Econ 6038: Lecture Five Equity in health financing

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Econ 6038 Lecture Five Equity in health
financing delivery

• Raymond Yeung
• http//web.hku.hk/rytyeung
• 17 October 2005

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Contents

• Definition of equity
• Quantitative representation of equity
• Techniques in measuring equity
• Empirical evidence

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Equity versus efficiency

• Economists are trained to search for optimal
  allocation of resources the most efficient
  outcome at which point the marginal benefit
  equals marginal cost, given the budget constraint
• The optimal states are often resulting in a group
  of population which do not receive the same level
  of services as compared to the rich group
• This outcome contradicts the collective value at
  the national level. Equity in healthcare
  financing and delivery can be a candidate that
  maximizes a social utility function

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Areas of equity concern

• Access to healthcare facilities for all citizens?
• Allocation of healthcare services according to
  need?
• Financing of the services according to ability to
  pay?
• Equality of health outcomes?

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Type of equity analysis

• Progressivity analysis progressivity is defined
  as the degree of proportionality in the
  relationship between health payments and
  ability-to-pay
• Catastrophic impact analysis - Catastrophic
  payments are defined as OOP payments as a share
  of total household resources in excess of some
  threshold.
• Benefit incidence analysis - to identify whether
  the public health care subsidy is well targeted
  on poorer individuals
• Poverty impact analysis - Comparison of
  pre-payment and post-payment poverty gives an
  estimate of the poverty impact of health care
  payments.

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Equity with respect to ability to pay

• Vertical equity people should pay different
  amount if they have different ability to pay
• Horizontal equity people with same ability to
  pay should make the same contribution
• The extent of vertical and horizontal equity is
  measured by the level of progressivity, which
  compares the relative distribution of income
  versus contribution or utilization

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Health care payment
A
B
C
Can you indicate which system is progressive
Income
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Share of payment
1
A
C
B
1
0
Share of income in a society
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Tools for measuring progressivity

• Lorenz curve plots the cumulative of total
  income received against the cumulative of the
  recipients
• Gini index measures the deviation of Lorenz curve
  from absolute equality area between diagonal
  and Lorenz curve
• Concentration curve plots the cumulative
  proportion of the population ranked according to
  their income against the cumulative proportion of
  healthcare payment
• Kakwani index measures the deviation of Lorenz
  curve from the concentration curve multiplied by
  two

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Vertical equity and progressivity

• To assess equity of healthcare financing and
  delivery, health economists study the
  progressivity of health care payment, subsidy or
  utilization
• Progressivity refers to the distribution of the
  object amount relative to the income distribution
  the excess change of the amount relative to the
  excess change in ability to pay

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Concentration curve
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Estimating Kakwani index

• K ranges from 2 to 1
• If K gt 0, the system is progressive
• If Klt0, it is regressive
• Empirically, it can be estimated by regression

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Catastrophic impact analysis

• Catastrophic payment headcount fraction of
  households for which the proportion of OOP in
  total household expenditure exceed the threshold
  level e.g. 10
• Catastrophic payment overshoot is the average
  degree by which payments exceed threshold

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Poverty Impact Analysis

• Similar approach as catastrophic analysis, it
  counts the population falling below the poverty
  line due to medical payment

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Benefit incidence analysis

• Similar to the approach of progressivity
  analysis, but the object of study is the amount
  of public subsidy to the population
• Absolute progressivity the gap between the
  concentration curve of subsidy and the diagonal
• Relative progressivity the gap between the
  concentration curve and Lorenz curve

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Issues in conducting equity studies

• Definition of ability to pay, public subsidy,
  healthcare payment where you can conduct
  international comparison
• Availability of micro data where you can rank the
  healthcare financing item or utilization by
  income level

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Concentration curve
Lorenz curve
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Equity versus efficiency revisited

• From a microeconomics perspective, progressive
  tax system or health financing is an inefficient
  outcome
• The analyses presented tonight are a set of
  indicators with respect to some socially
  acceptable standard e.g. poverty line, vertical
  equity
• If the objective is to maximize a social planner
  preference where equity financing or delivering
  of healthcare, it could be said as a socially
  efficient outcomes
• WHO or World Bank treats equity an important
  attribute to a good healthcare system

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Reference

• Adam Wagstaff and Eddy van Doorslaer, Equity in
  Healthcare Financing and Delivery, Handbook of
  Health Economics (Chapter 40), North Holland