Exit from catastrophic health payments: a method and an application to Malawi

This paper proposes three measures of average exit time from catastrophic health payments; the first measure is non-normative in that the weights placed on catastrophic payments incurred by poor and nonpoor households are the same. It ignores the fact that the opportunity cost of health spending is different between poor and nonpoor households. The other two measures allow for distribution sensitivity but differ in their conceptualization of inequality; one is based on socioeconomic inequalities in catastrophic health payments, and the other uses pure inequalities in catastrophic health payments. The proposed measures are then applied to Malawian data from the Third Integrated Household Survey. The empirical results show that when the threshold of pre-payment income is increased from 5 to 15 %, the average exit time decreases from 2.1 to 0.2 years; and as the catastrophic threshold rises from 10 to 40 % of ability to pay, the average exit time falls from 3.6 to 0.1 years. It is found that adjusting for socioeconomic inequality leads to small changes in the exit times, however, using pure inequality leads to large reductions in the exit time.