Why might governments subsidize healthcare?

• A. To increase private profits of healthcare providers.
• B. Because healthcare has high positive externalities and equity considerations; subsidies improve access and social welfare.
• C. To reduce government spending.
• D. To improve efficiency by reducing costs.

Answer: (B)

Subsidizing healthcare is a response to positive externalities and equity concerns. When people receive care, it benefits others too—healthier individuals contribute more to the economy, and better overall health reduces the spread of contagious diseases. These social benefits exceed what individuals gain from paying for care on their own, so the market would under-provide healthcare without intervention. Government subsidies lower the price for patients, making care more affordable and accessible, especially for those with low incomes, which in turn improves overall social welfare and reduces health inequalities. It’s not primarily about boosting providers’ profits or about cutting government spending; while efficiency can be affected, the main aim is to reflect the broader social benefits and promote fair access to care.