Explaining the incidence of catastrophic expenditures on health care: Comparative evidence from Asia

Out-of-pocket (OOP) financing of health care leaves households exposed to the risk of unforeseen expenditures that absorb a large share of the household budget. We explain variation in the incidence of catastrophic medical expenditures across households in six Asian countries/territories. Except in India and Sri Lanka, larger households are more likely to incur catastrophic payments. The incidence is higher in rural areas and lower among households with a sanitary toilet and safe drinking water. Household total consumption is positively correlated with the incidence of catastrophic payments. We distinguish between effects through the mean and the variance of the OOP budget share by estimating a linear regression model with multiplicative heteroscedasticity. Total consumption is positively correlated with the variance of the OOP budget share. The direction of the mean effect differs across countries. We consistently reject exogeneity of total consumption. Correcting for endogeneity generally reduces the magnitude of the coefficient on total consumption and leaves it insignificant. One interpretation is that households finance health payments from savings, borrowing and assets sales resulting in a rise both in total household expenditure and its health care share.