The Redistributive Effect of Health Care Finance in Palestine: A Decomposition Analysis Approach

Abstract

This paper applies a new methodology to decompose the overall redistributive effect (RE) of health care finance on income distribution. Contrary to most previous studies, the RE of various financing schemes are disentangled and estimated as sample statistics to reveal the vertical and horizontal inequalities, and reranking effects, using the measurement model previously proposed by Urban and Lambert (2005) to assess inequality in the context of close-income equals. In addition, an attempt is made to determine the statistical significance of each particular measure of inequality using the bootstrap method. The decomposition model is applied to three major financing sources particular to the specific context of the Occupied Palestinian Territory (OPT): out-of-pocket payments, private health insurance and governmental health insurance (GHI), using a recent household health expenditure survey. The general finding is that out-of-pocket payments are associated with major negative impact on income inequality. Much of this impact stems not only from their regressivity but even more importantly from the associated horizontal inequality (HE) and reranking effect (RR). Results on the GHI show that the potential pro-poor impact of this public insurance scheme is also significantly limited by a quite high degree of HE and RR. The paper offers some policy recommendations to enhance the capacity of the GHI and to limit the existing inequalities in the current health care financing system.

Keywords: Health care finance, Developing countries, Redistributive effect, Vertical equity, Horizontal equity, Reranking effect, Bootstrap Method

JEL Classification: C14, D63, I19