of disease
(Tb) and urbanization in the SEAR. While, the annual
change in the share of out-of-pocket health expendi-
ture to total health expenditure is influenced negatively
by fiscal capacity, aging, and Tb. By comparing one-
way and two-way fixed effects regression model, the
result shows the growth of health expenditure and
movement towards health financing transition
influenced by the country-specific individual factor as
well as macroeconomic policies. The two-way fixed
effects model shows that there have been some policy
changes in the health sector among the countries
over the time period. These policy changes might hap-
pen by the respective government agency in terms of
advancement of medical technology, changes in the
source of government finance and prioritization of
health expenditure.
The result suggests that the faster movement
towards health financing transition would possible
through the generation of fiscal capacity by improving
economic growth. This study has not taken into
account other measures of fiscal capacity such as rev-
enue and grants for our estimation due to the lack of
time series data in SEAR. Both revenue and grants
could have important sources of health sector financing
in order move towards UHC [6]. Further, generating
additional resources through various taxation
measures (such as direct and indirect tax) and reprior-
itization of health budget are important sources of
health sector financing, thereby it mitigates the health
INTERNATIONAL JOURNAL OF HEALTHCARE MANAGEMENT 9
sector growing demands as well as reduced the out-
of-pocket health expenditure. Although this study
makes a preliminary attempt to understanding the
effect of fiscal capacity on various components of
health expenditure for SEAR by controlling socio-
economic and demographic factors. This study could
also serve as a basis for showing useful directions for
carrying out similar studies for other regions of Asia-
Pacific and other regions of WHO. Further to date,
empirical work on determinants of health financing
transition has been sparse. Therefore, this work will
be helpful for designing effective public finance policies
for achieving UHC in low-income and middle-income
countries.
Notes
1. Health system includes all the activities whose primary
purpose is to promote, restore or maintain health. In
precisely health systems are not just concerned with
improving people’s health but with protecting them
against the financial costs of illness. The challenge
facing governments in low-income countries is to
reduce the regressive burden of out-of-pocket pay-
ment for health by expanding prepayment schemes,
which spread financial risk and reduce the spectra of
catastrophic health care expenditures [2].
2. UHC provides assurance of health services to all needy
people under three objectives such as equity in access,
quality of health services and ensuring financial risk
protection [2].
3. Total health expenditure (THE) included both public
and private expenditure on health both domestic
and external agents. Government health expenditure
from domestic sources (GHE) included government
expenditure on health from general government rev-
enue and payroll taxes. It excluded External funds
channeled through governments. Out-of-pocket
expenditure (OOPE) included payments for doctor’s
consultation fees, medication, laboratory tests and
hospital bills. It can be in the form of user charges
in general or cost-sharing under insurance policies
[34].
Declaration of conflicting interests
The author (s) declared no potential conflicts of inter-
est with respect to the research, authorship, and/or
publication of this article.
ORCID
Deepak Kumar Behera http://orcid.org/0000-0001-6539-
4280
Umakant Dash http://orcid.org/0000-0001-5348-9530
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