Health-Financing & Financial-Protection Lecture Notes

Out-of-Pocket Payments: Definitions & Types

• Out-of-Pocket (OOP) payment = any money the patient pays directly at the point of service.

• Two main forms of OOP cost-sharing.

  1. Co-payment / Coinsurance (percentage co-payment)
    – Patient pays a fixed percentage of the price of each service or medicine.
    – If the drug costs more, the absolute amount paid rises.
    – Example: many European countries charge 5\% of the pharmacy invoice.

  2. Deductible
    – Patient pays the first slice of annual spending; insurer covers the rest.
    – Example: In the Netherlands each insured person pays the first €300 of any health‐care use every year; afterwards all costs are covered.

• Reminder: Percentage co-payments are more regressive than flat co-payments because the amount escalates with price.

Measuring Financial Protection

The lecture identifies two headline indicators:

  1. Share of national health spending that is OOP
    – The higher this share, the smaller the degree of pooled (public or insurance) funding and the greater the financial risk for households.
    – Germany ≈ 11\% of all health expenditure comes from OOP.
    – Composition of German financing:
    • \approx80\% public/social insurance
    • \approx11\% OOP
    • Remainder via voluntary health insurance (VHI).

  2. Unmet Health-Care Needs
    – % of population reporting that they were unable to obtain needed care (cost, distance, waiting, etc.).
    – Must always be interpreted together with OOP: a low OOP share can stem from people foregoing care rather than from good coverage.

Catastrophic Health Expenditure (CHE)

CHE gauges the severity of household financial exposure.

• Common thresholds used by different agencies
\frac{\text{Household OOP Health Spending}}{\text{Total Household Consumption}} > 0.10 \ \Longrightarrow \ \text{Catastrophic}
or
\frac{\text{Household OOP Health Spending}}{\text{Non-subsistence ("capacity-to-pay") Expenditure}} > 0.40 \ \Longrightarrow \ \text{Catastrophic}.

• Step-by-step for the 40 % method

  1. Calculate household income.

  2. Subtract basic needs (food, housing, heating, basic clothing).

  3. Compare OOP spending with the remainder.

  4. If the ratio exceeds 40\% ⇒ catastrophic.

• Intuition
– Poor households face catastrophe at much lower absolute euro amounts because basic needs exhaust most of their budget.
– Rich households may spend €1 400 on health without crossing the 40 % line.

• Example from lecture survey (02/2022):
– Average OOP per household ≈ €1 400, equal to ≈ 5.5\% of overall household consumption.
– Disaggregating by income quintile shows the poor sacrifice a far larger share of their budget.

European Comparisons & Examples

• Average share of salary going to OOP in Europe: 3.2\%; Germany: 2.7\%.

• Countries with a high salary share: Malta, Portugal.
Countries with a low salary share: France, Romania, Luxembourg, Croatia.

• Caveats
– Low ratio in Romania/Croatia might reflect cheaper price levels and sizeable unmet need.
– In Luxembourg low OOP is partly the result of very broad public coverage, not of private reimbursement schemes.

• Cross-country evidence (scatter plot described)
– Many systems cluster around 20\% OOP share of current health spending.
– Yet catastrophic-expenditure rates range from ≈2 % (Spain, Switzerland) to >10 % (Romania, Poland, Italy, Estonia).
– Policy design matters: who pays that 20 %? If mainly rich → few catastrophes; if mainly poor → many catastrophes.

Interpreting Low OOP: The Role of Unmet Needs

• Low national OOP ≠ automatically good.
– It can signal comprehensive coverage or widespread avoidance of care.
– Must cross-check with unmet-need data.

• Illustration (access/coverage chart referenced)
– Countries such as Finland or Spain keep catastrophic rates low and unmet needs low → solid protection.
– Others show low OOP but high unmet need → people avoid care rather than pay.

Equality vs Equity in Health Financing & Access

• Equality: Everyone contributes according to ability, but receives identical amounts of care (“same-size boxes”).

• Equity (desired goal):
– Contributions are still linked to ability-to-pay (progressive financing).
– Receipt of services is tied to need: those with greater health needs obtain more services (“different-size boxes so all can see over the fence”).

• Financing equity therefore implies:
– Progressive taxes or premiums.
– Cross-subsidisation from healthy to sick and from rich to poor.

Policy Tools to Improve Equity in Financing (Exercise List)

• Progressive revenue collection
– Shift toward general taxation or earnings-based social insurance with higher marginal rates.
– Tax high-profit sectors (e.g., oil, gas, diamonds in Angola) to supplement health budget.

• Mandatory pooling & reduction of voluntary health insurance
– Bring informal-sector workers into mandatory schemes; subsidise their premiums if needed.
– Limit role of VHI so ability to pay does not determine access.

• Benefit-package design
– Conduct robust Health Technology Assessment (HTA).
– Prioritise cost-effective, essential services; cover them publicly.
– Avoid marketing non-essential “optimised” add-ons that create inequity (e.g., paid “enhanced” cancer screenings).

• Intelligent cost-sharing design
– Prefer flat co-payments over percentage coinsurance.
– Introduce income-related discounts, exemptions for the poor/chronically ill, and annual caps.
– Monitor impact and adjust thresholds.

• Addressing informal sector
– Simplify enrolment; mobile premium payment channels.
– Demonstrate value (quality, prompt reimbursement) to encourage voluntary compliance.

• Monitoring & evaluation
– Track OOP share, CHE, and unmet needs simultaneously.
– Publish data disaggregated by income, age, chronic illness.

Quick Reference: Numeric Examples Mentioned

• Netherlands annual deductible: €300 per insured person.
• Average household OOP spending (sample year): €1 400 ≈ 5.5\% of household budget.
• German average OOP burden: 2.7\% of salary (vs European mean 3.2\%).
• OOP share of total health spending in Germany: 11\%.

Key Take-Aways

• OOP payments are the most regressive and risky form of health financing.
• Financial protection analysis must jointly examine OOP, unmet needs, and catastrophic expenditure.
• Policy design—who pays, who is protected—determines whether identical OOP shares translate into hardship.
• Equity demands progressive financing and need-based service allocation, achieved through smart pooling, coverage, and cost-sharing policies.