Catastrophic health payments: does the equivalence scale matter?

Area of Science:

• Health Economics
• Social Policy
• Demography

Background:

• Equivalence scales adjust household welfare for size, crucial for evaluating catastrophic health payments using World Health Organization (WHO) methodology.
• Existing WHO methodology applications rely on early equivalence scale estimates that do not control for household income, potentially overstating equivalence.
• Socioeconomic changes in South Africa post-Apartheid necessitate updated equivalence scale estimates due to shifts in household structure.

Purpose of the Study:

• To present a revised method for estimating equivalence scales.
• To update equivalence scale estimates for South Africa using recent data.
• To assess the impact of revised scales on the WHO methodology for catastrophic health payments.

Main Methods:

• Development of a revised method for estimating equivalence scales.
• Updating equivalence scale estimates using recent South African household data.
• Analysis of the impact of revised scales on out-of-pocket expenditures and catastrophic health payments.

Main Results:

• Initial equivalence scale estimates may be overstated by up to 46%, potentially understating poverty lines by 17%.
• Despite significant overstatements, the average incidence of catastrophic health expenditure remained largely unaffected.
• Revised scales significantly alter conclusions regarding determinants of out-of-pocket payments and the distribution of health expenditure catastrophe by household size.

Conclusions:

• Revised equivalence scales are essential for accurate assessment of household welfare and catastrophic health payments.
• Overstated initial estimates can lead to substantial miscalculations in poverty lines and expenditure determinants.
• Researchers should consider a range of equivalence scales when analyzing catastrophic health expenditures, especially in diverse socioeconomic contexts.