Higher Incomes Alone Cannot Improve Healthcare Access For Households: Study

Out-of-pocket spending on health care is one of the clearest measures of how much financial risk households bear when they fall ill. A new study by Sameer Sofi and Effat Yasmin, titled "Determinants of out-of-pocket health expenditure: cross country evidence across World Bank income groups", published in the Expert Review of Pharmacoeconomics & Outcomes Research, examines why this burden looks different across countries at different stages of economic development.

The researchers, using data for 123 countries between 2000 and 2021, find that the relationship between household health spending, economic growth and the structure of health-care financing changes substantially as countries become richer. The subject matters because out-of-pocket expenditure remains a major obstacle to universal health coverage. When households have to pay directly for treatment, medicines and other health-care needs, illness can quickly become a financial shock.

The paper points to the large differences between poorer and richer economies. Its data show the average out-of-pocket spending at 43% of the current health expenditure in low-income countries, compared with 37% in middle-income countries and 23% in high-income countries.

The study questions the assumption that the same economic forces affect health-care spending broadly the same way everywhere. Much of the earlier literature has looked at individual countries or particular regional groups. Sofi and Yasmin instead divide their sample according to World Bank income categories and examine whether the determinants of out-of-pocket spending change across these groups.

Growth Effects

The most striking finding concerns economic growth. In low-income countries, higher GDP per capita is linked to lower out-of-pocket health-care spending. The study estimates that a rise in GDP per capita is associated with a 2.6 point decline in such spending.

But the pattern reverses in middle-income countries, where higher incomes are linked to a 1.38 point increase in out-of-pocket spending. The increase is even larger in high-income countries, at 2.92 points.

The authors interpret this as a change in the nature of health-care consumption. In poorer countries, an increase in income can improve the ability of households to afford care while also coinciding with better access to public or subsidised services. Higher income therefore reduces the financial burden associated with direct healthcare payments. In richer economies, higher income can instead encourage greater consumption of specialised, elective or higher quality health care.

This is an interesting distinction because it prevents rising out-of-pocket spending from being interpreted automatically as evidence of a deteriorating health-care system.

In a wealthy country, some direct household spending may reflect a greater ability and willingness to purchase additional health care. In a poor country, the same spending can represent a barrier to obtaining essential treatment.

Yet, this interpretation deserves some caution. The paper uses out-of-pocket expenditure as a share of total current health expenditure. That measure captures the financing structure of health care, but it cannot by itself tell us whether households are spending more because they are choosing better or additional care, or because public services are unavailable. The authors acknowledge that health-care-seeking behaviour, trust, insurance acceptance, governance and the organisation of health-care systems can differ considerably even among countries belonging to the same income group.

The Strongest Lever

The clearest result in the paper is the relationship between government health expenditure and household payments. Higher government health spending is associated with lower out-of-pocket expenditure across all three income groups. The effect is particularly large in the middle-and high-income groups. The estimated coefficients are minus 13.85 for low-income countries, minus 38.56 for middle-income countries and minus 28.77 for high-income countries.

The finding reinforces a familiar but important point. Public financing can provide households with protection from the financial consequences of illness. The stronger association in richer countries may reflect more developed health-care infrastructure, wider insurance coverage and better access to publicly funded services.

The researchers also point out that low-income countries may face supply side constraints such as inadequate infrastructure, geographic barriers and administrative weaknesses, which can prevent people from fully benefiting from public expenditure.

The results on private health expenditure are more revealing. In low-income countries, greater private health expenditure is associated with higher out-of-pocket spending. The coefficient is 5.65. In middle-income countries it falls to 0.36, while in high-income countries it becomes negative at minus 5.95.

The researchers attribute this reversal to differences in insurance markets, regulation and risk pooling. Private health care in poorer countries is more likely to involve direct household payments, while in wealthier countries private treatment can be financed through insurance or employer provided benefits. The important lesson is that the size of private health-care spending tells us less than the way that spending is financed and regulated.

A Useful Framework

Methodologically, the study makes a serious attempt to deal with one of the central problems in cross-country research, which is the possibility that the relationship between income, public spending and household payments runs in both directions.

The study's strongest contribution therefore lies in its demonstration that income matters when interpreting health-care financing patterns. Economic growth can reduce the burden of direct payments in poor countries while accompanying greater health-care consumption in richer ones. Public health spending consistently provides greater financial protection, while private spending has very different consequences depending on how well insurance, regulation and risk pooling function.

Its policy message is consequently straightforward. Countries cannot rely on economic growth alone to reduce the financial burden of health care. Public financing, insurance coverage and effective regulation have to evolve alongside rising incomes.

For poorer countries especially, the challenge is to convert additional resources into accessible health care that reduces the need for households to pay directly.

The paper makes a useful case for looking at health-care financing through the lens of economic development rather than searching for a single explanation for out-of-pocket spending across the world.