The ratio of household out-of-pocket payments for healthcare to household income

The ratio of household out-of-pocket payments for healthcare to household income

The ratio of household out-of-pocket payments for healthcare to household income

The number or percent of households in each region where direct out-of-pocket payments to providers for health during the past 12 months was more than 40 percent of their household income net of subsistence needs or 10 percent of their total income. The World Bank defines out-of-pocket expenditures as any direct outlay by households, including gratuities and in-kind payments, to health practitioners and suppliers of pharmaceuticals, therapeutic appliances, and other goods and services the primary intent of which is to contribute to the restoration or enhancement of health status (World Bank, 2011a). This definition can include transport costs for accessing healthcare and over-the-counter medicines and supplies, but does not include pre-paid fees for health-related taxes or insurance.

WHO has defined financial catastrophe as direct out-of-pocket payments exceeding 40 percent of household income net of subsistence needs (calculated as total household income minus the cost for subsistence needs). Subsistence needs are determined as the median of household food expenditure in the country (WHO, 2010). The World Bank uses a more recent definition of financial catastrophe, where out-of-pocket payments exceed 10 percent of total household income. This approach is simpler to estimate and the results are similar to those derived by the WHO method.

This indicator is calculated as:

(Household out-of-pocket expenditure for health during the past 12 months / Total household income (or total income – subsistence needs) in past 12 months) x 100

In settings where self-reported total expenditure on health is a more reliable indicator of household purchasing power than self-reported income, the closely related indicator, the Ratio of household out-of-pocket payments for health to total health expenditures, can be calculated as: Annual household out-of-pocket payments for health care divided by total household health expenditures (i.e., out-of pocket plus prepaid expenditures, such as health-related taxes and insurance).

This indicator is selected from the list of core indicators in the WHO Health System Strengthening (HSS) Handbook.  For more background on the process and criteria used in developing the WHO Handbook of indicators for HSS and for details on this and related indicators, see WHO (2010) and USAID (2009).

Data Requirement(s):

Information on household out-of-pocket expenditures is only available from household surveys. The World Bank has sponsored Living Standards Measurement Surveys (LSMS) since 1980 from which information on household health expenditures can be extracted (World Bank, 2011b) and World Health Surveys (WHS) sponsored by WHO in 2000-2001 also contain a household expenditure module (WHO, 2011). Demographic and Health Surveys and Multiple Indicator Cluster Surveys include modules on household assets, but not expenditures. There is considerable variability in the types of questions used to obtain household health expenditures, making it important to choose a standard instrument that would enhance comparability across time and countries. Data can be disaggregated by income or wealth quintiles, districts, urban/rural location, and relevant demographic and socioeconomic factors.

Household surveys with income and expenditure data (e.g., LSMS or WHS)

This indicator measures the percent of the population at risk of impoverishment as a result of out-of-pocket payments.  Expenditures in excess of the WHO threshold (40 percent of income net of subsistence needs) commonly require households to reallocate expenditures from basic needs, such as food, clothing, and even children’s education. To examine questions of equity, the risk of impoverishment or financial catastrophe can be estimated by income or wealth quintile, if a separate wealth or asset index can be constructed from the same household survey. Optimally, total government expenditure on health should be increasing both in absolute terms and as a proportion of GDP in low-income countries, while the proportion of households facing financial catastrophe as a result of out-of-pocket payments should be decreasing.

Health financing is basic to maintaining health systems and protecting households from impoverishment, thereby contributing toward the Millennium Development Goals for health: #4. reduce child mortality; #5. improve maternal health; and #6. combat HIV/AIDS, as well as MDG #1. eradicate extreme poverty and hunger. In 2005, WHO Member States endorsed a resolution urging governments to develop health financing systems aimed at universal coverage, which is described as raising sufficient health funds to allow access to needed services without the risk of a financial catastrophe for households. Despite substantial increases in external assistance for health since 2000, the available resources are still insufficient in most low-income settings to assure universal coverage with even a very basic set of interventions (WHO, 2010).

In countries where self-reported total expenditure is regarded as a more reliable indicator of resources than self-reported income, the related indicator for the ratio of household out-of-pocket health payments to total health expenditures can be used. Comparisons are usually made in terms of total expenditure quintiles.

Data collection for household income and expenditures is subject to reporting error and well-trained interviewers using standardized instruments can help reduce this source of error. Comparisons of the indicator by income quintiles need to be interpreted carefully.  In many countries the quintile with the lowest income (or total expenditures) also has a lower incidence of catastrophic payments than richer quintiles. People who are very poor often do not use services for which they have to pay, and thus do not experience a financial catastrophe (although they may suffer health consequences if they have inadequate care).  As people have slightly more income, they may begin to use services and experience adverse financial consequences linked to paying for care.

access, health system strengthening (HSS), policy

Compared to other areas of health spending, the poor are proportionally higher consumers of public health goods and services (depending on the location of service delivery and other factors affecting access). When government’s take on a greater responsibility for public health spending, this directly contributes to poverty reduction through improved health status and protection from catastrophic losses due to treatment costs (Becker, Wolf, Levine, 2006).

Becker L, Wolf J, Levine R, 2006. Measuring commitment to health. Center for Global Development.

The Global Fund, 2009, Monitoring and Evaluation Toolkit: HIV, Tuberculosis and Malaria and Health Systems Strengthening

USAID, 2009, Measuring the Impact of Health Systems Strengthening, A Review of the Literature, Washington, DC: USAID.

WHO, 2010, Monitoring the building blocks of health systems: a handbook of indicators and their measurement strategies, Geneva: WHO.

WHO, 2011, World Health Survey, Website, Geneva: WHO.

World Bank, 2011a, World Development Indicators, Website.

World Bank, 2011b, Living Standards Measurement Study (LSMS), Website.

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