The appropriate role of the state inhealth is complex both in economic theory and in practice.Theory identifies three reasons for state action: (i) publicgoods or services with large externalities (involvingefficiency); (ii) poverty (involving equity); and (iii)failings peculiar to insurance markets for health care(where both inefficiency and inequity arise). The insurancedomain presents the most costly and difficult problems, andexplains why - in contrast tom other sectors - governmentstend to finance an increasing share of health care asincomes rise. Regulation, mandates and provision ofinformation are also crucial public instruments; publicprovision of care is less important.