Coping with out-of-pocket health payments: applications of engel curves and two-part models in six African countries
Discussion Paper 07/2007
The costs of health services are often catastrophic in countries where people are not financially protected. Without sufficient safety nets, out-of-pocket payments for health care (OOP) make households vulnerable to future income shocks.
The objective of this paper is to examine how households modify their consumption of food, housing, education, and other goods in order to cope with OOP. The paper uses data from the 2003 World Health Survey in Burkina Faso, Chad, Kenya, Senegal, Zambia, and Zimbabwe. A system of Working-Leser Engel curves is estimated in the form of budget shares corresponding to proportions of total non-OOP expenditure. Two-part models (2PMs) are used to estimate absolute expenditure changes.
Households begin to cope at different levels of OOP spending across countries, but there are strong signs of coping when OOP spending is greater than 40 percent of nonsubsistence expenditure. The expenditure share allocated to food increases with higher levels of OOP and falls for other goods. However, households at the highest OOP level are predicted to reduce expenditures on food, housing, and education. There is evidence of a negative gradient with rising OOP levels across goods and countries in the 2PMs.
Since prepayment for health care is minimal in these countries, prepayment mechanisms or other forms of social protection could protect household consumption. The analysis also points to the link between financial protection from OOP with a multi-sectoral approach to poverty alleviation.