Summary: The authors compare egalitarian concepts of fairness in health care payments (requiring that payments be linked to ability to pay) and minimum standards approaches (requiring that payments not exceed a prespecified share of prepayment income or not drive households into poverty). They develop indices for both sets of approaches. The authors compare the "agnostic" approach, which does not prespecify exactly how payments should be linked to ability to pay, with a recently proposed approach that requires payments to be proportional to ability to pay. They link the two approaches using results from the income redistribution literature on taxes and deductions, arguing that ability to pay can be thought of as prepayment income less deductions deemed necessary to ensure that a household reaches a minimum standard of living or food consumption. The authors show how both approaches can be enriched by distinguishing between vertical equity (or redistribution) and horizontal equity, and show how these can be quantified. They develop indices for "catastrophe" that capture the intensity of catastrophe as well as its incidence and also allow the analyst to capture the degree to which catastrophic payments occur disproportionately among poor households. Their measures of the poverty impact of health care payments also capture both intensity and incidence. To illustrate the arguments and methods, the authors use data on out-of-pocket health spending in Vietnam in 1993 and 1998-an interesting application, since 80 percent of health spending in that country was out-of-pocket in 1998. They find that out-of-pocket payments had a smaller disequalizing effect on income distribution in 1998 than 1993, whether income is measured as prepayment income or as ability to pay (that is, prepayment income less deductions, regardless of how deductions are defined). The underlying cause of the smaller disequalizing effect of out-of-pocket payments differs depending on whether the benchmark distribution is prepayment income or ability to pay. The authors find that the incidence and intensity of catastrophic payments-in terms of both prepayment income and ability to pay-declined between 1993 and 1998, and that both the incidence and the intensity of catastrophe became less concentrated among the poor. They also find that the incidence and intensity of the poverty impact of out-of-pocket payments diminished over the period. Finally, they find that the poverty impact of out-of-pocket payments is due primarily to poor people becoming even poorer rather than the nonpoor becoming poor and that in Vietnam in 1998 it was not expenses associated with inpatient care that increased poverty but nonhospital expenditures.
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