The Dynamics of Health Care and Growth: A model with physician in dual practice

We present a growth model with micro-foundations of a mixed health care system and
physician dual-practice, to analyze for welfare-optimal government financing strategy for
a mixed health system in developing countries. Calibrating the model for Indonesia, we
find that a government subsidy to private health care is both growth- and welfareenhancing,
whereas it is more effective for the government to invest in health
infrastructure instead of a public-sector "rewarding" policy in raising government
physicians’ wage if its goal is to improve physician effort in public practice. Indeed, for
the "rewarding" policy, a dynamic trade-off in growth is found, which is not previously
documented in the literature. We also find the model to produce two regimes with
different welfare-optimal health financing (a “normal” regime and a low public-sector
congestion regime). In the former, welfare-optimal health financing strategy appears to
be promoting private health subsidy at the expense of public-sector physician wages. In
the latter, the opposite is welfare-optimal.