Abstract:
:In the "basic" approach, medical expenses are catastrophic if they exceed a prespecified percentage of consumption or income; the approach tells us if expenses cause a large percentage reduction in living standards. The ability-to-pay (ATP) approach defines expenses as catastrophic if they exceed a prespecified percentage of consumption less expenses on nonmedical necessities or an allowance for them. The paper argues that the ATP approach does not tell us whether expenses are large enough to undermine a household's ability to purchase nonmedical necessities. The paper compares the income-based and consumption-based variants of the basic approach, and shows that if the individual is a borrower after a health shock, the income-based ratio will exceed the consumption-based ratio, and both will exceed the more theoretically correct Flores et al. ratio; whereas if the individual continues to be a saver after a health shock, the ordering is reversed and the income-based ratio may not overestimate Flores et al.'s ratio. Last, the paper proposes a lifetime money metric utility (LMMU) approach defining medical expenses as catastrophic in terms of their lifetime consequences. Under certain assumptions, the LMMU and Flores et al. approaches are identical, and neither requires data on how households finance their medical expenses.
journal_name
Health Econjournal_title
Health economicsauthors
Wagstaff Adoi
10.1002/hec.3881subject
Has Abstractpub_date
2019-06-01 00:00:00pages
765-781issue
6eissn
1057-9230issn
1099-1050journal_volume
28pub_type
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