Reassessing catastrophic health-care payments with a Nigerian case study

Health financing reforms have recently received much attention in developing countries. However, out-of-pocket payments remain substantial. When such payments involve expenditures above some given proportion of household resources, they are often deemed 'catastrophic'. The research literature on defining catastrophe leaves open a number of important questions and as a result there still exists a lack of consensus on the issue. This paper argues that there is a need to examine the question of what might constitute fair indices of catastrophic payment, which explicitly recognize diminishing marginal utility of income as reflected in some principle of vertical equity. It proposes the use of rank-dependent weights to allow variations in threshold payment levels across individuals on the income ladder. These are then applied to a Nigerian data set. It emerged that the catastrophic headcount (positive gap) obtained using a fixed threshold - weighted or not by the concentration index - is lower (higher) than that predicted by the rank-dependent threshold. More fundamentally there is a need for more research effort to take the ideas in this paper further and examine in various different contexts what a fair construct of catastrophe might look like.