The causal effect of catastrophic health expenditure on poverty in Poland

Out-of-pocket medical expenses are a crucial source of health care financing in a number of countries, and thus a significant burden for many households. In particular, large health-related spending can lead to financial hardship and impoverishment. The aim of our study is to assess the direct impact of large out-of-pocket medical payments on household poverty, while properly accounting for endogeneity between these two variables. We use catastrophic health expenditure as a proxy for problematic health-related costs and estimate recursive bivariate probit models using Polish household-level panel data. We show that the causal relationship between catastrophic health expenditure and relative poverty is significant and positive across different methodological approaches. However, we find no empirical evidence that a one-time incidence of catastrophic health expenditure creates a poverty trap. We also show that using a poverty measure which treats out-of-pocket medical payments and food consumption as perfect substitutes can lead to an underestimation of poverty among the elderly.