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Balancing Equity and Efficiency

Equality, Equity and Policy: Balancing Equity and Efficiency


Efficiency refers to the allocation of limited economic resources to meet the healthcare needs of a society. There are several types of efficiency (more thoroughly described in module 4d Health Economics section 1: The Principles of Health Economics). Briefly:

Technical efficiency: Achieving a specified health gain with the minimum number of inputs.
Economic efficiency: Achieving a specified health gain at the least cost.
Allocative efficiency: Maximising the health gain from a specified level of resources (sometimes called social or Pareto efficiency).


Equity is the ‘fair’ distribution of benefits across the population.  Section 1: The Concepts of Need and Social Justice provides different theories of what is ‘fair’ and notes that the choice is a moral rather than objective one.

It is important to note that ‘equity’ differs from ‘equality’. Equality is the equal distribution of benefits across the population, and can be measured objectively.

In the utilitarian theory of social justice, equity = equality. This is called end state equity – a situation where there is an equal distribution of benefits.

In the egalitarian theory of social justice, equity is achieved when people have the same opportunities to obtain benefits even if the outcomes are unequal. This is called process equity.

Equity may apply to public health in several ways.  For example:

  • Equal health outcomes.
  • Equal access to care for patients with equal need.
  • Equal use of health care for equal need.
  • Equal expenditure/resources of care for equal need.
  • Equal costs (to the payer) for equal need.

There are two principles of equity in providing health care:

Horizontal equity: The equal treatment of individuals or groups who share similar circumstances.

Vertical equity: Individuals with different (or unequal) health should be treated differently (or unequally) in proportion to morally relevant factors. Morally relevant factors include ‘need’ (although see section: Need and Social Justice for the difficulties in establishing a definition of need), ability to benefit, autonomy, and desert. Morally irrelevant factors include age, sex, socio-economic status, income, education, ethnicity, disability, location, nationality.

Achieving horizontal or vertical equity may involve re-organisation of services and redistribution of resources.

Equity-efficiency trade-off

There are costs associated with redistributing benefits across the population. Redistribution requires substantial administration costs and may change the behaviour of individuals. For example, income tax is one method used
to redistribute wealth from those with high incomes to people with low incomes. Not only are there administration costs involved in taxing incomes (e.g. costs associated with running HM Revenue and Customs), but individuals whose income will be taxed may choose to work less and save less money. Therefore, the quantities of labour and capital in society after implementation of income tax are likely to be less than the ‘efficient’ quantities (the quantities that would maximize the amount of money in society). The total amount of money in society will be less after the income tax but the money that does exist will be shared more equally. There is, therefore, a trade-off between equity and efficiency. Redistributing benefits (such as health services) means that there are less total benefits enjoyed by society.

In the context of limited resources, the equity versus efficiency trade-off is a major issue when prioritising health care. There is no consensus on how to balance equity with efficiency within the NHS, leading Sassi and colleagues (2001) to argue that the trade-off has led to “inconsistent judgements in the development of health policy” and to appeal for guidance from the NHS when equity and efficiency conflict. The authors provide examples of inappropriate balancing of equity and efficiency using cervical cancer screening and neonatal sickle disease screening.

Cervical cancer screening in the NHS aims to maximise coverage by providing all general practitioners with economic incentives which reward GPs for every woman screened. However, some population groups (particularly disadvantaged groups) have very low participation rates in cervical cancer screening. Sassi et al argue that more cases of cervical cancer would have been avoided if screening rates had increased equally in socio-economic groups after introducing targeted payments to general practitioners.  Here, a focus on equal access instead of equal outcomes has sacrificed efficiency.

Sickle cell disease disproportionately affects particular ethnic minority groups. The UK Standing Medical Advisory Committee has recommended universal screening in areas where 15% or more of the population are in the high risk group.  Sassi et al note that the cost of universal screening is £430,000-1,000,000 per life year saved when compared with a policy of selective screening of high risk mothers. They note that while the universal screening policy may aim for equal access for equal need, the cost is inappropriately high as the benefit to non-minority ethnic groups is relatively low, and too much efficiency has been surrendered (Sassi et al, 2001).

When choosing between health interventions, James and colleagues (2005) propose scoring each health intervention according to explicit equity and efficiency criteria. They use cost-effectiveness as an efficiency criteria and the reduction of severe health conditions and poverty as equity criteria (in developing countries). Different weightings can then be given to each criterion so that policy makers can fully recognize efficiency and equity tradeoffs.


  • Sassi F, Le Grand J, Archard L (2001). “Equity versus efficiency: a
    dilemma for the NHS”. BMJ, 323: 762-763
  • James C, Carrin G, Savedoff W, Hanvoravongchai P (2005). “Clarifying
    efficiency-equity tradeoffs through explicit criteria, with a focus on
    developing countries” Health Care Analysis, 13(1).

© Rebecca Steinbach 2009