Catastrophic Out-of-Pocket Medical Expenditures

OOP payments are the primary means of financing healthcare in the many low-income Asian countries that lack prepayment mechanisms such as health insurance or tax (Van Doorslaer et al. 2007). The welfare of households without health insurance may be severely reduced by OOP medical expenditures should a household member fall ill. While some households may be able to finance healthcare through savings or on credit, households lacking savings or access to credit must cover medical expenses from the household budget. If the OOP expenses are large in proportion to the household budget, they may be considered catastrophic. Having a sick household member can thus lead some households into immediate poverty and force financially constrained households to choose between cutting household consumption and going without treatment.

Ideally, longitudinal data is necessary to allow one to track the changes in non-medical spending following an illness and estimate the reduction in household welfare caused by a catastrophic medical expenditure. In this case, however, only cross-section data is available, and some approximation must be made. Following Van Doorslaer et al. (2007) and Wagstaff et al. (2007), this paper defines catastrophic health expenditure as OOP payments exceeding a particular budget threshold. Spending a large share of the household budget on medical expenses can reduce welfare in the short term, if financed by sacrificing current consumption, or in the long term, if financed by savings, credit or the sale of assets. Although the short- term disruption of living standards is typically more severe, large OOP expenditures can also threaten the long-term stability of a household if it becomes indebted and cannot absorb further economic shocks (Van Doorslaer et al. 2007).

The two key variables for calculating catastrophic expenditure are total household OOP medical expenditure and household expenditure, which is used a measure of household resources. Unlike other measures of household resources, such as income, the use of household expenditure reflects the assumption that the impact of OOP expenditure is greater on households without savings (Wagstaff et al. 2007).

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1. Gabby
   (posted 21 January 2009 / 04:39:21 PM)
   
   this is a good contributon to understand the link between health outcomes and occupations...