Economics of Free Healthcare in Sri Lanka

This working paper presents a detailed analysis of the economics of free public healthcare in Sri Lanka. It examines the operational dynamics of demand-induced supply in a free healthcare system compared to supplier-induced demand in market-driven systems. The paper highlights that the relationship between the elderly population and per capita public health expenditure (PHE) is weaker than anticipated, while the death rate from non-communicable diseases is identified as a significant predictor of PHE. The document discusses the challenges posed by increasing demand on public healthcare spending, particularly due to rising costs of medical imports and the depreciation of the Sri Lankan rupee. It emphasizes the need for policy measures aimed at demand-induced cost containment and revenue generation within the public health sector. The paper also outlines a simple projecting model to analyze these trends and offers policy recommendations to ensure financial sustainability in the public healthcare system.