Sri Lanka’s health care system does well by international and regional standards in various dimensions of equity, in particular its targeting of public expenditures to the poor, and the effectiveness of public expenditure in protecting households against the impoverishing impacts of catastrophic illness. The good performance of Sri Lanka and other Asian countries who have used similar strategies demonstrates that the general approach of relying on public expenditure as the primary funding source for the health system, concentrating public expenditures on hospital services and maintaining the principle of universal access has been effective in ensuring equity on the delivery and risk-protection side. Further improvements in this area will depend on increasing the share of public expenditure in total health system financing so as to reduce the role of out-of-pocket payments.
Sri Lanka does not do well in regional comparison with respect to progressivity of payments for health care. This is due to it relying more on indirect taxes than direct taxes than is the case in other comparable Asian market economies, and in its indirect taxes being regressive. Other Asian countries have progressive incidence of indirect taxes. Improving progressivity in Sri Lanka requires that it increases the contribution of direct taxation to overall public financing, and in making more effort to vary the rates of indirect tax according to the income elasticity of demand for specific items.
