Paying Out-of-Pocket for Health Care in Asia? Part 2

p/s: Please refer to my previous post if you haven't read the Part 1 of "Paying Out-of-Pocket for Health Care in Asia?"

3. Household budget shares of out-of-pocket payments

The World Bank examined the shares of household budgets absorbed by OOP payments for health care. For low- and middle-income territories, the household budget is defined as the value of consumption, including that from home production. For the high-income territories (Hong Kong, Taiwan and South Korea), the household budget is given by expenditure on market goods and services.

There is substantial variation across territories in the OOP budget share. On average across all households, OOP payments for health care absorb 4-5.5% of total household consumption in China, India, Bangladesh and Vietnam. All four of these countries rely on OOP payments for at least 60% of health financing. With the exception of (urban) China, they are amongst the poorest countries examined here. Associated with poverty, population health deficiencies drive up expenditures on health care and medicine

The mean OOP budget share is much lower – 1.4-2.7% - in Malaysia, Thailand, Indonesia, the Philippines, Sri Lanka, Hong Kong, Kyrgyz and Nepal. With the exceptions of Indonesia, Kyrgyz and Nepal, these countries are less poor than the first group and rely less heavily on OOP financing. The low OOP budget shares in Indonesia and Nepal are somewhat surprising given heavy reliance on OOP financing.

In the two high-income territories operating a social insurance model with co-payments – South Korea and Taiwan – the mean OOP budget share is in the middle of the range, around 3.8%. The lower average budget share in Hong Kong (2.3%) is understandable given its higher levels of income and population health and, in comparison with South Korea, by its lower reliance on OOP financing.

Bangladesh, India and Indonesia are among the poorest countries included in the study. The most plausible explanation of the steep income gradients in these countries is that the better-off can respond to health problems with the purchase of medicines etc, while the poorest of the poor cannot afford to divert resources from very constrained budgets.

However, one should not overlook the fact that the poorest households in Bangladesh - a very poor country – spend a larger fraction of their available resources on health care than the richest households in high-income Hong Kong. This is explained by the tremendous differences in population health and insurance coverage. China and Vietnam are similar to Bangladesh and India in having a high mean OOP budget share but differ in that the distribution does not display a steep income gradient.

In China, the rich actually spend relatively less out-of-pocket on health care. A consequence, one might suppose, of the lack of any fee exemptions for the poor, the collapse of collective payment schemes in rural areas and the greater health insurance cover enjoyed by the better-off, urban population. Fee waivers exist in Vietnam but are restricted to the indigent identified by village committees.

4. Catastrophic payments

In the absence of insurance cover, households with severe and immediate medical needs can be forced to expend a large fraction of the household budget on health care. So, the concept of catastrophic payments has been out into operation by defining them as occurring once OOP payments cross some threshold share of household expenditure. Note that the catastrophic effect of OOP payments may be incurred in the short and/or long-term.

World Bank presented the catastrophic payment headcount (CH)- the percentage of households incurring catastrophic payments. Catastrophic payments are most prevalent in Bangladesh, Vietnam, China and India. Vietnam has a higher proportion of households than Bangladesh spending in excess of 5% of the budget on health care but the ordering is reversed at all higher threshold values.

At the lower threshold value of 5%, South Korea is close to Taiwan, with around 20% of households spending in excess of this threshold. But at higher thresholds, Korea is closer to the high incidence group and actually has a higher proportion of households than India spending in excess of 15% and even 25% of the budget. In fact, direct payments for health care absorb in excess of 25% of total expenditure in a remarkable 2.5% of Korean households. This reflects the very extensive use of co-payments, the non-coverage of many treatments and, in particular, the partial coverage of expensive inpatient care provided by the Korean social insurance system.

By contrast, in Taiwan protection against very high OOP expenditures is similar to that in tax-financed Hong Kong. The incidence of catastrophic payments is lowest in Malaysia, Sri Lanka, Thailand, Indonesia and the Philippines, with less than 5% of households spending more than 10% of total expenditures on health care.

As is to be expected, and has been demonstrated elsewhere, countries relying most on OOP financing generally have the greatest prevalence of catastrophic payments. Of course, reliance on OOP financing is negatively correlated with national income and so there is a negative relationship between catastrophic prevalence and national income.

For example, while China relies on OOP financing only slightly more than Indonesia, the prevalence of catastrophic payments is much higher in China than Indonesia. Clearly, the propensity to spend on medicine is higher in China than Indonesia and there is less protection against very high medical bills that exhaust a substantial share of household resources. There is evidence that government intervention in Indonesia is effective in reducing exposure to catastrophic health payment risks.

5. Poverty impact

Medical expenditures can be impoverishing. Paying for health care can be at the expense of meeting basic needs for food, clothing and shelter. They referred the difference between poverty estimates net and gross of health payments as the poverty impact of those payments.

They also presented the poverty headcount ratios (PH) based on household consumption/expenditure both gross and net of OOP health payments relative to each of the two poverty lines. Results are not presented for the three high/middle income territories (Hong Kong, South Korea and Taiwan) since absolute poverty is near non-existent and it remains so after taking account of OOP health payments. Poverty is highest in Nepal, where we estimate 39.3% of individuals live on less than the equivalent of $1.08 per day (1993 PPP), followed by India (31.1%), Bangladesh (22.5%), the Philippines (15.8%) and China (13.7%).

6. Conclusion

First, there is still heavy reliance on out-of-pocket financing of health care in Asia. The OOP share of health funding is at least a third in all territories included in this study, exceeds three fifths in Bangladesh and China and over three quarters in Vietnam, India and Nepal.

Second, such heavy reliance on OOP financing has important consequences for household living standards. OOP payments for health care absorb more than one quarter of household resources net of food costs in at least one-tenth of all households in Bangladesh, China, India, Nepal and Vietnam. Such levels of spending can only be accommodated through the diversion of considerable resources from other items of consumption and/or through the disruption of consumption paths across time. The consequent negative welfare costs may be termed “catastrophic”.

Third, there are important differences across countries, not only in the scale of OOP payments for health care, but also in their distribution. In high-income territories, catastrophic payments tend to be evenly distributed, or even slightly concentrated on the less well-off. In most low-income countries, however, it is households with higher total expenditure that are more likely to spend a large fraction of those resources on health care. This reflects the inability of the poorest of the poor to divert resources from basic needs.

Fourth, despite the concentration of catastrophic payments on the households with higher total expenditures in the majority of low-income countries, OOP payments still push lots of Asian families (further) into poverty.

Reference:

Paying out-of-pocket for health care in Asia: Catastrophic and poverty impact