Financial challenges of health care reform in Nicaragua.

• Author: Costa-Fonta, Joan
• Position: Report

Abstract

One of the main challenges in the implementation of health care reform in developing countries has been the development of catastrophic insurance schemes. However, there is no evidence that this feature is socially desirable and whether it is feasible given the unavoidably 'normative' definition of catastrophic risk. This papers aims at contributing to the examination of the content, measurement and policy implications of health care reform tackling catastrophic risks. We undertake a theoretical and empirical analysis on the magnitude of catastrophic expenditures drawing upon data from Nicaragua and we use indirect measurement techniques as well as direct revelation methods. Our literature review leads us to conclude that there is no single meaning catastrophic risk insurance. Our empirical analysis indicates that indirect measures of estimating the exposure to catastrophic risks are highly dependent on restrictions associated with the measurement of wealth and income, while direct measurement approaches might underestimate the magnitude of such risks. Finally, the paper reveals significant differences between total versus drug-related catastrophic expenditures.

Introduction

Delimiting basic health care is a central issue in health policy reform debate in developing countries. Indeed, while containing health expenditures is at the top of the discussion in the developed world, developing countries are much more concerned with improving the accessibility to basic health care given the very limited health insurance coverage that exists in most countries (Murray et al, 1994). A way to define the extent of basic health coverage in developing countries is to relate the extent that health expenditure becomes a disproportionate financial burden for a given household. This holds because a large part of the health expenditures are borne either by individuals themselves or by the private health insurer. As Table 1 reveals, per capita expenditure on health varies greatly, from US$ 36 for sub-Saharan Africa to nearly US$ 1675 per capita in established market economies. Furthermore, the share of the private sector seems to increse with the extent of underdevelopment.

The Commission for Macroeconomics and Health (CMH, WHO 2001) estimated that out of pocket expenditure stands as a significant contribution to health expenditure in low-income countries and recommended that this should not finance the basic package but that should be channelled instead through health insurance for basic health care services. Among other types of heath care, drugs represent the major out-of-pocket expenditure on health in developed countries. A survey from Mali found that 80% of household expenditure on health was devoted to modern drugs, 13% to traditional medicine, 5% to provider fees, and 2% resulted from transportation costs (Diarra and Coulibaly, 1990). Among 14 countries of Latin America and the Caribbean, drugs represented 35% of direct private expenditures on health although figures ranged from slightly under 15% in Uruguay to 47% in El Salvador (PAHO, 1994).

In developing countries it is common feature that when a health care need arise, even when it refers to highly prevalent illnesses, some families might find themselves having a hard time coping with the economic sacrifices to finance basic health care. In that case, an illness might lead to a significant reduction of household income, wealth and standards of living. World Health Organization (WHO) data indicates that by 2020, cardiovascular heart diseases and stroke will be the leading causes of death in Africa joint with HIV/AIDS and associated anti-retroviral drug costs. The treatment for many non-communicable diseases entails a lifelong commitment, and the cost of medicines can drive households into poverty. Untreated hypertension can lead to heart failure, chronic renal failure, stroke, and coronary heart disease. However, the distribution of health expenditure is highly skewed towards the top (1) and it is precisely at this high end that expenditures may become catastrophic from an individuals perspective albeit the definition of catastrophic expenditure is debatable both at the individual and collective level (2).

Regardless of a country's economic development, the design of health care packages is one of the main objectives of health care reform. However, whilst in developed countries, the coverage of catastrophic risks stands as a design issue of certain insurance funds, in developing countries; catastrophic risks are mainly covered in publicly funded health care packages. However, the fact that these are funded exclusively unveils an implicit prioritization of financial security over other health care objectives, such as cost-effectiveness, and in general efficiency (Soderlund, 1998). On the other hand, health system reform could potentially benefit from prioritizing coverage for those expenditures in designing health care packages. Yet, little evidence has been encountered on the suitability of these policy options.

Most of the evidence on the coverage of catastrophic risks comes in developed countries focus on health insurance coverage of long-term care, especially in those systems where insurance is not universally provided. Some examples refer to health insurance refrom in the Netherlands to cover long-term care(van Barneveld et al, 1997) and catastrophic risks insurance for either poor families in the US (Philipp and Biordi, 1990) or refered to certain specific illnesses (Songer,1997). However, the economic policy debate in developing countries focuses on providing basic coverage to the population rather than extending the existing one to certain contingencies. Pradhan and Prescott, (2002) explore a database from Indonesia for the magnitude of catastrophic risks and using simulation analysis, tests the extent to which subsidizing prices for health care reduces family exposure to health realtedrealted catastrophic risks. Other Another study by Ranson, (2002) aims at evaluating a female self-employed health insurance system in Gujarat, India and a more recent study explores extensively the estimation methods and undertakes an emprirical application for Vietnam (Wagstraff &van Doorsaler , 2003). Empirical evidence using data from household surveys in 59 countries (Xu, 2003) has demonstrated that a combination of factors, such as health services requiring payment, low capacity to pay and a lack of prepayment or health insurance often lead to individual health spending which exceeds 30%-40% of household income. However, further research is needed in order to clarify the impact of the design of specific catastrophic health care insurance in Latin American countries. Furthermore, in dealing with catastrophic risks no study has previously examined the issue of catastrophic drug expenditures. Finally, measurement of catastrophic expenditures is shown to be problematic and often is not clear-cut how to transfer the results of those studies into policy making.

This paper aims at examining the meaning...