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Catastrophic medical expenditure risk

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  • Flores, Gabriela
  • O’Donnell, Owen

Abstract

We propose a measure of household exposure to particularly onerous medical expenses. The measure can be decomposed into the probability that medical expenditure exceeds a threshold, the loss due to predictably low consumption of other goods if it does and the further loss arising from the volatility of medical expenses above the threshold. Depending on the choice of threshold, the measure is consistent with a model of reference-dependent utility with loss aversion. Unlike the risk premium, the measure is only sensitive to particularly high expenses, and can identify households that expect to incur such expenses and would benefit from subsidised, but not actuarially fair, insurance. An empirical illustration using data from seven Asian countries demonstrates the importance of taking account of informal insurance and reveals clear differences in catastrophic medical expenditure risk across and within countries. In general, risk is higher among poorer, rural and chronically ill populations.

Suggested Citation

  • Flores, Gabriela & O’Donnell, Owen, 2016. "Catastrophic medical expenditure risk," Journal of Health Economics, Elsevier, vol. 46(C), pages 1-15.
  • Handle: RePEc:eee:jhecon:v:46:y:2016:i:c:p:1-15
    DOI: 10.1016/j.jhealeco.2016.01.004
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    Cited by:

    1. Nikolaos Grigorakis & Christos Floros & Haritini Tsangari & Evangelos Tsoukatos, 2017. "Combined social and private health insurance versus catastrophic out of pocket payments for private hospital care in Greece," International Journal of Health Economics and Management, Springer, vol. 17(3), pages 261-287, September.
    2. O'Donnell, Owen, 2024. "Health and health system effects on poverty: A narrative review of global evidence," Health Policy, Elsevier, vol. 142(C).
    3. Zelalem Yilma & Owen O’Donnell & Anagaw Mebratie & Getnet Alemu & Arjun S. Bedi, 2018. "Subjective Expectations of Medical Expenditures and Insurance in Rural Ethiopia," Contributions to Economic Analysis, in: Health Econometrics, volume 127, pages 23-55, Emerald Group Publishing Limited.
    4. Ramses H. Abul Naga & Karine Lamiraud, 2008. "Catastrophic Health ExpenditureandHousehold Well-Being," STICERD - Distributional Analysis Research Programme Papers 098, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    5. Gustav Kjellsson & Dennis Petrie & Tom (T.G.M.) van Ourti, 2018. "Measuring income-related inequalities in risky health prospects," Tinbergen Institute Discussion Papers 18-007/V, Tinbergen Institute.
    6. Owen (O.A.) O'Donnell, 2019. "Financial Protection Against Medical Expense," Tinbergen Institute Discussion Papers 19-010/V, Tinbergen Institute.
    7. Abdulrahman Jbaily & Annie Haakenstad & Mizan Kiros & Carlos Riumallo-Herl & Stéphane Verguet, 2022. "Examining the density in out-of-pocket spending share in the estimation of catastrophic health expenditures," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 23(5), pages 903-912, July.

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    More about this item

    Keywords

    Medical expenditures; Catastrophic payments; Risk; Reference-dependent utility; Asia;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development

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