Friday, February 10, 2012

Malaysian Health Reform Socio-Economics IV .... by Dr David KL Quek

Malaysian Health Reform Socio-Economics IV
Dr David KL Quek

[A shorter version appears in The Malaysian Insider 10 Feb 2012]

Out-of-Pocket and Catastrophic Payments
So what is so terrible about out-of-pocket payments for healthcare? Why are health economists and policy makers so enamoured with this unsavoury OOP payment, that this healthcare financing mechanism has been universally targeted to be eradicated, or at least reduced?
Many health authorities from the W.H.O. and World Bank have analysed this in great detail taking into account especially poor countries around the world, including those in Asia, Africa, Central and South America. Malaysia too has been included in many multi-country analyses to ascertain if common themes and determinants are shared within the disparate health systems in the regions.
When one looks at poverty levels and unequal economic systems, the health determinant as a function of economic underdevelopment and social aberration unfortunately looms large in some really poor nations. While poverty per se cannot all be attributed to just ill health or the lack of access to proper health care, impoverishment as a result of quests for healthcare has been a classic example of what poor countries are doing wrong.
Since many if not most of the world’s poorest countries also have the worst vital and health indices, it is not surprising that they have been studied the most intently and comprehensively. The lack of universal or affordable access to health care remains one of the predominant determinants of poverty in these countries. Sadly out-of-pocket payments are the usual if not the only manner of health financing in these countries, where there is little or no social or financial protection or safety nets.
What has been found is as follows: Out-Of-Pocket health payments can drive individuals and households into poverty, but standard poverty measures do not adequately account for health needs, and cannot explain all the nuances of impoverishment which can follow catastrophic ailments.
Health economists believe that OOP payments and poverty levels although usually intimately linked may not necessarily be causative, one for the other, or vice versa. Many health analysts use mathematical and statistical measures to assess poverty on the basis of household resources net of OOP payments, but this is justified only if OOP payments are in response to basic needs not reflected in the poverty line. Diversity and unpredictability of health needs makes it difficult to adjust poverty lines for some of these households. Also not all OOP payments are nondiscretionary especially for middle-income households, which may be voluntary based on perceived demand or need, so subtracting them from household resources would overestimate poverty. But conversely, leaving OOP payments as part of resources, could also underestimate poverty.
Van Doorslaer and others in a 2007 paper in the Health Economist actually analysed in detail how out-of-pocket payments influence health care payments and in particular catastrophic ailments and possible household impoverishment in Asia. Their data and analysis are worth perusing in detail.
W.H.O. researchers have defined and set the threshold at 40% of capacity to spend as non-subsistence effective (disposable) income.[1] This is household expenditure net of the estimated cost of subsistence food needs. “Households are considered to suffer financial catastrophe if they spend more than 40% of their disposable income—the income remaining after meeting basic food expenditure—on health services.”7,[2] Once this threshold is exceeded then households are forced to reduce spending on other essential items such as housing, clothing and education, in order to pay for health services.
 This is sometimes also known as subsistence spending. Subsistence spending on food is defined as the average food expenditure of households in the 45th to 50th percentile of food budget share distribution. This threshold is useful because it helps to assess the disruptive effect of out-of-pocket, OOP payments on the living standards of the poor.
Out-of-pocket payments take several forms, which include: fee for services, whether as outpatient or in-hospital care (imposed by private and/or public sector providers), co-payments where insurance does not cover the full cost of care, and direct spending for self-treatment (for drugs and pharmaceuticals, including traditional/ complementary-alternative therapies).
Thus, it would appear that having a prepayment mechanism or system of healthcare financing might be the better way to avoid such capricious and uncertain out-of-pocket costs and spending for health. But the solutions toward developing such a prepayment system are complex and depend largely on differing countries’ socioeconomic and political contexts, including the nature and speed of socioeconomic as well as human capital development.[3]
For Malaysia, the out-of-pocket, OOP payments are utilized for the following services, the bulk being for inpatient care, ambulatory care and medicines:[4]
·       Public sector care                               7.17%
·       Inpatient care                                      24.82%
·       Ambulatory care                                 45.41%
·       Medicines                                            24.66%
·       Traditional/home/other                    5.11%

It can be seen that the bulk of the OOP spending is on ambulatory care and medicines. But this statistic must be examined from the perspective of household spending and consumption patterns. From the above discussion, it would be clear that OOP payments for health care should be viewed and analysed more contextually, as a percentage of household consumption/spending. For Malaysia, out-of-pocket payments as percentage of total household consumption have been found to be as follows:

Malaysia’s Out-Of-Pocket (OOP) Payments
% total household consumption-expenditure
Mean (coefficient of variation)                1.37% (2.47%)
Median                                                          0.18%
Concentration index                                   0.1301
Quintile means
                  Poorest 20%                               1.11%
                  2nd poorest 20%                        1.10%
                  Middle 20%                                1.14%
                  2nd richest 20%                          1.48%
                  Richest 20%                                2.00%
% household non-food consumption-expenditure
Mean (Coefficient of variation)                2.13% (2.24%)
Median                                                          0.28%
Concentration index                                   0.0783

Interestingly among the 14 nations studied,[5] Malaysia had the lowest levels of out-of-pocket, OOP spending as a percentage of total household (HH) spending, even if this were to exclude food consumption expenditure.
Catastrophic Payments for Health Care in Asia

OOP as % of total health expenditures
% with OOP greater than 15% of HH expenditures
% with OOP greater than 25% of HH expenditures
Hong Kong
Korea, Rep.
Kyrgyz, Rep.
Sri Lanka

For Malaysia, the so-called Catastrophic payment Headcount (Hc)[6] was found to be among the lowest in the entire 14-country cohort analysis. Some 0.36% had to spend in excess of 25% of their total household expenditure as OOP payments; 0.98% more than 15%; 2.01% more than 10%; and 6.62% more than 5% of total household expenditure as OOP payments. When non-food expenditure is considered, the numbers were even smaller with some 0.21% more than 40%, 0.78% more than 25%, and 2.48% more than 15% of OOP payments as shares of non-food expenditure, respectively.

This contrasts sharply with, for example Bangladesh, where 28% of its households spent in excess of 5% of the total household expenditure on health care and a substantial 4.5% spent in excess of a quarter of the budget for healthcare! The figures for China are also dismal, i.e. 28.4% spending in excess of 5% of total household expenses, while another 2.8% spending in excess of 25% of their household budget. These are numbers, which clearly can impoverish some among the poor. The data for Indonesia and Philippines are nearly similar, with some 9.5 to 9.2% OOP spending in excess of 5%, and 1.13 and 1.14% in excess of 25% of household budget, respectively. Even Hong Kong had more than twice the percentage of catastrophic spending than Malaysia!
For Malaysia thus far, it would appear that our OOP spending on healthcare including health catastrophes, are no where near the threshold or danger levels of concern! We are way off the marker of 40% of household spending needed to push households into impoverishment. But this is not to say that we do not have any such healthcare-induced bankruptcies, but these are still in the sustainable (possibly) sub-unity or <1%) level as can be adduced and seen in the available data.
What is interesting is that this paper summarized and concluded that: “Sri Lanka, Thailand and Malaysia stand out as low to middle income countries that have constrained both the OOP share of health financing and the catastrophic impact of direct payments.”

Adjustment to poverty headcount for health payments increases with population at risk

So what are the practical issues and impacts of out-of-pocket, OOP payments for health? Undoubtedly the most serious problem with paying out of pocket is the uncertainty and unexpectedness of ill health and medical costs. Unexpected and fortuitous medical cost has that way of eating into household expenditures, especially when these have not been budgeted for or factored in adequately.
For many, but especially for the marginal and indigent, households confronting a serious illness might have to sell limited assets, borrow, and/or cut back on expendable items of consumption, just to be able to pay for such usually urgent services. This sometimes-unavoidable economic shock can lead to rapid depletion of savings and/or assets, causing households to spiral down into indebtedness; many ending up being trapped in long-term debt and becoming pushed into poverty.

Health payments: adjusted poverty headcounts in Asia[7]

Health payments: adjusted poverty gaps in Asia

The opportunity cost to escape poverty from savings, investments or meager assets could easily be exhausted when OOP payments come out of the blue. In direst straits, some would have to make that difficult choice between diverting disproportionately large portions of household resources to cover the costs of treatment. And if these were insufficient, they would sometimes even have to forego or delay treatment at the expense of health.
However, as can be seen in the two tables above, Malaysia has about the lowest statistics for poverty headcounts due to health OOP in Asia, even when we calculate according to 2 thresholds of poverty lines ($1.08 and $2.15 per day). Malaysia’s adjusted poverty gaps also remain lowest and insignificantly changed at the 2 baseline poverty levels.
Thus, although severity of poverty in some underdeveloped countries, can sometimes lead to predicaments in prioritization of subsistence needs versus medical choices, the extent to which this occurs differ from country to country. Sudden and unpredictable illness shocks can lead to severe disruption to material living standards and welfare, especially for those so impoverished! Hence, disruptive and catastrophic healthcare spending can have huge economic consequences not only to the individual but also to entire households and families. This however, appears to be a very small experience for Malaysia at this current point in time, at least where we have data for.
Therefore, while it is understandable that we make serious attempts to work towards health equity and access for all around the world, we also have to consider local, regional or even national peculiarities and context.
In principle, we recognise that W.H.O.[8] and the World Bank[9] is right to emphasize the threat of spiraling OOP catastrophic payments. The danger of catastrophic health payments causing impoverishment, disruption of household living standards, and entrenching the already poor, has been substantiated repeatedly in many underdeveloped countries. W.H.O. has been at the forefront at advocating fairness of health financing and ensuring protection against such catastrophic medical expenses, while at the same time encouraging governments to provide universal access for as broad a berth of basket of healthcare services as possible.
But as can be seen from all the available data, Malaysia clearly does not fall into this category of impoverishment risk for our citizens. Our catastrophic health payments experience has been one of marginal importance, and only afflicts a small proportion of the population, with less than half a percent (0.36%) of the population having to spend more than 25% of their total household expenditure! It is true that we regularly have this peculiar habit of going to the mass media to ask for financial assistance to help reimburse for some form of therapeutic or surgical measures.
Clearly we have made a hash of our public health system, that some among the public feels that they have been marginalized or left out of the loop for some perceived urgent access to unaffordable costly treatment.[10] The private sector also is to blame for offering these services and perhaps creating the urgencies for some of these less fortunate patients, who have been made to understand that their medical treatment cannot wait.[11],[12] But perhaps, better disease or treatment triaging and planning for some of these more esoteric and expensive procedures can be offered with sufficient safety net prioritizations for appeals. We can make our act better and perhaps more approachable and fair, while offering comfort and reassurance.
More importantly, our citizens have to be educated that not all queuing and waiting for their turns for some medical services are life-threatening. However, it cannot be denied that elective surgical or therapeutic wait times could be accompanied by possibly more patient stress, anguish and perhaps even pain and suffering! But no country around the world can ever offer all and every illness the immediate treatment on demand, every time! Health resources are simply too finite and limited to cater for the infinite demands of everyone!
The most important consideration is ultimate patient safety, cost-benefits and efficiency from a negotiated balance between individual and societal vantage points. We have to offer the fairest and most prudent deal of health care that money can buy. But no one should ever be deprived of any medical care when these could affect their livelihood and capacity to function as a human being. No one also should be placed at the mercy of failure of access to truly needed medicines or surgery because of affordability, and no one patient or family should ever be impoverished or bankrupted because of spending too much for healthcare.[13] The public sector should always be the fallback position and safety net to cater for just such a need. The private sector can and should chip in (perhaps already mandated) for emergency or urgent therapies as part of their corporate social responsibility, whether reimbursable later from the state or otherwise!

[1] Xu K, Evans DB, Kawabate K et al. Household catastrophic expenditure: a multicountry analysis. Lancet 2003; 362: 111-117.
[2] Xu K, Evans DB, Carrin G, Aguilar AM, Musgrove P, Evans T. Protecting households from catastrophic health spending. Health Affairs 2007; 26: 972-83 (doi: 10.1377/hlthaff.26.4.972.)
[3] Mills A. Strategies to achieve universal coverage: are there lessons from middle income countries [A literature review commissioned by the Health Systems Knowledge Network, Commission on the Social Determinants of Health]. Geneva: WHO;2007.
[4] For Malaysia, 9198 people were surveyed for this 1998-1999 study, with an 82% response rate.
[5] Bangladesh, China, Hong Kong, India, Indonesia, Korea Republic, Kyrgyz Republic, Malaysia, Nepal, Philippines, Sri Lanka, Taiwan, Thailand, Vietnam.
[6] Catastrophic payment headcount is defined as the % of households (HH) whose health spending exceeds the defined threshold. Catastrophic payment gap refers to the average % by which health spending exceeds the threshold, among those with catastrophic spending.
[7] Owen O’Donnell, Eddy van Doorslaer, Adam Wagstaff and Magnus Lindelow. Analyzing Health Equity Using Household Survey Data. 2008, Chapter 19, Health care Payments and Poverty. The World Bank, Washington DC, 2008,
[8] World Health Organisation. Sustainable health financing, universal coverage and social health insurance. 115th World Health Assembly Resolution EB115.R13. 2005.Geneva.
[9] World Bank. 2004. The Millennium Development Goals for Health: Rising to the Challenge. World Bank, Washington, DC.
[10] Little Kin Wai hopes to walk tall-He needs funds to help him grow, The Star, Saturday, 20 October, 2007, p N18.
[11] Single mum needs aid for kidney transplant in China, The Star, Friday 19 October 2007, p N26
[12] In need of aid to treat his burns, New Straits Times, Monday, 22 October 2007, p N17
[13] JFR Lu, Hsiao WC. Does Universal Health Insurance Make Health Care Unaffordable? Lessons From Taiwan. Health Affairs, May-June 2003;22(3):77-88

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