Measuring catastrophic medical expenditures: Reflections on three issues.

Area of Science:

• Health Economics
• Public Health
• Econometrics

Background:

• Defining catastrophic health expenses is crucial for policy and household financial protection.
• Existing "basic" and "ability-to-pay" (ATP) approaches have limitations in accurately assessing financial burden.

Purpose of the Study:

• To critically evaluate common approaches for defining catastrophic medical expenses.
• To propose and analyze a novel "lifetime money metric utility" (LMMU) approach.

Main Methods:

• Comparative analysis of "basic" (income- and consumption-based) and "ability-to-pay" (ATP) approaches.
• Theoretical examination of expense ratios under different household financial statuses (borrower vs. saver) post-health shock.
• Development and theoretical validation of the LMMU approach.

Main Results:

• The ATP approach may not adequately capture the impact on non-medical necessities.
• Income- and consumption-based "basic" approaches show varying accuracy depending on borrowing/saving status after a health shock.
• The LMMU approach, under specific assumptions, aligns with the theoretically robust Flores et al. ratio and bypasses financing data.

Conclusions:

• The "basic" and ATP approaches have theoretical shortcomings in defining catastrophic medical expenses.
• The proposed LMMU approach provides a more theoretically sound and data-efficient method for assessing catastrophic health expenditures.
• Future research should explore empirical applications of the LMMU approach.