'Catastrophic' healthcare expenditure: critique of a problematic concept and a proposal.

Abstract

At the 2015 World Conference of the International Health Economics Association in Milan, a participant from the European Observatory on Health Systems and Policy presented work that seeks to extend the concept of catastrophic healthcare expenditure (cHCE) from low-income countries to Europe [1]. The authors started from the definition of the World Health Organization (WHO), according to which cHCE is out-of-pocket HCE that pushes down consumption below an estimated poverty line. They noted several shortcomings, causing them to adapt the concept for Europe. This note argues that cHCE has severe shortcomings when applied anywhere. In an influential contribution, [6] defined cHCE as outof-pocket HCE in excess of capacity to pay (equal to total consumption minus food consumption) by households between the 45th and 55th percentile of the ’capacity to pay’ distribution. The WHO followed up by publishing a brief on how to design the financing of health care to reduce cHCE [5]. Meanwhile, the cHCE concept has even reached China, with the suggestion that copayments should also be covered by insurance, as though moral hazard simply did not exist in that country [3]. The conclusion for policy in [6] has not changed over the years: ‘‘In the long term, the aim should be to develop prepayment mechanisms, such as through social health insurance, tax-based financing of health care, or some mix of prepayment mechanisms’’. The absence of private health insurance is noteworthy, a detail corrected by [9]. In view of ample health insurance coverage in most European countries, extending the concept of cHCE to Europe is a courageous undertaking, to say the least. However, it is flawed even when applied to low-income countries and households. The reason is that individuals manage three assets: as the late Alan Williams [4] aptly called them, Health, Wealth, and Wisdom (meaning human capital in the guise of skills). Two of these assets are analyzed jointly in the Grossman model, which is generally accepted as a cornerstone of health economics [2] (for some reservations in particular about its implementation, see [7]). If one takes this ‘asset view’ seriously, HCE is a derived decision variable, set to attain a desired stock of health. Therefore, there cannot be anything ‘catastrophic’ about HCE—unless one surmises that individuals make catastrophic decisions. One of these decisions is to purchase health insurance coverage (or to exert political pressure by voting for a party that promises to introduce social health insurance for everyone; even the Chinese regime had to expand health insurance coverage beyond urban workers, as mentioned in [3]). However, going without health insurance can be perfectly rational. The price of insurance may simply be too high, causing the law of demand to take effect. Note that the price of insurance is not the premium but the socalled loading for administrative expense and risk bearing because most of the premium flows back to consumers in the guise of benefits paid, at least on expectation. While social health insurance has a lower loading than its private counterpart thanks to an absence of acquisition expense, it tends to be weak at controlling moral hazard. However, moral hazard effects amount to a loading, forcing the insurer to increase contributions in excess of the prevailing expected value of benefits [9]. In addition, private health insurers are almost without exception subject to premium regulation (typically, community rating). This has the unfortunate side effect of & Peter Zweifel peter.zweifel@uzh.ch