Improving Financial Protection and Equity: A Safety Net for All
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providers can take advantage of their superior knowledge and advantageous position to charge for unnecessary additional services, higher prices, or both. In short, high OOP payments may reflect rent seeking by providers. However, while these issues highlight conditions under which out-of-pocket payments may be undesirable, the complete elimination of such payments is unlikely to be good policy either. Some services may not warrant any subsidization (cosmetic surgery, for example), while others may be too expensive to cover the entire population in lower-income countries (some cancer treatments, for example), but in both cases those who are willing and able to pay out of pocket should not be prevented from doing so. OOP payments can also be an important tool for creating greater patient responsibility for the costs of health care, for better aligning the benefits and costs of each health care dollar spent, and thus for achieving a more sustainable health-spending trajectory. The challenge is to design a benefit package that achieves a balance among numerous considerations, including the rationale for public spending, clinical evidence, available fiscal resources, and efficiency and equity concerns. The issue of optimal cost sharing is a complex one, and a growing body of evidence suggests that less patient cost sharing may be desirable for a broader range of services than traditionally believed. This problem is discussed further in box 4.1. Once the various reasons for achieving lower OOP payments are summed up, theory and evidence suggest that less than 25 percent of total health financing drawn from this source is a reasonable policy objective. In the EU-15, for example, the ratio is 18 percent.
When Is Financial Protection a Problem? A graphic illustration can help convey some of the concepts described here and introduce some common metrics of financial protection (O’Donnell et al. 2008). Figure 4.1 shows a distribution of households in two countries, ranked along the horizontal axis by total monthly consumption from poorest to richest. The vertical drip lines represent OOP spending on health. The poverty line is also shown. The frequency with which households face high health costs—as indicated when they account for a large share of total household expenses—is clearly greater in the panel on the right, suggesting a health system characterized by comparatively weaker financial protection. The figure helps illustrate the two measures commonly used to assess the level of financial protection, namely, the incidence of so-called catastrophic and impoverishing health expenditures.
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