The causal effect of catastrophic health expenditure on poverty in Poland

Out-of-pocket medical expenses are a crucial source of health care financing in a number of countries. With the ongoing population aging, health care costs are likely to increase. Therefore, disentangling the relationship between health care spending and monetary poverty is becoming increasingly important. Although there is extensive literature on the impoverishment effect of out-of-pocket medical payments, it lacks empirical studies on a causal relationship between catastrophic health expenditure and poverty. In our paper, we try to fill this gap.

We estimate recursive bivariate probit models using Polish Household Budget Survey data covering years from 2010 to 2013 and from 2016 to 2018. The model controls for a wide range of factors and endogeneity between poverty and catastrophic health expenditure.

We show that the causal relationship between catastrophic health expenditure and relative poverty is significant and positive across different methodological approaches. We find no empirical evidence that a one-time incidence of catastrophic health expenditure creates a poverty trap. We also show that using a poverty measure which treats out-of-pocket medical payments and luxury consumption as perfect substitutes can lead to an underestimation of poverty among the elderly.

Out-of-pocket medical payments should probably receive more attention from policymakers than the official statistics suggest. A current challenge is to correctly identify and appropriately support those who are most affected by catastrophic health expenditure. More prospectively, a complex modernization of the Polish public health system is needed.