Elsevier

Health Policy

Volume 69, Issue 3, September 2004, Pages 339-349
Health Policy

Measuring financial protection in health in the United States

https://doi.org/10.1016/j.healthpol.2004.01.003Get rights and content

Abstract

One rationale for health insurance coverage is to provide financial protection against catastrophic health expenditures. This article defines a lack of financial protection as household spending on health care when: (1) out-of-pocket (OOP) health expenditures exceed 10% of family income; (2) out-of-pocket expenditures exceed an absolute level of US$ 2000 per family member on an annual basis; and (3) combined out-of-pocket and prepaid health expenditures exceed 40% of family income. The article explores how the likelihood of households in the United States surpassing these thresholds varies by income level, extent of insurance coverage, and the number of chronic conditions. The results show clearly that there is a lack of financial protection for health services for a wide segment of the US population—particularly so for poor families and those with multiple chronic conditions. The results are placed in an international context. Similar studies in other countries would allow for more in-depth comparisons of financial protection than are currently possible.

Section snippets

Measuring financial protection

The concept of financial protection in health has received increasing attention as international organizations and governments have focused on the risk that high health expenditures pose to the financial security of poor and vulnerable populations. For example, the 2000 World Health Report [1] evaluating health system performance used fairness in financing, measured as a household’s total health spending divided by its capacity to pay, as a key indicator.

The WHO methodology—the first to

Methodology

We use data from the 1996 Medical Expenditure Panel Survey (MEPS) to estimate the proportion of individuals and families in the US that suffer from a lack of financial protection.4 The MEPS is a nationally representative sample of non-institutionalized Americans collected by the federal Agency for

Defining family income levels

The federal poverty level (FPL) is an index that measures income taking into account family size. In order to apply federal poverty standards—which are denominated in terms of income per family size—we adjusted the MEPS family definition to an alternative definition used by the Census Bureau for the Current Population Survey (CPS).

Results

Individuals with chronic conditions have higher levels of overall health expenditures, and higher levels of out-of-pocket health expenditures. For all individuals, average total medical expenditures in calendar year 1996 were US$ 2099, compared to US$ 4000 for those with at least one chronic condition (Table 1). Out-of-pocket spending averaged US$ 434 for all individuals and was US$ 730 for those with one or more chronic conditions. Because individuals with chronic conditions were more likely

Threshold for out-of-pocket spending

An alternative approach to defining financial protection in health is to establish a threshold for health spending as a percentage of income. Families exceeding this percentage may have limited capacity to pay for other essential household goods, including food and education. A threshold can be defined in terms of the percentage of income spent on out-of-pocket health expenditures, or the percentage spent on all health care expenditures including both premiums and out-of-pocket payments.

Threshold for total health spending

Another approach to measuring the absence of financial protection in health is to consider both pre-paid and out-of-pocket health care spending—as a percentage of family income and as an absolute level. The distribution of families spending more than 40% of family income on health care is again highly regressive (Fig. 2). 16.9% of poor families surpass this threshold, compared to just less than 0.2% for those at or above 200% of the FPL. The differences are even greater for poor families with

Discussion

Some level of out-of-pocket payments—also called user fees in low and middle-income countries15—is often justified on the basis of raising revenues, preventing moral hazard, providing price signals to the public as to what levels of the

Acknowledgements

This article is based on work funded by the Robert Wood Johnson Foundation through the Partnership for Solutions National Program. Analysis of the Medical Expenditure Panel Survey (MEPS) was conducted by Actuarial Research Corporation (ARC). The authors are grateful to Cristián Baeza of the World Bank for conceptual input and to anonymous reviewers for constructive comments.

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