Exit from catastrophic health payments: a method and an application to Malawi
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Exit from catastrophic health payments: a method and an application to Malawi Richard Mussa1
Received: 2 January 2015 / Accepted: 16 December 2015 / Published online: 6 January 2016 © Springer Science+Business Media New York 2015
Abstract This paper proposes three measures of average exit time from catastrophic health payments; the first measure is non-normative in that the weights placed on catastrophic payments incurred by poor and nonpoor households are the same. It ignores the fact that the opportunity cost of health spending is different between poor and nonpoor households. The other two measures allow for distribution sensitivity but differ in their conceptualization of inequality; one is based on socioeconomic inequalities in catastrophic health payments, and the other uses pure inequalities in catastrophic health payments. The proposed measures are then applied to Malawian data from the Third Integrated Household Survey. The empirical results show that when the threshold of pre-payment income is increased from 5 to 15 %, the average exit time decreases from 2.1 to 0.2 years; and as the catastrophic threshold rises from 10 to 40 % of ability to pay, the average exit time falls from 3.6 to 0.1 years. It is found that adjusting for socioeconomic inequality leads to small changes in the exit times, however, using pure inequality leads to large reductions in the exit time. Keywords
Catastrophic payments · Average exit time · Distribution-sensitivity · Malawi
JEL Classificaion
I1 · I14 · I15
Introduction The reliance on out-of-pocket payments (OOP) is a dominant feature of health care finance in most developing countries; and this means that households, especially poor ones, face a difficult intertemporal choice between diverting resources towards medical care now, or foregoing treatment at the expense of depreciating their human capital. OOP payments on health care can be catastrophic if they severely disrupt household living standards. Such catastrophic payments can threaten living standards either in the short term through the
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Richard Mussa [email protected] Department of Economics, Chancellor College, University of Malawi, Box 280, Zomba, Malawi
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sacrifice of current consumption, or in the long term through depletion of assets, dissavings or accumulation of debts (Xu et al. 2003; Russell 2004; Wagstaff 2006; Sparrow et al. 2013). The financial protection of households from catastrophic payments is a widely accepted conception of fairness in health finance (WHO 2000, 2010). Indeed, catastrophic health care payments have motivated calls on governments to move to some kind of pre-payment mechanism, such as taxes or universal medical insurance (WHO 2005). Similar to the poverty measurement problem (Sen 1976), the methodology for measuring catastrophic OOP health payments can be broken down into two stages: (i) the identification of individuals or households incurring catastrophic medical expenditures, and (ii) the aggregation of all the individuals or households into an overall in
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