Coping with health-care costs: implications for the measurement of

catastrophic expenditures and poverty

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Introduction (1)• “Catastrophic health expenditure” is defined as a situation

where household out-of-pocket payments (OOPS) for health share a large proportion of household resources (e.g. > 10% of household income or expenditure)– Households having healthcare payments above this level would

have to sacrifice or cut food consumption, go into debt, and become impoverished.

• Another definition from the WHR 2000: health expenditure exceeds 40% of household capacity to pay or non-food expenditure (household income or expenditure after deduction of subsistence needs, especially food expenditure).

• However, these definitions ignore variation in the capacity of households to cope with health care costs (savings, assets, credit and transfers from friends and relatives).

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Correlation of HH with catastrophic health expenditure and out-of-pocket payments

Source: Ke Xu, David B Evans, et al (2003)

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Introduction (2)• Wagstaff and van Doorslear (2003) proposed the difference

between poverty measures computed from consumption gross and net of OOPs as an approximation to the impoverishing effect of those expenditures.

However, this approximation will be inaccurate if households finance a substantial share of health payments from coping strategies:

-Overestimate the impact of health payment on current expenditure;

-Overlook hidden chronic poverty.

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Objectives of this paper

• To develop measures of catastrophic payments and impoverishment that take account of financial coping strategies.

• Using a large nationally representative cross-sectional survey of India to distinguish:– HH using coping strategies to reduce the negative impact of high

medical expenses in the short term, but potentially vulnerable in the event of future shock;

– HH that might be forced to reduce their current consumption and are dragged into poverty.

• Providing a new way of measuring risk and vulnerability in the absence of longitudinal data but with cross-sectional information about risk coping strategies.

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Literature review (1)• Financial coping strategies refer to actions intended to protect

current consumption of HH from an economic shock:– Drawing on precautionary savings;– Depletion of assets;– Borrowing;– Transfers from friends and relatives.

• Sauerborn et al (1996) found that rural households in Burkina Faso

paid medical care costs from savings, selling livestock, borrowing, and labor substitution.

• Wilkes et al (1998) found that HH in a small village in China could finance a single episode of severe illness without reducing their current consumption of other goods.

• Peters et al (2001) revealed that poorer Indian HH were more likely to finance inpatient care through borrowing and sales of assets, particularly being male, household head, belong to a Scheduled Caste or Tribe and uneducated.

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Literature review (2)

• Social networks are important sources of financial support, and labour substitution is one of the main strategies to reduce the burden of income loss.

• Reduced consumption and investment - a transitory strategy inducing short-term consequences.

• Data on the means of financing a large OOP payments’ budget share can reveal the trade-off between protecting current versus long-term welfare of households.

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The setting and data (1)• In India, private health spending accounts for more than 80%

of all health expenditure, and public spending on health represents less than 1% of GDP

• In rural areas, more than 90% households have no insurance at all, and in urban areas over 75% are uninsured.

• Only 38% of primary health centers are adequately staffed, and the number of community health centers is little more than two-fifths of that deemed necessary.

• At retail market prices, a laborer would need to work more than two months in order to purchase medicines for anemia, and over two years for a multi-drug-resistant TB treatment.

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The setting and data (2)• The health care module of the 52nd Indian National Sample

Survey (NSS) conducted in 1995-1962

• Households report the amount of household OOP for health financed by:– Income

– Savings

– Borrowing

– Sales of assets, and

– Other sources

• Multiplied monthly per capita consumption expenditure by 12,

• Household is the unit of analysis,

• The survey covered 71,284 and 49,625 rural and urban HH, respectively.

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HH health payments adjusted with coping strategies

Where,

refers to the self-reported amount of OOP health

expenditures financed with coping strategies,

refers to total household expenditure

refers to OOP for health care

11(coping strategies)C = 2,580/2,760 = 0.93

Mean of proportion of exp. financed by coping

Coping-adjusted health expenditure ratio (P)(High spending households)

P

= unadjusted

C

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Cumulative distributions of health expenditure ratiosw = Unadjusted; P = Coping-adjusted

(w)

(P)

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15

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Conclusion (1)• The strategies households adopt to finance health care have

important implications for both the measurement and interpretation, esp. in the context of low-income populations with limited health insurance coverage,

• Using the ratio of health payments to total household expenditure: – overestimates the risk to current consumption induced by health

payments,

– Exaggerate the scale of catastrophic health expenditure

• Failure to take account of the extent to which health care is financed leads to oversight of the long-run opportunity cost of health payments.

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Conclusion (2)• Information on the source of finance can be used to uncover

poverty that is hidden by conventional measures because total expenditure is inflated by payments for health care that are financed from coping strategies.

• The impact of health payments on transient poverty can be approximated through assessing poverty on the basis of current income both gross and net of health payments financed from income alone.

• Coping strategies – savings, borrowing, asset sales – cover 52% and 44% of hospital costs of rural and urban households in India.

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Conclusion (3)• Poorer households employed coping strategies as informal

insurance for health care costs which will be the long-term sacrifice for economic constraints from health payments.

• The short term catastrophic impact of hospital costs on household welfare would be overestimated if coping strategies are not taken into account.

• Limitation of this study:– Did not capture the financial burden induced by OOP expenditure on

outpatient care and drugs,

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Thank you for your attention