Can Insurance Reduce Catastrophic Out-of-Pocket Health Expenditure?

26 Pages Posted: 28 Jul 2008 Last revised: 9 Oct 2008

See all articles by Rama Pal

Rama Pal

Indira Gandhi Institute of Development Research

Date Written: July 28, 2008

Abstract

In India, the out-of-pocket health expenditure by households accounts for around 70 percent of the total expenditure on health. Large out-of-pocket payments may reduce consumption expenditure on other goods and services and push households into poverty. Recently, health insurance has been considered as one of the possible instruments to reduce impoverishing effects of large out-of-pocket health expenditure. In India, health insurance has limited coverage and the present paper studies whether it has been effective so far. Literature defines out-of-pocket health expenditure as catastrophic if its share in the household budget is more than some arbitrary threshold level. In the present paper, we argue that for households below poverty line any expenditure on health is catastrophic as they are unable to attain the subsistence level of consumption. Thus, we take zero percent as a threshold level to define catastrophic health expenditure and examine the impact of health insurance on probability of incurring catastrophic health expenditure. Our findings show that the extent of OOP health expenditure is lower for insured households in urban areas. Thus, health insurance may prove to be an important policy instrument to reduce OOP health expenditure.

Keywords: Out-of-pocket health expenditure, Catastrophic health expenditure, Health insurance

JEL Classification: I12, I19

Suggested Citation

Pal, Rama, Can Insurance Reduce Catastrophic Out-of-Pocket Health Expenditure? (July 28, 2008). Available at SSRN: https://ssrn.com/abstract=1181694 or http://dx.doi.org/10.2139/ssrn.1181694

Rama Pal (Contact Author)

Indira Gandhi Institute of Development Research ( email )

Gen A.K. Vaidya Marg Santoshnagar
Goregaon (East)
Mumbai, Maharashtra 400065
India

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