Financial Protection Against Medical Expense

Abstract

Financial protection is claimed to be an important objective of health policy. Yet there is a lack of clarity about what it is and no consensus on how to measure it. This impedes the design of efficient and equitable health financing. Arguably, the objective of financial protection is to shield nonmedical consumption from the cost of healthcare. The instruments are formal health insurance and public finances, as well as informal and self-insurance mechanisms that do not impair earnings potential. There are four main approaches to the measurement of financial protection: the extent of consumption smoothing over health shocks, the risk premium (willingness to pay in excess of a fair premium) to cover uninsured medical expenses, catastrophic healthcare payments, and impoverishing healthcare payments. The first of these does not restrict attention to medical expenses, which limits its relevance to health financing policy. The second rests on assumptions about risk preferences. No measure treats medical expenses that are financed through informal insurance and self-insurance instruments in an entirely satisfactory way. By ignoring these sources of imperfect insurance, the catastrophic payments measure overstates the impact of out-of-pocket medical expenses on living standards, while the impoverishment measure does not credibly identify poverty caused by them. It is better thought of as a correction to the measurement of poverty.

On the Measurement of Financial Protection: An Assessment of the Usefulness of the Catastrophic Health Expenditure Indicator to Monitor Progress Towards Universal Health Coverage

“…These measures only capture the direct economic effects of using health services and fail to account for other indirect financial consequences of using health services, which may also reduce living standards. 2,4,25 While O'Donnell 15 has argued that only the direct effects of using health services and not of illness in general should in fact be the goal of health policy, some indirect financial effects may also result from the decision to seek health services, such as the opportunity cost of time spent seeking health services, and thus could underestimate the financial burden on households. More importantly, the official SDG indicator is blind to the way in which households finance OOPs through what are called coping mechanisms, many of which can have additional short-or long-term financial implications for households.…”

“…30 Methods have been developed to measure unmet need for health services in other contexts, 31 usually based on self-reports of forgoing the use of health services due to unaffordability, but more research is needed to understand if such measures could be operationalized globally and could be integrated into global estimates of UHC. Some conceptualizations of FP have also emphasized the idea that households should be protected not just against OOPs but also against the risk of needing to use health services, 8,15,32 which suggests that some believe that the measurement of FP should also include an ex-ante measure of risk and not simply an ex-post measure of OOPs. 8 Prior to the decision to use CHE as the official SDG indicator, the IAEG SDG had recommended using the proportion of the population with health insurance coverage as the official SDG indicator, partially motivated by these concerns as well concerns about data availability.…”

“…While it is currently challenging to measure the financial consequences of uncertain health expenditures, indicators that capture elements of risk into estimates of financial protection against health expenditures have been proposed and should be further explored. 15,27 The SDGs also include a number of cross-cutting goals, such as equity, thus a useful indicator of FP should be sensitive to the distributional aspects of FP. However, numerous studies in many international contexts have found the official SDG indicator to be the least sensitive to equity when tested alongside other FP indicators, and strong pro-rich gradients have frequently been found in the prevalence of CHE in many international contexts.…”

“…One of the key features of the CHE indictor that likely influenced its selection as the official SDG is the relatively easy calculation that is required to estimate it: researchers need only to have data on household OOPs and total household income or consumption and then divide one by the other. 15 It is technically feasible to calculate all of the FP indicators discussed in this paper using the same underlying household survey data, provided that the survey utilized acceptable methods to measure and report health expenditures, food and non-food spending, and consumption or income. While many HBES provide household welfare aggregates, since these aggregates are not disaggregated along the lines needed, it is technically more challenging to calculate the capacity to pay metric relative to the budget share metric.…”

“…The recommendation to use the CHE indicator, however, was controversial, 13 and there is a lack of agreement in the literature about which indicators are best at measuring FP. [14][15][16] The use of CHE to measure FP long predates its adoption as the official SDG indicator, as do the debates about the strengths and limitations of it and alternative indicators. 17,18 As no indicator is ever perfectly able to capture all dimensions of an issue and given the known limitations of these indicators, it is surprising that there has been little discussion about the ability of the official SDG indicator to track and monitor progress toward FP, a gap this paper seeks to address.…”