IDEAS home Printed from https://ideas.repec.org/p/tin/wpaper/20120078.html
   My bibliography  Save this paper

Catastrophic Medical Expenditure Risk

Author

Listed:
  • Gabriela Flores

    (Institute of Health Economics and Management, University of Lausanne, and Institute of Health Policy and Management, Erasmus University Rotterdam)

  • Owen O'Donnell

    (Erasmus School of Economics, Erasmus University Rotterdam, and University of Macedonia, Greece)

Abstract

Medical expenditure risk can pose a major threat to living standards. We derive decomposable measures of catastrophic medical expenditure risk from reference-dependent utility with loss aversion. We propose a quantile regression based method of estimating risk exposure from cross-section data containing information on the means of financing health payments. We estimate medical expenditure risk in seven Asian countries and find it is highest in Laos and China, and is lowest in Malaysia. Exposure to risk is generally higher for households that have less recourse to self-insurance, lower incomes, wealth and education, and suffer from chronic illness.

Suggested Citation

  • Gabriela Flores & Owen O'Donnell, 2012. "Catastrophic Medical Expenditure Risk," Tinbergen Institute Discussion Papers 12-078/3, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20120078
    as

    Download full text from publisher

    File URL: https://papers.tinbergen.nl/12078.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
    2. Stefan Dercon & Pramila Krishnan, 2000. "In Sickness and in Health: Risk Sharing within Households in Rural Ethiopia," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 688-727, August.
    3. Gary V. Engelhardt & Jonathan Gruber, 2011. "Medicare Part D and the Financial Protection of the Elderly," American Economic Journal: Economic Policy, American Economic Association, vol. 3(4), pages 77-102, November.
    4. Fishburn, Peter C, 1977. "Mean-Risk Analysis with Risk Associated with Below-Target Returns," American Economic Review, American Economic Association, vol. 67(2), pages 116-126, March.
    5. Jacques Drèze & Erik Schokkaert, 2013. "Arrow’s theorem of the deductible: Moral hazard and stop-loss in health insurance," Journal of Risk and Uncertainty, Springer, vol. 47(2), pages 147-163, October.
    6. Martin Feldstein & Jonathan Gruber, 1995. "A Major Risk Approach to Health Insurance Reform," NBER Chapters, in: Tax Policy and the Economy, Volume 9, pages 103-130, National Bureau of Economic Research, Inc.
    7. Asfaw, Abay & von Braun, Joachim, 2004. "Is Consumption Insured against Illness? Evidence on Vulnerability of Households to Health Shocks in Rural Ethiopia," Economic Development and Cultural Change, University of Chicago Press, vol. 53(1), pages 115-129, October.
    8. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-766, May.
    9. Garry F. Barrett & Stephen G. Donald, 2003. "Consistent Tests for Stochastic Dominance," Econometrica, Econometric Society, vol. 71(1), pages 71-104, January.
    10. Botond Kőszegi & Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(4), pages 1133-1165.
    11. Nestor Gandelman & Ruben Hernandez-Murillo, 2015. "Risk Aversion at the Country Level," Review, Federal Reserve Bank of St. Louis, vol. 97(1), pages 53-66.
    12. Mohammed Abdellaoui & Han Bleichrodt & Corina Paraschiv, 2007. "Loss Aversion Under Prospect Theory: A Parameter-Free Measurement," Management Science, INFORMS, vol. 53(10), pages 1659-1674, October.
    13. Blomqvist, Ake, 1997. "Optimal non-linear health insurance," Journal of Health Economics, Elsevier, vol. 16(3), pages 303-321, June.
    14. Paul Gertler & Jonathan Gruber, 2002. "Insuring Consumption Against Illness," American Economic Review, American Economic Association, vol. 92(1), pages 51-70, March.
    15. Christian Gollier, 2003. "To Insure or Not to Insure?: An Insurance Puzzle," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 28(1), pages 5-24, June.
    16. Feenberg, Daniel & Skinner, Jonathan, 1994. "The Risk and Duration of Catastrophic Health Care Expenditures," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 633-647, November.
    17. Hagenaars, Aldi J M, 1987. "A Class of Poverty Indices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 583-607, October.
    18. Breitmeyer, Carsten & Hakenes, Hendrik & Pfingsten, Andreas, 2004. "From poverty measurement to the measurement of downside risk," Mathematical Social Sciences, Elsevier, vol. 47(3), pages 327-348, May.
    19. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
    20. Chetty, Raj & Looney, Adam, 2006. "Consumption smoothing and the welfare consequences of social insurance in developing economies," Journal of Public Economics, Elsevier, vol. 90(12), pages 2351-2356, December.
    21. Manoj Mohanan, 2013. "Causal Effects of Health Shocks on Consumption and Debt: Quasi-Experimental Evidence from Bus Accident Injuries," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 673-681, May.
    22. Islam, Asadul & Maitra, Pushkar, 2012. "Health shocks and consumption smoothing in rural households: Does microcredit have a role to play?," Journal of Development Economics, Elsevier, vol. 97(2), pages 232-243.
    23. Deon Filmer & Lant Pritchett, 2001. "Estimating Wealth Effects Without Expenditure Data—Or Tears: An Application To Educational Enrollments In States Of India," Demography, Springer;Population Association of America (PAA), vol. 38(1), pages 115-132, February.
    24. Cowell, Frank, 2011. "Measuring Inequality," OUP Catalogue, Oxford University Press, edition 3, number 9780199594047, Decembrie.
    25. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-932, December.
    26. Amanda E. Kowalski, 2015. "What Do Longitudinal Data on Millions of Hospital Visits Tell Us about the Value of Public Health Insurance as a Safety Net for the Young and Privately Insured"," Cowles Foundation Discussion Papers 1983, Cowles Foundation for Research in Economics, Yale University.
    27. Adam Wagstaff & Eddy van Doorslaer, 2003. "Catastrophe and impoverishment in paying for health care: with applications to Vietnam 1993–1998," Health Economics, John Wiley & Sons, Ltd., vol. 12(11), pages 921-933, November.
    28. Finkelstein, Amy & McKnight, Robin, 2008. "What did Medicare do? The initial impact of Medicare on mortality and out of pocket medical spending," Journal of Public Economics, Elsevier, vol. 92(7), pages 1644-1668, July.
    29. Gabriela Flores & Jaya Krishnakumar & Owen O'Donnell & Eddy van Doorslaer, 2008. "Coping with health‐care costs: implications for the measurement of catastrophic expenditures and poverty," Health Economics, John Wiley & Sons, Ltd., vol. 17(12), pages 1393-1412, December.
    30. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    31. Robert Jarrow & Feng Zhao, 2006. "Downside Loss Aversion and Portfolio Management," Management Science, INFORMS, vol. 52(4), pages 558-566, April.
    32. Obermann, Konrad & Jowett, Matthew R. & Alcantara, Maria Ofelia O. & Banzon, Eduardo P. & Bodart, Claude, 2006. "Social health insurance in a developing country: The case of the Philippines," Social Science & Medicine, Elsevier, vol. 62(12), pages 3177-3185, June.
    33. Jonathan Gheyssens & Isabel Günther, 2012. "Risk Experiments in Gains and Losses: A Case Study for Benin," WIDER Working Paper Series wp-2012-038, World Institute for Development Economic Research (UNU-WIDER).
    34. Jonathan Gruber & Helen Levy, 2009. "The Evolution of Medical Spending Risk," Journal of Economic Perspectives, American Economic Association, vol. 23(4), pages 25-48, Fall.
    35. Fennema, Hein & van Assen, Marcel, 1998. "Measuring the Utility of Losses by Means of the Tradeoff Method," Journal of Risk and Uncertainty, Springer, vol. 17(3), pages 277-295, December.
    36. Tovar, Patricia, 2009. "The effects of loss aversion on trade policy: Theory and evidence," Journal of International Economics, Elsevier, vol. 78(1), pages 154-167, June.
    37. Bawa, Vijay S., 1975. "Optimal rules for ordering uncertain prospects," Journal of Financial Economics, Elsevier, vol. 2(1), pages 95-121, March.
    38. MOSSIN, Jan, 1968. "Aspects of rational insurance purchasing," LIDAM Reprints CORE 23, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    39. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    40. Pauly, Mark V & Kunreuther, Howard & Hirth, Richard, 1995. "Guaranteed Renewability in Insurance," Journal of Risk and Uncertainty, Springer, vol. 10(2), pages 143-156, March.
    41. Botond Koszegi & Matthew Rabin, 2007. "Reference-Dependent Risk Attitudes," American Economic Review, American Economic Association, vol. 97(4), pages 1047-1073, September.
    42. Demirguc-Kunt,Asli & Klapper,Leora & Singer,Dorothe & Van Oudheusden,Peter, 2015. "The Global Findex Database 2014 : measuring financial inclusion around the world," Policy Research Working Paper Series 7255, The World Bank.
    43. Donald Meyer & Jack Meyer, 2005. "Relative Risk Aversion: What Do We Know?," Journal of Risk and Uncertainty, Springer, vol. 31(3), pages 243-262, December.
    44. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    45. Maria Eugenia Genoni, 2012. "Health Shocks and Consumption Smoothing: Evidence from Indonesia," Economic Development and Cultural Change, University of Chicago Press, vol. 60(3), pages 475-506.
    46. Kobberling, Veronika & Wakker, Peter P., 2005. "An index of loss aversion," Journal of Economic Theory, Elsevier, vol. 122(1), pages 119-131, May.
    47. repec:unu:wpaper:wp2012-38 is not listed on IDEAS
    48. Duan, Naihua, et al, 1983. "A Comparison of Alternative Models for the Demand for Medical Care," Journal of Business & Economic Statistics, American Statistical Association, vol. 1(2), pages 115-126, April.
    49. Sugden, Robert, 2003. "Reference-dependent subjective expected utility," Journal of Economic Theory, Elsevier, vol. 111(2), pages 172-191, August.
    50. David E. Bell, 1985. "Disappointment in Decision Making Under Uncertainty," Operations Research, INFORMS, vol. 33(1), pages 1-27, February.
    51. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    52. Owen O'Donnell & Eddy van Doorslaer & Ravi P. Rannan-Eliya & Aparnaa Somanathan & Shiva Raj Adhikari & Deni Harbianto & Charu C. Garg & Piya Hanvoravongchai & Mohammed N. Huq & Anup Karan & Gabriel M., 2007. "The Incidence of Public Spending on Healthcare: Comparative Evidence from Asia," The World Bank Economic Review, World Bank, vol. 21(1), pages 93-123.
    53. Eric French & John Bailey Jones, 2004. "On the distribution and dynamics of health care costs," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(6), pages 705-721.
    54. Eddy van Doorslaer & Owen O'Donnell & Ravindra P. Rannan-Eliya & Aparnaa Somanathan & Shiva Raj Adhikari & Charu C. Garg & Deni Harbianto & Alejandro N. Herrin & Mohammed Nazmul Huq & Shamsia Ibragimo, 2007. "Catastrophic payments for health care in Asia," Health Economics, John Wiley & Sons, Ltd., vol. 16(11), pages 1159-1184.
    55. Christopher J. Bennett, 2013. "Inference For Dominance Relations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54, pages 1309-1328, November.
    56. Joseph J. Capuno & Stella A. Quimbo & Carlos Antonio R. Tan Jr. & Aleli D. Kraft, 2009. "Household out-of-pocket health spending, health insurance coverage, and children’s school attendance in the Philippines," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 46(2), pages 155-181, December.
    57. Gheyssens, Jonathan & Günther, Isabel, 2012. "Risk Experiments in Gains and Losses: A Case Study for Benin," WIDER Working Paper Series 038, World Institute for Development Economic Research (UNU-WIDER).
    58. Graham Loomes & Robert Sugden, 1986. "Disappointment and Dynamic Consistency in Choice under Uncertainty," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(2), pages 271-282.
    59. Nyman, John A., 1999. "The value of health insurance: the access motive," Journal of Health Economics, Elsevier, vol. 18(2), pages 141-152, April.
    60. Limwattananon, Supon & Neelsen, Sven & O'Donnell, Owen & Prakongsai, Phusit & Tangcharoensathien, Viroj & van Doorslaer, Eddy & Vongmongkol, Vuthiphan, 2015. "Universal coverage with supply-side reform: The impact on medical expenditure risk and utilization in Thailand," Journal of Public Economics, Elsevier, vol. 121(C), pages 79-94.
    61. Mohammed Abdellaoui, 2000. "Parameter-Free Elicitation of Utility and Probability Weighting Functions," Management Science, INFORMS, vol. 46(11), pages 1497-1512, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zelalem Yilma & Owen O’Donnell & Anagaw Mebratie & Getnet Alemu & Arjun S. Bedi, 2018. "Subjective Expectations of Medical Expenditures and Insurance in Rural Ethiopia," Contributions to Economic Analysis, in: Health Econometrics, volume 127, pages 23-55, Emerald Group Publishing Limited.
    2. Ramses H. Abul Naga & Karine Lamiraud, 2008. "Catastrophic Health ExpenditureandHousehold Well-Being," STICERD - Distributional Analysis Research Programme Papers 098, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    3. Gustav Kjellsson & Dennis Petrie & Tom (T.G.M.) van Ourti, 2018. "Measuring income-related inequalities in risky health prospects," Tinbergen Institute Discussion Papers 18-007/V, Tinbergen Institute.
    4. Owen (O.A.) O'Donnell, 2019. "Financial Protection Against Medical Expense," Tinbergen Institute Discussion Papers 19-010/V, Tinbergen Institute.
    5. Abdulrahman Jbaily & Annie Haakenstad & Mizan Kiros & Carlos Riumallo-Herl & Stéphane Verguet, 2022. "Examining the density in out-of-pocket spending share in the estimation of catastrophic health expenditures," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 23(5), pages 903-912, July.
    6. Nikolaos Grigorakis & Christos Floros & Haritini Tsangari & Evangelos Tsoukatos, 2017. "Combined social and private health insurance versus catastrophic out of pocket payments for private hospital care in Greece," International Journal of Health Economics and Management, Springer, vol. 17(3), pages 261-287, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Owen (O.A.) O'Donnell, 2019. "Financial Protection Against Medical Expense," Tinbergen Institute Discussion Papers 19-010/V, Tinbergen Institute.
    2. Limwattananon, Supon & Neelsen, Sven & O'Donnell, Owen & Prakongsai, Phusit & Tangcharoensathien, Viroj & van Doorslaer, Eddy & Vongmongkol, Vuthiphan, 2015. "Universal coverage with supply-side reform: The impact on medical expenditure risk and utilization in Thailand," Journal of Public Economics, Elsevier, vol. 121(C), pages 79-94.
    3. Aurélien Baillon & Aleli Kraft & Owen O’Donnell & Kim Wilgenburg, 2022. "A behavioral decomposition of willingness to pay for health insurance," Journal of Risk and Uncertainty, Springer, vol. 64(1), pages 43-87, February.
    4. Neelsen, Sven & Limwattananon, Supon & O'Donnell, Owen & van Doorslaer, Eddy, 2019. "Universal health coverage: A (social insurance) job half done?," World Development, Elsevier, vol. 113(C), pages 246-258.
    5. Sven Neelsen & Supon Limwattananon & Owen O'Donnell & Eddy van Doorslaer, 2015. "Economic Impact of Illness with Health Insurance but without Income Insurance," Tinbergen Institute Discussion Papers 15-060/V, Tinbergen Institute.
    6. Barnes, Kayleigh & Mukherji, Arnab & Mullen, Patrick & Sood, Neeraj, 2017. "Financial risk protection from social health insurance," Journal of Health Economics, Elsevier, vol. 55(C), pages 14-29.
    7. Aurélien Baillon & Han Bleichrodt & Vitalie Spinu, 2020. "Searching for the Reference Point," Management Science, INFORMS, vol. 66(1), pages 93-112, January.
    8. Enrico G. De Giorgi & Thierry Post, 2011. "Loss Aversion with a State-Dependent Reference Point," Management Science, INFORMS, vol. 57(6), pages 1094-1110, June.
    9. Simon Gächter & Eric J. Johnson & Andreas Herrmann, 2022. "Individual-level loss aversion in riskless and risky choices," Theory and Decision, Springer, vol. 92(3), pages 599-624, April.
    10. Jiakun Zheng, 2020. "Optimal insurance design under narrow framing," Post-Print hal-04227370, HAL.
    11. Zheng, Jiakun, 2020. "Optimal insurance design under narrow framing," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 596-607.
    12. Alex Markle & George Wu & Rebecca White & Aaron Sackett, 2018. "Goals as reference points in marathon running: A novel test of reference dependence," Journal of Risk and Uncertainty, Springer, vol. 56(1), pages 19-50, February.
    13. Guo, Dongmei & Hu, Yi & Wang, Shouyang & Zhao, Lin, 2016. "Comparing risks with reference points: A stochastic dominance approach," Insurance: Mathematics and Economics, Elsevier, vol. 70(C), pages 105-116.
    14. Arjun S. Bedi & Sparrow, R.A., 2014. "Sickness and death," ISS Working Papers - General Series 51366, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    15. Katarzyna M. Werner & Horst Zank, 2019. "A revealed reference point for prospect theory," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 67(4), pages 731-773, June.
    16. Theo Offerman & Asa B. Palley, 2016. "Lossed in translation: an off-the-shelf method to recover probabilistic beliefs from loss-averse agents," Experimental Economics, Springer;Economic Science Association, vol. 19(1), pages 1-30, March.
    17. Bhavani Shanker Uppari & Sameer Hasija, 2019. "Modeling Newsvendor Behavior: A Prospect Theory Approach," Manufacturing & Service Operations Management, INFORMS, vol. 21(3), pages 481-500, July.
    18. Simon Gaechter & Eric Johnson & Andreas Herrmann, 2007. "Individual-Level Loss Aversion In Riskless And Risky Choices," Discussion Papers 2007-02, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    19. Khan, Farid & Bedi, Arjun S. & Sparrow, Robert, 2015. "Sickness and Death: Economic Consequences and Coping Strategies of the Urban Poor in Bangladesh," World Development, Elsevier, vol. 72(C), pages 255-266.
    20. Ulrich Schmidt & Horst Zank, 2008. "Risk Aversion in Cumulative Prospect Theory," Management Science, INFORMS, vol. 54(1), pages 208-216, January.

    More about this item

    Keywords

    medical expenditures; catastrophic payments; downside risk; reference-dependent utility; Asia;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tin:wpaper:20120078. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tinbergen Office +31 (0)10-4088900 (email available below). General contact details of provider: https://edirc.repec.org/data/tinbenl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.