Health Spending, Out-of-Pocket Contributions, and Mortality Rates

Abstract

Health policies seek to achieve conflicting objectives. We argue that the objective of saving lives is best served by a careful balancing of fairness and efficiency considerations. Open, fair and equitable access to health care for all citizens will lower overall mortality rates by enabling the very poor and chronically ill to satisfy their demand for necessary health care. But it will also result in higher costs, not least by also increasing demand for irrelevant, unnecessary and inefficient health care. This undesirable demand and its associated costs can be reduced by increasing out-of-pocket contributions paid for by patients. Such payments are unpopular, though, as they are regarded as regressive and damaging to health of the relatively poor. We argue that properly enacted, no such apparent trade-offs exist. If the freed-up resources are used for more life-saving measures, then higher out-of-pocket contributions will lower overall mortality rates. However, this beneficial effect is conditional on what happens to total health spending. Ironically, out-of-pocket payments are most effective as health policies if they are not or only hardly used as a means of reducing total health expenditures. Our theoretical arguments are confirmed by an econometric analysis of aggregate mortality rates in OECD countries over the period 1984 to 2007.