The economic consequences of health shocks

While there is a great deal of anecdotal evidence on the economic effects of adverse health shocks, there is relatively little hard empirical evidence. The author builds on recent empirical work to explore in the context of postreform Vietnam two related issues: (1) how far household income and medical care spending responds to health shocks, and (2) how far household consumption is protected against health shocks. The results suggest that adverse health shocks - captured by negative changes in body mass index (BMI) - are associated with reductions in earned income. This appears to be only partly - if at all - due to a reverse feedback from income changes to BMI changes. By contrast, there is a hint - the relevant coefficient is not significant - that adverse BMI shocks may result in increases in unearned income. This may reflect additional gifts, remittances, and so on, from family and friends following the health shock. Medical spending is found to increase following an adverse health shock, but not among those with health insurance. The impact for the uninsured is large, equal in absolute size to the income loss associated with a BMI shock. The lack of impact for the insured points to complete insurance against the medical care costs associated with health shocks, and is consistent with the very generous coverage of Vietnam's health insurance program in this period. The question arises: have Vietnamese households been able to hold their food and nonfood consumption constant in the face of these income reductions and extra medical care outlays? The results suggest not. For the sample as a whole, both food and nonfood consumption are found to be responsive to health shocks, indicating an inability to smooth nonmedical consumption in the face of health shocks. Further analysis reveals some interesting differences across different groups within the sample. Households with insurance come no closer to smoothing nonmedical consumption than uninsured households. Furthermore, and somewhat counterintuitively, better-off households - including insured households - fare worse than poorer households in smoothing their nonmedical consumption in the face of health shocks, despite the fact that in the case of insured households there are no medical bills associated with an adverse health event. Why the poor rely on dissaving and borrowing to such an extent, and do not apparently reduce their food and nonfood consumption following an adverse health shock while the better-off do, may be because the levels of food and nonfood consumption of the poor are simply too low relative to basic needs to enable them to cut back in the face of an adverse BMI shock.Safety Nets and Transfers,Environmental Economics&Policies,Health Economics&Finance,Inequality,Rural Poverty Reduction

Health systems in East Asia : what can developing countries learn from Japan and the Asian tigers ?

The health systems of Japan and the Asian Tigers--Hong Kong (China), the Republic of Korea, Singapore, and Taiwan (China)--and the recent reforms to them provide many potentially valuable lessons to East Asia's developing countries. All five systems have managed to keep a check on health spending despite their different approaches to financing and delivery. These differences are reflected in the progressivity of health finance, but the precise degree of progressivity of individual sources and the extent to which households are vulnerable to catastrophic health payments depend too on the design features of the system-the height of any ceilings on social insurance contributions, the fraction of health spending covered by the benefit package, the extent to which the poor face reduced copayments, whether there are caps on copayments, and so on. On the delivery side, too, Japan and the Tigers offer some interesting lessons. Singapore's experience with corporatizing public hospitals-rapid cost and price inflation, a race for the best technology, and so on-shows the difficulties of corporatization. Korea's experience with a narrow benefit package shows the danger of providers shifting demand from insured services with regulated prices to uninsured services with unregulated prices. Japan, in its approach to rate-setting for insured services, has managed to combine careful cost control with fine-tuning of profit margins on different types of care. Experiences with diagnosis-related groups in Korea and Taiwan (China) point to cost-savings but also to possible knock-on effects on service volume and total health spending. Korea and Taiwan (China) both offer important lessons for the separation of prescribing and dispensing, including the risks of compensation costs outweighing the cost savings caused by more"rational"prescribing, and cost-savings never being realized because of other concessions to providers, such as allowing them to have onsite pharmacists.Health Monitoring&Evaluation,Health Economics&Finance,Health Systems Development&Reform,Health Law,Technology Industry

Measuring financial protection in health

Health systems are not just about improving health: good ones also ensure that people are protected from the financial consequences of receiving medical care. Anecdotal evidence suggests health systems often perform badly in this respect, apparently with devastating consequences for households, especially poor ones and near-poor ones. Two principal methods have been used to measure financial protection in health. Both relate a household's out-of-pocket spending to a threshold defined in terms of living standards in the absence of the spending: the first defines spending as catastrophic if it exceeds a certain percentage of the living standards measure; the second defines spending as impoverishing if it makes the difference between a household being above and below the poverty line. The paper provides an overview of the methods and issues arising in each case, and presents empirical work in the area of financial protection in health, including the impacts of government policy. The paper also reviews a recent critique of the methods used to measure financial protection.Health Monitoring&Evaluation,Health Systems Development&Reform,Health Economics&Finance,,Rural Poverty Reduction

Health insurance for the poor : initial impacts of Vietnam's health care fund for the poor

Vietnam's Health Care Fund for the Poor (HCFP) uses government revenues to finance health care for the poor, ethnic minorities living in selected mountainous provinces designated as difficult, and all households living in communes officially designated as highly disadvantaged. The program, which started in 2003, did not as of 2004 include all these groups, but those who were included (about 15 percent of the population) were disproportionately poor. Estimates of the program's impact-obtained using single differences and propensity score matching on a trimmed sample-suggest that HCFP has substantially increased service utilization, especially in-patient care, and has reduced the risk of catastrophic spending. It has not, however, reduced average out-of-pocket spending, and appears to have had negligible impacts on utilization among the poorest decile.Health Monitoring&Evaluation,Health Economics&Finance,Housing&Human Habitats,Health Law,Health Systems Development&Reform

Measuring equity in health care financing - reflections on (and alternatives to) the World Health Organization's fairness of financing index

In its latest World Health Report, The World Health Organization (WHO) argues that a key dimension of a health system's performance is the fairness of its financing system. The report discusses how policymakers can improve this aspect of performance, proposes an index of fairness, discusses how it should be put into operation, and presents a league table of countries, ranked by fairness with which their health services are financed. The author shows that the WHO index cannot discriminate between health financing systems that are regressive, and those that are progressive - and cannot discriminate between horizontal inequity, and progressiveness, or regressiveness. The index cannot tell policymakers whether it deviates from 1 (complete fairness) because households with similar incomes spend different amounts on health care (horizontal inequity), or because households with different incomes spend different proportions of their income on health care (vertical inequity, given the WHO's interpretation of the ability-to-pay principle) - although the two have different policy implications. With the WHO's index, progressiveness, and regressiveness are both treated as unfair. This makes no sense, because policymakers who may be strongly averse to regressive payments (which worsen income distribution) may in the name of fairness be quite receptive to progressive payments (requiring that the better-off, who may be willing to spend proportionately more on health care, are required to pay proportionately more). The author compares the WHO index with an alternative, and more illuminating approach developed in the income redistribution literature in the early 1990s, and used in the late 1990s, to study the fairness of various OECD health care financing systems. He illustrates the differences between the approaches with an empirical comparison, using data on out-of-pocket payments for health services in Vietnam for 1993 and 1998. This analysis is of some interest in its own right, given the large share of health spending from out-of-pocket payments in Vietnam, and the changes in fees, and drug prices over the 1990s.

Health shocks in China : are the poor and uninsured less protected ?

Health shocks have been shown to have important economic consequences in industrial countries. Less is known about how health shocks affect income, consumption, labor market outcomes, and medical expenditures in middle- and low-income countries. The authors explore these issues in China. In addition to providing new evidence on the general impact of health shocks, they also extend previous work by assessing the extent of risk protection afforded by formal health insurance, and by examining differences in the impact of health shocks between the rich and poor. The authors find that health shocks are associated with a substantial and significant reduction in income and labor supply. There are indications that the impact on income is less important for the insured, possibly because health insurance coverage is also associated with limited sickness insurance, but the effect is not significant. They also find evidence that negative health shocks are associated with an increase in unearned income for the poor but not the non-poor. This effect is however not strong enough to offset the impact on overall income. The loss in income is a consequence of a reduction in labor supply for the head of household, and the authors do not find evidence that other household members compensate by increasing their labor supply. Finally, negative health shocks are associated with a significant increase in out-of-pocket health care expenditures. More surprisingly, there is some evidence that the increase is greater for the insured than the uninsured. The findings suggest that households are exposed to considerable health-related shocks to disposable income, both through loss of income and health expenditures, and that health insurance offers very limited protection.Health Monitoring&Evaluation,Health Economics&Finance,Rural Poverty Reduction,Housing&Human Habitats,Health Law

Hospital cost functions for developing countries

There is extensive literature on hospital cost functions for industrial countries, but very little literature for developing countries. Yet the issues facing policy-makers in all countries are much the same: are hospitals overcapitalized, as is often claimed of U.S. hospitals? Are hospitals inefficient in other respects? Do hospitals vary in efficiency? Are private hospitals more efficient than their public counterparts? Should hospitals specialize or provide a broad range of services? Should costs be reduced by concentrating cases in fewer hospitals? The authors critically survey the techniques available for analyzing hospital costs and review the few hospital cost-function studies undertaken for developing countries. Although the paper is intended primarily for those working in developing countries, the discussion for cost function methodology has broad implications for interpreting econometric cost functions and for examining economies of scale and scope in both developing and industrial countries. The authors survey of econometric techniques is not uncritical. They question, for example, the validity of recent tests of over-capitalization undertaken on American hospitals. They also make general observations about the methods used to investigate economies of scope and economies of scale.Economic Theory&Research,Environmental Economics&Policies,Business in Development,Business Environment,Banks&Banking Reform

Socioeconomic inequalities in child malnutrition in the developing world

Among the conclusions the authors reach about malnutrition rates, among different economic groups: 1) inequalities in malnutrition almost disfavor the poor; 2) it's not just that the poor have higher rates of malnutrition. The rate of malnutrition declines continuously with rising living standards; 3) the tendency of poorer children to have higher rates of stunting, and underweight, is not due to chance, or sampling variability. Inequalities in stunting, and underweight, as measured by the concentration index, are statistically significant in almost countries; 4) inequalities in underweight tend to be larger than inequalities in stunting, which tend to be larger than inequalities in wasting; 5) in most cases, whatever the malnutrition indicator, differences in inequality between countries are not statistically significant; 6) even if attention is restricted to the cross-country differences in inequality that are statistically significant, interesting conclusions emerge, Egypt, and Vietnam have the most equal distributions of malnutrition, and Nicaragua, Peru, and, to a lesser extent, Morocco, have highly unequal distributions; 7) some countries (such as Egypt and Romania) do well in terms of both the average (the prevalence of malnutrition) and the distribution (equality). Others do badly on both counts. Peru, for example, has a higher average level of stunting than Egypt, and higher poor-non-poor inequality. But many countries do well on one count, and badly on the other. Brazil, for example, has a far lower (less than 20 percent) stunting rate overall, than Bangladesh (more than 50 percent), but has four times as much inequality (as measured by the concentration index); 8) use of an achievement index that captures both the average level, and the inequality of malnutrition, leads to some interesting rank reversals in the country league table. With stunting, for example, focusing on the achievement index moves Egypt (a low-inequality country) from sixth position to fourth, higher than Brazil and Russia (two countries with high inequality).Early Childhood Development,Early Child and Children's Health,Public Health Promotion,Health Monitoring&Evaluation,Disease Control&Prevention,Early Child and Children's Health,Health Monitoring&Evaluation,Early Childhood Development,Child Labor,Child Labor Law

Can insurance increase financial risk ? The curious case of health insurance in China

The most basic argument for insurance is that it reduces financial risk. But since insurance opens up new opportunities for consuming expensive high-technology care which permits health improvements that are valued by the insured, and because in many settings the provider is able and has an incentive to exploit the informational advantage he has over the patient, it is not immediately obvious that insurance will in practice reduce financial risk. The authors analyze the effect of insurance on the probability of an individual incurring"high"annual health expenses using data from three household surveys-one a cross-section survey, the other two panel surveys. All come from China, a country where providers have until recently largely been paid fee-for-service (often according to a schedule that encourages the overprovision of high-technology care and the underprovision of basic care) and who are only lightly regulated. The authors define annual spending as"high"if it exceeds 5 percent of average income in the sample and as"catastrophic"if it exceeds 10 percent of the household's own per capita income. The estimates of the effect of insurance on financial risk allow for the possible endogeneity of health insurance in the panel datasets by allowing for a time-invariant fixed effect capturing unobserved risk that may be correlated with insurance status, and in the cross-section dataset by using instrumental variables, where availability of and eligibility for health insurance are used as instruments. The results suggest that during the 1990s China's government and labor insurance schemes increased financial risk associated with household health care spending, but that the rural cooperative medical scheme significantly reduced financial risk in some areas but increased it in others (though not significantly). From the results, it appears that China's new health insurance schemes (private schemes, including coverage of schoolchildren) have also increased the risk of high levels of out-of-pocket spending on health. Where the authors find evidence of health insurance increasing the risk of"high"out-of-pocket expenses, the marginal effect is of the order of 15-20 percent; in the case of"catastrophic"expenses, it is even larger.Health Monitoring&Evaluation,Health Economics&Finance,Rural Poverty Reduction,Health Law,Insurance&Risk Mitigation

Are health shocks different ? evidence from a multi-shock survey in Laos

In Laos health shocks are more common than most other shocks and more concentrated among the poor. They tend to be more idiosyncratic than non-health shocks, and are more costly, partly because they lead to high medical expenses, but also because they lead to income losses that are sizeable compared with the income losses associated with non-health shocks. Health shocks also stand out from other shocks in the number of coping strategies they trigger: they are more likely than non-health shocks to trigger assistance from a nongovernmental organization and other households, dis-saving, borrowing, asset sales, an early harvest, the pawning of possessions, and the delaying of plans; by contrast, they are less likely to trigger assistance from government. Consumption regressions point to only limited evidence of households not being able to smooth consumption in the face of any shock. However, these results contrast with households'own assessments of the welfare impacts of shocks. The majority said they had to cut back consumption following a shock and that shocks considerably affected their welfare. Only health shocks are worse than a drought in terms of the likelihood of a family being forced to cut back consumption and in terms of the shock affecting a family's well-being"a lot."The poor are especially disadvantaged in terms of the greater damage that health shocks inflict on household well-being. Health shocks stand out too in leading to a loss of human capital: household members experiencing a health shock did not recover their former subjective health following the health shock, losing, on average, 0.6 points on a 5-point scale. The wealthier and better educated are better able to limit the health impacts of a health shock; the data are consistent with this being due to their greater proximity to a health facility.Health Monitoring&Evaluation,Health Systems Development&Reform,Housing&Human Habitats,Rural Poverty Reduction,Economic Theory&Research