Catastrophic medical expenditure risk

Area of Science:

• Health Economics
• Econometrics
• Public Health

Background:

• Households face significant financial risks from unpredictable and high medical expenses.
• Existing measures may not adequately capture the nuances of catastrophic health expenditure.
• Understanding household vulnerability is crucial for designing effective health insurance and subsidy policies.

Purpose of the Study:

• To propose a novel measure of household exposure to onerous medical expenses.
• To analyze the components contributing to catastrophic health expenditure risk.
• To identify populations most vulnerable to severe medical costs and inform insurance strategies.

Main Methods:

• Developed a multi-component measure of medical expense burden: probability of exceeding a threshold, loss from reduced consumption, and loss from expenditure volatility.
• Utilized data from seven Asian countries for empirical illustration.
• Incorporated a reference-dependent utility model with loss aversion to validate the measure.

Main Results:

• The proposed measure is sensitive to particularly high medical expenses, distinguishing it from the risk premium.
• Identified specific population subgroups (poorer, rural, chronically ill) at higher risk of catastrophic medical expenditure.
• Empirical analysis revealed significant variations in catastrophic medical expenditure risk across and within Asian countries, underscoring the role of informal insurance.

Conclusions:

• The new measure effectively identifies households facing severe medical expense burdens and those who would benefit from subsidized insurance.
• Informal insurance plays a critical role in mitigating catastrophic health expenditure risk.
• Targeted interventions are needed for vulnerable populations disproportionately affected by high medical costs.