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Relationship between catastrophic health expenditures and household incomes and expenditure patterns in South Korea
Health Policy 100 (2011) 239–246
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Relationship between catastrophic health expenditures and household incomes and expenditure patterns in South Korea Younhee Kim a,∗ , Bongmin Yang b a b
National Evidence-based Healthcare Collaborating Agency (NECA), Seoul, South Korea School of Public Health, Seoul National University, Seoul, South Korea
a r t i c l e
i n f o
Keywords: Health expenditure Catastrophic Household consumption South Korea
a b s t r a c t Objectives: The compositions of health expenditures by households in South Korea with and without catastrophic health expenditures were compared. Also, relationships between catastrophic health expenditures and household incomes, and between such health expenditures and expenditure patterns were explored. Methods: Data from the 2006 South Korean Household Income & Expenditure Survey, a representative survey of 90,696 households were analyzed. We used a double-hurdle model to assess each income source and expenditure category. The independent variable was the presence of catastrophic health expenditure. Results: After adjusting for household characteristics, the results showed that earned, business, and property incomes were significantly lower, but transfer and loan incomes were significantly higher in households with catastrophic health expenditures than in those without such health expenditures. All consumption categories, other than health expenditure, were significantly lower in households with catastrophic health expenditures than in those without catastrophic health expenditures. This suggests that households with catastrophic health expenditures faced challenges in offset by the potentially excessive health expenditure and may have been obliged to reduce consumption of other items. Conclusions: The expansion of insurance coverage and lowering of out-of-pocket rates in the South Korean Health Insurance benefits could be a necessary first step in protecting households from the occurrence of health related economic catastrophes. © 2010 Elsevier Ireland Ltd. All rights reserved.
1. Introduction Ill health not only causes pain and suffering but can also be economically detrimental to patients and their families. The economic costs of illness include health care costs and income losses due to reduced labor supply and productivity [1]. The burden of health care costs and the effects on household economies depend on the country’s health care
∗ Corresponding author at: Changkyung B/D 8F, Wonnam-dong 28-7 jongno-gu, Seoul 110-450, South Korea. Tel.: +82 2 2174 2721; fax: +82 2 725 4918. E-mail addresses: [email protected], [email protected] (Y. Kim). 0168-8510/$ – see front matter © 2010 Elsevier Ireland Ltd. All rights reserved. doi:10.1016/j.healthpol.2010.08.008
system and the ability of individual households to pay [2]. The high costs of health care may not be a financial burden under full coverage health care systems, but without full coverage, even low-level, out-of-pocket expenditures can be catastrophic for poor households [3]. The degree of income loss of a household due to a sick household member varies with the employment status of the sick member and the household’s level of dependence on the earned income of that member. In some countries, social security schemes can serve as a buffer against such income loss [4]. Households may adopt different strategies to cope with the economic costs associated with illness. Several studies have examined these coping strategies through qualitative interviews [5–9] or quantitative analysis [4,9–19].
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Households may attempt to compensate for the economic costs of illness by dissaving, selling assets, or borrowing from relatives or financial institutions. The earned income lost by sick household members may be supplemented by intra-household labor substitution or through communitybased free labor. These strategies, however, are not always available to a household in health crisis. Some households may be able to maintain their level of income through various means, but it may be necessary for them to reduce non-health expenditures to pay for high out-of-pocket health expenditures [16]. A study in rural China indicated that most households were not able to increase their income sufficiently to offset health spending, which caused them to reduce spending in other consumption categories, including food [18]. A survey in rural Vietnam showed similar results, but expenditure on items related to the care of sick household members, such as heating and housing, increased [4]. These results reveal that the impact of ill health on expenditures within categories varies with the category, and that the direction of the change may be mixed. However, these studies may be biased toward the coping strategies of those living in the rural areas of low-income countries. It was expected that changes in household income composition and expenditure patterns after health shocks may be different in urban areas of high-or middle-income countries. In such countries, social safety nets and a formal loan system may be well formed, but households may still have difficulty adjusting to a labor supply change and maintaining their earned income [8,20]. A qualitative study of Canadian parents whose children suffered from a life-threatening illness focused that productivity loss of parents and hidden costs which were not covered by financial support in Canada. They did not worry about medical costs but their quality of life [8]. South Korea is a middle–high-income country with a 2007 GDP per capita of US$ 20,014, and a 90.5% urbanization rate. South Korea spent about 6.8% of its GDP on health in 2007 [21]. South Korea has a national health insurance (NHI) system, which offers universal coverage to the country’s population. However, it has been suggested that the medical safety net protecting individuals or households from financial risk due to illness is insufficient in South Korea [22]. In 2007, the average outof-pocket expenditure by South Korean citizens was 35.7% of the country’s total health care spending, and the proportion of public expenditure to total health expenditure was 54.9%; one of the lowest such proportions among Organization for Economic Co-operation and Development (OECD) countries [23]. These statistics suggest that South Koreans may have different financial burdens as well as different coping strategies for those risks compared to people living in rural areas of low-income countries or high-income countries with a high level of the medical safety net. From a policy perspective, interest in catastrophic health expenditures differs from concerns about high health care costs [3]. The former focuses on the economic welfare of a household and requires policies that protect people from the negative effects of economic costs due to illness [4,15–18,24], while the latter is related to policies that control health care expenditures. A catastrophic expenditure is a health expenditure exceeding a speci-
fied fraction of pre-expenditure income [16]. In practice, consumption expenditures or consumption expenditures minus the minimum cost of living are usually used as an indicator of pre-expenditure income [17]. Actual food expenditures or a minimum acceptable level of food expenditure have also been used to measure the minimum cost of living [4,16,17,24,25]. Although previous studies have investigated the impact of health expenditures on household economies, few empirical studies have focused the impact of catastrophic expenditures on household consumption and expenditure patterns. Catastrophic health expenditure typically forces a family to reallocate its resources and threatens the standards of living of the household, which can have short-and long-term impacts on the well-being of the household. van Doorslaer et al. explored the incidence of catastrophic health expenditures in ten Asian countries, including low-income countries and reported a relatively high incidence of such expenditure in South Korea considering GDP per capita of Korea; higher than expected when considering the GDP per capita of South Korea [25]. Using the catastrophic expenditure definition of overspending by 40% of consumption expenditures less the median level of food expenditure, Xu et al. analyzed 59 countries and showed that South Korea had a relatively high proportion of households with catastrophic expenditures [24]. The study exploring the trend of Korean catastrophic health expenditures showed that the proportion of households with catastrophic expenditures continued to rise in recent years and reached 2.15% in urban areas and 3.44% in rural areas at 2005 [26]. The above mentioned domestic and international results suggest that South Koreans have a high risk of occurrence of catastrophic expenditures. Thus South Koreans may be vulnerable to a decline in their economic welfare in the face of ill health, especially when catastrophic expenditures are required. In this study, the compositions of health expenditures between households with and without catastrophic health expenditures were compared. In addition, the relationships between catastrophic health expenditures and household income, as well as between such expenditures and expenditure patterns in South Korea were explored. Since cross-sectional data were used, assessment of the impact of catastrophic health expenditures was limited; however, the results show the possibility or effects of catastrophic health expenditures on household economies. 2. Empirical model 2.1. Data The data were derived from the 2006 Household Income & Expenditure Survey (HIES) of Korea, representative national households conducted by the National Statistical Office (NSO) of South Korea. The data were collected from households account books that are completed monthly. The HIES contains income as well as consumption expenditure and non-consumption expenditure data. The employment status and occupation of the household head and their spouse, as well as the demographic characteristics and
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Table 1 Definition and descriptive statistics of variables: 2006 (n = 90,696). Variables
Descriptions
Catastrophic health expenditure (unit: 1000 Korean won, %) No
Dependent variables Total income Income Ordinary inc Earned inc Business inc Property inc Transfer inc Social security Pension Oth security P trans inc Non ord inc Other income Inc asset Inc loan Total expenditures Household expenditures C exp Food Housing Electricity Durable goods Clothes Health Education Culture Transportation Other consumption Non c exp Other expenditure Control variables Sex of the head of household Age of the head of household Education level of the head of household
Residence Household size Elderly Children Schooling children
Income + other income Ordinary income + non-ordinary income Ordinary income Earned income Business income Property income Transfer income Social security benefits Public pension Social security benefits except for public pension Private transfer income Non-ordinary income, such as wedding or funeral money, retirement grant, etc. Sale of assets Loans, debt Household expenditures + other expenditures Consumption expenditures + non-consumption expenditures Consumption expenditures Excluded expenditures on alcohol and eating out Monthly rent, facilities and repairing, management expenses, etc. Electricity, water, heat, etc. Furniture, domestic appliances, kitchen utensils, etc. Clothes Medicines, health care consumption goods, health care services Tuition, textbooks, supplementary education expenses, etc. Books and newspaper, TV, entertainment, etc. Transportation, new car purchase, communication, etc. Cosmetics expenditures, wedding and funeral, accessories, etc (excluded expenditure on tobacco). Non-consumption expenditures: such as taxes, insurance premiums, and saving Expenditure for increase of property + expenditure for decrease in debt Head is female Under middle school High school Over college Urban Number of household members Number of elderly (presence of elderly) Number of children below 5 years (presence of children below 5 years) Number of school-age children (presence of school-age children)
Yes
5938 2788 2627 1738 591 62 236 82 49 33 154 161
4539 2055 1807 873 267 69 597 257 72 184 340 248
2906 2392 514 5938 2506 1903 262 73
2280 1685 594 4539 2403 1999 193 35
99 79 101 71
66 35 39 1134
210 92 341 319
40 33 157 147
369
196
167
88
26.1% 48 28.4% 38.7% 32.9% 83.3% 3.0 0.26 (20.7%) 0.52 (47.0%)
43.3% 59 58.4% 24.4% 17.1% 76.1% 2.3 0.73 (54.7%) 0.54 (50.7%)
0.08 (6.8%)
0.04 (3.7%)
Notes. Weighted mean, percentage.1 US dollar = 1024.31 Korean won.
educational attainment of the household members are also included. However, health status information for each household member was not available. Data from 90,696 households from the 2006 HIES survey were analyzed. A sample weighting variable, based on different household sampling probabilities was used. 2.2. Model for estimation The study focus was to identify the relationships between catastrophic expenditures and household income composition, and between such expenditures and expen-
diture patterns. All income sources and a wide variety of expenditure categories were used as dependent variables (Table 1). The dependent variables were log-transformed to correct for distribution skewness. The independent variable was the presence of a catastrophic expenditure produced following the method of Xu et al. [24]. Most income sources and expenditure categories contained zero values and distribution skewness; therefore estimates produced by an ordinary least squares (OLS) model could be biased. This problem was addressed using a double-hurdle model, originally developed by Cragg [27] which assumed that households make two decisions to
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consume. To observe a positive level of expenditure, two separate hurdles have to be overcome [28]. First hurdle have to be passed to make a decision whether to spend or not. Then a decision on the amount of the expenditure is made by passing second hurdle. The first decision can be analyzed by a probit model, the second decision, by a standard regression model. Total income as well as total, household, and consumption expenditures had no zero value. Therefore, these variables were analyzed using the Tobit model [29]. The minimum of these variables were used to estimate the unknown censoring threshold [30]. 2.2.1. Income sources Total income includes the income and other income categories. Income comprised of ordinary income, including earned, business, property, and transfer incomes and non-ordinary income, such as wedding or funeral money as well as retirement grants. Other income was from the sale of asset and borrowing. Households with catastrophic health expenditures had a lower average earned income than those without catastrophic expenditures (873 vs. 1738 Korean Won (KRW), respectively) but more transfer income (597 vs. 236 KRW, respectively) (Table 1). Furthermore, they received three times more social security benefits and two times more private transfer benefits. In addition, they depended on loans for their 13.1% of total income as compared to 8.7% in households without catastrophic expenditures. However, it should be noted that these results were not adjusted for the differences in household characteristics. 2.2.2. Expenditures Total expenditures comprise household and other expenditures. The household expenditure category includes consumption and non-consumption expenditures, such as taxes, insurance premiums, and savings (Table 1). The consumption expenditure category includes expenditures on food, housing, electricity, durable goods, clothes, health, education, culture and transportation. Expenditures for property increases or for debt reduction were classed as other expenditures. 2.2.3. Catastrophic health expenditure A catastrophic health expenditure was defined as a health expenditure 40% greater than the ability of the household to pay, as described by Xu et al. [24]. The ability to pay was the total consumption expenditures less the subsistence expenditure, which was the average food expenditure of those households whose food share of their total expenditure was in the 45th to 55th percentile range. This definition of the minimum cost of living was established as an alternative to the method of Wagstaff and van Doorslaer, who considered the ability to pay as the total consumption expenditure less the actual food expenditure of each household, which may include luxury food expenditures [17]. Here, the consumption expenditure category was used as a proxy variable for monthly income to allow direct comparison of the present results with those of Xu et al. [24]. Consumption expenditures have been considered as an appropriate and stable indicator of permanent income [31]. Subsistence expenditure was adjusted for household
size according to the consumption equivalence scale (0.56) proposed by Xu et al. Within the expenditure data, the health care expenditure category consisted of medicine, health utilities, and health services expenditures at the household level. Outof-pocket health expenditures were calculated as health care expenditures less the amount spent on nutritional substances (e.g., ginseng). The proportion of total households with catastrophic health expenditures was 2.9% in 2006. This means that 2.9% of total households spent 40% over their ability to pay on health expenditures. In this study it was assumed that households spending catastrophic health expenditures faced health shocks. That is, health care expenditures were considered to have been mandatory rather than voluntary. To identify and characterized such health shocks, the composition of health expenditures between households with and without catastrophic health expenditures were compared. 2.2.4. Control variables Each model was adjusted for differences in the sex, age, and education level of the head of a household. As well, the numbers of elderly, children below the age of 5 years, school-age children, and household members were used as control variables, as was area of residence, i.e., urban vs. rural. Sex and age of the head of a household, and age structure of the residents of a household were used as proxy variables for the health care needs of a household. The proportion of households with a female head was 43.3% in households spending catastrophic expenditures and 26.1% in general households. The head of households with catastrophic health expenditures was older than the head of households without catastrophic health expenditures. The number of elderly was also higher in households with catastrophic health expenditures. The education level of the head of household facing catastrophic health expenditures was lower. Households in rural areas were likely to spend health expenditures catastrophically. 3. Results 3.1. Structure of health expenditure in household with and without catastrophic health expenditures The structures of health expenditures of households with and without catastrophic health expenditures are compared in Table 2. Most households with catastrophic health expenditures spent on health services (97.5%) or prescriptions (71.2%) incurred the catastrophic cost through their use of medical care institutions. Eighty-three percent of households with catastrophic health expenditures had members who visited a hospital and over 25% of households with catastrophic health expenditures had a member hospitalized. Households who used dental services incurred a higher proportion of catastrophic health expenditures compared to households without catastrophic health expenditures (24.6% vs. 7.8%, respectively). Households with catastrophic health expenditures spent 88.5% of their health expenditures on health services.
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Table 2 Structure of health expenditure in household with and without catastrophic health expenditures (Unit: 1000 KRW). Probability of occurring
Health expenditure Drug expenditure Oriental drug Western drug Prescription Medical device expenditure Medical device supplies Glasses Contact lenses Other medical device Health service expenditure Oriental medicine Outpatient Inpatient Dental After childbirth Other health service
Unconditional mean
Proportion to health expenditure
Without cata
With Cata
Without cata
With Cata
Without cata
With Cata
77.9% 63.0% 7.9% 32.9% 45.5% 30.3% 26.7% 4.0% 0.5% 1.5% 58.4% 5.9% 52.9% 1.3% 7.8% 0.0% 4.3%
100.0% 85.3% 20.0% 41.3% 71.2% 26.1% 19.0% 4.0% 0.2% 6.3% 97.5% 13.9% 83.2% 28.9% 24.6% 1.1% 9.6%
71.19 24.83 8.57 6.05 7.75 7.77 4.05 2.66 0.31 0.76 38.59 1.21 21.09 4.95 9.38 0.08 1.89
1133.66 94.37 45.21 14.26 33.70 35.80 5.55 4.08 0.22 25.96 1003.49 8.11 215.52 398.02 348.96 14.20 18.69
100.0% 34.9% 12.0% 8.5% 10.9% 10.9% 5.7% 3.7% 0.4% 1.0% 54.2% 1.7% 29.6% 7.0% 13.2% 0.1% 2.7%
100.0% 8.3% 4.0% 1.3% 3.0% 3.2% 0.5% 0.4% 0.0% 2.3% 88.5% 0.7% 19.0% 35.1% 30.8% 1.3% 1.7%
Notes. Without cata, households without catastrophic health expenditures; with cata, households with catastrophic health expenditures. 1 US dollar = 1024.31 Korean won.
If prescription costs were included, this amount would be greater than 90%. Households not experiencing catastrophic health expenditures spent 34.9% on drugs, 10.9% on medical devices, and 54.2% on health services. Since events requiring hospitalization rarely occurred, the average expenditure on inpatient health service was 4950 KRW in non-catastrophic expenditures households. In contrast, households with catastrophic health expenditures spent an average of 398,017 KRW on inpatient services. Expenditure on inpatient care accounted for 35.1% of health expenditure of households with catastrophic health expenditures, but only 7.0% in non-catastrophic health expenditures households. These results showed that households with catastrophic health expenditures were more likely to experience health shocks than non-catastrophic expenditures households. 3.2. Income sources of households with catastrophic expenditures The results of the income source equations in the double-hurdle model after adjusting for sex, age, and education level of the head of household; numbers of elderly, children below the age of 5 years, school-age children, and household members; and area of residence are presented in Table 3. The first hurdle of the model estimation predicts the probability of occurrence of an income, while the second part of the model predicts the effects of presence of catastrophic health expenditures on the logarithm of the nonzero income sources. Catastrophic health expenditures showed a positive and significant correlation with the total income including other income (loan) as well as ordinary income. However, the income sources of households with catastrophic expenditures were different from households without such expenditures. The catastrophic expenditure households had less earned, business, and property incomes, and they depended more on transfer and other ordinary income sources than the households without such expenditures.
Catastrophic health expenditures increased the probability of receiving transfers and increased the conditional transfer income level. In addition, loan amounts in households with catastrophic health expenditures were higher than those in households without catastrophic health expenditures. 3.3. Expenditures of households with catastrophic expenditures Total expenditures and consumption expenditures in households with catastrophic health expenditures were Table 3 Regression results of for income sources. Variables
Part 1 Coef. of Cata
Part 2 Coef. of Cata
Total income Income Ordinary inc Earned inc Business inc Property inc Transfer inc Social security Pension Oth security P trans inc Non ord inc Other income Inc asset Inc loan
– 0.061 0.008 −0.118*** −0.033 −0.113*** 0.150*** 0.225*** −0.163*** 0.319*** 0.049 0.111*** 0.025 0.000 0.121***
0.125*** 0.025 0.014 −0.108*** −0.245*** −0.241** 0.302*** 0.205*** −0.204*** 0.540*** 0.170*** 0.126** 0.226*** 0.129*** 0.734***
Notes. Robust standard errors in parentheses. Coef. of Cata, coefficient of ‘presence of catastrophic health expenditures’; the first part of the model predicts the probability of occurrence of income, while the second part of the model predicts effects on the logarithm of the nonzero income. The regressions are shown after adjusting for sex, age, and education level of the head of household; numbers of elderly, children below the age of 5 years, school-age children, and household members; and area of residence. All dependent variables were log-transformed. Total income has no zero value. Therefore, this variable was analyzed using Tobit model. ** P < 0.05. *** P < 0.01.
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Table 4 Regression results for expenditure. Variables
Part 1 Coef. of Cata
Part 2 Coef. of Cata
Total expenditures Household expenditures Consumption expenditure Food Housing Electricity Durable goods Clothes Health Education Culture Transportation Other consumption Non-consumption expenditure Other expenditures
– – – 0.049 −0.253*** −0.127* −0.129*** −0.240*** 6.660*** −0.337*** −0.105* 0.114 −0.380*** −0.126*** −0.083**
0.125*** 0.246*** 0.320*** −0.145*** −0.198*** −0.257*** −0.174*** −0.308*** 2.912*** −0.654*** −0.317*** −0.272*** −0.507*** −0.069 −0.102***
Notes. Robust standard errors in parentheses. Coef. of Cata, coefficient of ‘presence of catastrophic health expenditures’; The first part of the model predicts the probability of occurrence expenditure, while the second part of the model predicts effects on the logarithm of the nonzero expenditure. The regressions are shown after adjusting for sex, age, and education level of the head of household; numbers of elderly, children below the age of 5 years, school-age children, and household members; and area of residence. All dependent variables were log-transformed. Total expenditures, household expenditures, and consumption expenditures have no zero value. Therefore, these variables were analyzed using Tobit model. * P < 0.10. ** P < 0.05. *** P < 0.01.
significantly higher than in households without catastrophic health expenditures (Table 4). This result might be explained by suggesting that extremely high health expenditure incurred total expenditure of households. However, after adjusting for household characteristics, all expenditure categories, except health expenditures were significantly lower in households with catastrophic health expenditures than in households without such expenditures. In particular, catastrophic health expenditures were associated with a lower probability of education expenditures and a lower conditional level of education expenditures. This marked decline in education expenditures was observed after adjusting for household characteristics and it suggests that catastrophic health expenditures may reduce education expenditures. The conditional level of expenditure for property increases and for debt reduction also decreased in households with catastrophic health expenditures. 4. Discussion In this study, the presence of catastrophic health expenditure was hypothesized to be associated with economic shock, to a household. For example health crisis may result in a loss or a reduction in productivity of household members [4]. Our study compared income compositions and expenditure patterns of households with and without catastrophic health expenditures in South Korea. The results provided evidence of the economic difficulties faced by households with catastrophic health expenditures. After adjusting for differences in household characteristics, earned, business, and property incomes
were significantly lower, while incomes from transfer and loans were significantly higher, in households with catastrophic expenditures than in those without catastrophic health expenditures. Previous studies have reported that, as a strategy to cover earned income loss, a household may diversify their income sources through personal business ventures or real estate rental [4,7,14,32]. However, these results were not consistent with our study. As well, labor supply adjustments, which have been reported in rural areas of low-income countries [4,7], were not observed in our study. Instead, households with catastrophic health expenditures were subsidized by publically funded security schemes, as well as by relatives or friends. This observation is in contrast with differed from the results of an urban Vietnamese study in which the economic effect of a health shock on unearned income was not significant [4]. In Russia, households with members experiencing chronic diseases depended on transfer income, but this transfer income mainly consisted of income from private transfers [29]. Our results, when compared to Russian study, suggest that the social safety net in Korea may work better than that in Russia. However, in our study, households with catastrophic health expenditures were also dependant on private transfers suggesting that the social safety net in South Korea is still insufficient. Another source of income for households with catastrophic health expenditures was external loans. As income financed by such debts is accompanied by interest charges and mandatory expenditure, researchers investigating these issues in other countries have been concerned about the long-term impact of such debts on household economies [12,15]. The same concerns may be valid for South Korea. The credit loan market in South Korea expanded sharply after the economic crisis in 1997. While this expanded loan system can allow households with few resources to obtain money easier than before, it could still impoverish households with high financial interest payment and mandatory expenditure schedules. Differences between households with and without catastrophic expenditures were also found in expenditure patterns. Although total expenditures in households facing catastrophic health expenditures, including health expenditures, were higher due to increased mobilization of resources, spending in consumption categories, other than health expenditures, were significantly lower than in households without catastrophic health expenditures. It could be true that households that were spending on catastrophic health care found it difficult to reorganize their resources sufficiently to offset their health expenditures, and may have been obliged to reduce the levels of consumption of other items [16,29]. A study in rural China reported that the percentages of expenditure for non-medical items were significantly lower in households with hospitalization or ill health compared to those without hospitalization or ill health, but that the impact was not significant for the consumption of some items [18]. A study of Vietnamese households showed that households with health shocks spent less on food, but more on housing and electricity than those without such shocks [4]. The increase in consumption related to housing and electricity arose because these types of expen-
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diture are typically considered necessary when caring for the sick household members. In South Korea, however, the presence of catastrophic health expenditures was significantly associated with lower expenditures on each item, including housing, electricity, food, clothes, and education. A possible explanation of this result is that the threshold defining a catastrophic expenditure set by Xu et al. was too high. This resulted in all households categorized as having catastrophic health expenditures facing extreme budget limitations after subtracting their health expenditures. Our food expenditure category did not include money spent on eating out and alcohol. This exclusion may have resulted in the lower degree of difference in food expenditures in this study compared with those other countries [4,18] The decreases in the percentages spent on education, culture, clothes, and transportation were greater than the decreases in expenditures on food. In particular, the decline in education expenditures was considerable. This result was evident even after adjusting for various household characteristics, including the presence of school-age children, suggesting that the marked decline was not related to household characteristics. This observation implies that the children of households experiencing catastrophic expenditures may receive insufficient domestic care and low human capital investment. This study had several data limitations. First, the data did not include information regarding the health status of household members. Sick individuals who do not utilize health care and then do not make health care expenditures because of their high cost could not be considered. Therefore, the current results may underestimate the impact of health shocks. In contrast, luxury expenditures, such as cosmetic surgery or hospitalization in a private room, may be included. Thus out-of-pocket expenditures may include luxury care expenditure. In our study, it is assumed such cases were uncommon, and most catastrophic expenditures are likely to occur due to expenditures associated with necessary, non-luxury health services. A related report indicating that catastrophic health expenditures are affected by health status supports that assumption [33]. Moreover, expenditure on luxury care while sacrificing the consumption of necessary goods and services is less likely. A second limitation of this study was the difficulty of identifying causality between ill health and income composition changes, and between ill health and household expenditure patterns. In the available cross-sectional data, the sequence of events was not available. In our study, the differences in income composition and the low expenditures in all categories except health expenditures were deemed as indicators of coping strategies used by householders to cover large, involuntary health expenditures. We assumed that ill health occurred first, and then income composition and expenditure patterns were adjusted subsequently. 5. Conclusion and policy implication Despite several limitations, our results may have important policy implications for South Korea. Although poor households in South Korea were protected under Medical Aid Scheme and households with high health expen-
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ditures were compensated by the government’s “stop loss” system, there are considerable numbers of South Korean households facing catastrophic health expenditures; expenditures that can threaten the well-being of many households. A possible explanation is that there are poor households that have been excluded from the Medical Aid Scheme. The “stop loss” policy in the South Korean NHI system was intended to prevent people from facing large financial losses. However, the system only applied to amounts paid for NHI-covered services. Unfortunately, “stop loss” policy may be ineffective because there are numerous services not covered by the NHI. One study in the USA reported that “stop loss” polices that did not consider the poor and that only applied to Medicare-covered services could not reduce the financial burden of the poor [34]. Out study results, together with previously published reports, suggest that expansion of insurance coverage, as well as lowering of out-of-pocket expenditures in Korean NHI benefits may be necessary in protecting households from the occurrence of health related economic catastrophe and the resulting decline of household well-being due to catastrophic health expenditures.
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[17] Wagstaff A, van Doorslaer E. Catastrophe and impoverishment in paying for health care: with applications to Vietnam 1993–1998. Health Economics 2003;12:921–34. [18] Wang H, Zhang L, Hsiao W. Ill health and its potential influence on household consumptions in rural China. Health Policy (Amsterdam, Netherlands) 2006;78:167–77. [19] Wikes A, Hao Y, Bloom G, Xingyuan G. Coping with the cost of severe illness in Rural china. IDS Working Paper: Institute of Development Studies; 1998. [20] Hallstrom I, Elander G. Families’ needs when a child is long-term ill: a literature review with reference to nursing research. International Journal of Nursing Practice 2007;13:193–200. [21] OECD. OECD health data; 2008. [22] Ruger JP, Kim HJ. Out-of-pocket healthcare spending by the poor and chronically ill in the Republic of Korea. American Journal of Public Health 2007;97:804–11. [23] Shin YS, Shin HW, Hwang DK, Kim HI, Kim JS. Establishment of the health care safety net and policy task. Seoul: Korean Institute for Health and Social Affairs; 2006. [24] Xu K, Evans DB, Kawabata K, Zeramdini R, Klavus J, Murray CJ. Household catastrophic health expenditure: a multicountry analysis. Lancet 2003;362:111–7. [25] van Doorslaer E, O’Donnell O, Rannan-Eliya RP, Somanathan A, Adhikari SR, Garg CC, et al. Catastrophic payments for health care in Asia. Health Economics 2007;16:1159–84.
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Health Policy journal homepage: www.elsevier.com/locate/healthpol
Relationship between catastrophic health expenditures and household incomes and expenditure patterns in South Korea Younhee Kim a,∗ , Bongmin Yang b a b
National Evidence-based Healthcare Collaborating Agency (NECA), Seoul, South Korea School of Public Health, Seoul National University, Seoul, South Korea
a r t i c l e
i n f o
Keywords: Health expenditure Catastrophic Household consumption South Korea
a b s t r a c t Objectives: The compositions of health expenditures by households in South Korea with and without catastrophic health expenditures were compared. Also, relationships between catastrophic health expenditures and household incomes, and between such health expenditures and expenditure patterns were explored. Methods: Data from the 2006 South Korean Household Income & Expenditure Survey, a representative survey of 90,696 households were analyzed. We used a double-hurdle model to assess each income source and expenditure category. The independent variable was the presence of catastrophic health expenditure. Results: After adjusting for household characteristics, the results showed that earned, business, and property incomes were significantly lower, but transfer and loan incomes were significantly higher in households with catastrophic health expenditures than in those without such health expenditures. All consumption categories, other than health expenditure, were significantly lower in households with catastrophic health expenditures than in those without catastrophic health expenditures. This suggests that households with catastrophic health expenditures faced challenges in offset by the potentially excessive health expenditure and may have been obliged to reduce consumption of other items. Conclusions: The expansion of insurance coverage and lowering of out-of-pocket rates in the South Korean Health Insurance benefits could be a necessary first step in protecting households from the occurrence of health related economic catastrophes. © 2010 Elsevier Ireland Ltd. All rights reserved.
1. Introduction Ill health not only causes pain and suffering but can also be economically detrimental to patients and their families. The economic costs of illness include health care costs and income losses due to reduced labor supply and productivity [1]. The burden of health care costs and the effects on household economies depend on the country’s health care
∗ Corresponding author at: Changkyung B/D 8F, Wonnam-dong 28-7 jongno-gu, Seoul 110-450, South Korea. Tel.: +82 2 2174 2721; fax: +82 2 725 4918. E-mail addresses: [email protected], [email protected] (Y. Kim). 0168-8510/$ – see front matter © 2010 Elsevier Ireland Ltd. All rights reserved. doi:10.1016/j.healthpol.2010.08.008
system and the ability of individual households to pay [2]. The high costs of health care may not be a financial burden under full coverage health care systems, but without full coverage, even low-level, out-of-pocket expenditures can be catastrophic for poor households [3]. The degree of income loss of a household due to a sick household member varies with the employment status of the sick member and the household’s level of dependence on the earned income of that member. In some countries, social security schemes can serve as a buffer against such income loss [4]. Households may adopt different strategies to cope with the economic costs associated with illness. Several studies have examined these coping strategies through qualitative interviews [5–9] or quantitative analysis [4,9–19].
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Households may attempt to compensate for the economic costs of illness by dissaving, selling assets, or borrowing from relatives or financial institutions. The earned income lost by sick household members may be supplemented by intra-household labor substitution or through communitybased free labor. These strategies, however, are not always available to a household in health crisis. Some households may be able to maintain their level of income through various means, but it may be necessary for them to reduce non-health expenditures to pay for high out-of-pocket health expenditures [16]. A study in rural China indicated that most households were not able to increase their income sufficiently to offset health spending, which caused them to reduce spending in other consumption categories, including food [18]. A survey in rural Vietnam showed similar results, but expenditure on items related to the care of sick household members, such as heating and housing, increased [4]. These results reveal that the impact of ill health on expenditures within categories varies with the category, and that the direction of the change may be mixed. However, these studies may be biased toward the coping strategies of those living in the rural areas of low-income countries. It was expected that changes in household income composition and expenditure patterns after health shocks may be different in urban areas of high-or middle-income countries. In such countries, social safety nets and a formal loan system may be well formed, but households may still have difficulty adjusting to a labor supply change and maintaining their earned income [8,20]. A qualitative study of Canadian parents whose children suffered from a life-threatening illness focused that productivity loss of parents and hidden costs which were not covered by financial support in Canada. They did not worry about medical costs but their quality of life [8]. South Korea is a middle–high-income country with a 2007 GDP per capita of US$ 20,014, and a 90.5% urbanization rate. South Korea spent about 6.8% of its GDP on health in 2007 [21]. South Korea has a national health insurance (NHI) system, which offers universal coverage to the country’s population. However, it has been suggested that the medical safety net protecting individuals or households from financial risk due to illness is insufficient in South Korea [22]. In 2007, the average outof-pocket expenditure by South Korean citizens was 35.7% of the country’s total health care spending, and the proportion of public expenditure to total health expenditure was 54.9%; one of the lowest such proportions among Organization for Economic Co-operation and Development (OECD) countries [23]. These statistics suggest that South Koreans may have different financial burdens as well as different coping strategies for those risks compared to people living in rural areas of low-income countries or high-income countries with a high level of the medical safety net. From a policy perspective, interest in catastrophic health expenditures differs from concerns about high health care costs [3]. The former focuses on the economic welfare of a household and requires policies that protect people from the negative effects of economic costs due to illness [4,15–18,24], while the latter is related to policies that control health care expenditures. A catastrophic expenditure is a health expenditure exceeding a speci-
fied fraction of pre-expenditure income [16]. In practice, consumption expenditures or consumption expenditures minus the minimum cost of living are usually used as an indicator of pre-expenditure income [17]. Actual food expenditures or a minimum acceptable level of food expenditure have also been used to measure the minimum cost of living [4,16,17,24,25]. Although previous studies have investigated the impact of health expenditures on household economies, few empirical studies have focused the impact of catastrophic expenditures on household consumption and expenditure patterns. Catastrophic health expenditure typically forces a family to reallocate its resources and threatens the standards of living of the household, which can have short-and long-term impacts on the well-being of the household. van Doorslaer et al. explored the incidence of catastrophic health expenditures in ten Asian countries, including low-income countries and reported a relatively high incidence of such expenditure in South Korea considering GDP per capita of Korea; higher than expected when considering the GDP per capita of South Korea [25]. Using the catastrophic expenditure definition of overspending by 40% of consumption expenditures less the median level of food expenditure, Xu et al. analyzed 59 countries and showed that South Korea had a relatively high proportion of households with catastrophic expenditures [24]. The study exploring the trend of Korean catastrophic health expenditures showed that the proportion of households with catastrophic expenditures continued to rise in recent years and reached 2.15% in urban areas and 3.44% in rural areas at 2005 [26]. The above mentioned domestic and international results suggest that South Koreans have a high risk of occurrence of catastrophic expenditures. Thus South Koreans may be vulnerable to a decline in their economic welfare in the face of ill health, especially when catastrophic expenditures are required. In this study, the compositions of health expenditures between households with and without catastrophic health expenditures were compared. In addition, the relationships between catastrophic health expenditures and household income, as well as between such expenditures and expenditure patterns in South Korea were explored. Since cross-sectional data were used, assessment of the impact of catastrophic health expenditures was limited; however, the results show the possibility or effects of catastrophic health expenditures on household economies. 2. Empirical model 2.1. Data The data were derived from the 2006 Household Income & Expenditure Survey (HIES) of Korea, representative national households conducted by the National Statistical Office (NSO) of South Korea. The data were collected from households account books that are completed monthly. The HIES contains income as well as consumption expenditure and non-consumption expenditure data. The employment status and occupation of the household head and their spouse, as well as the demographic characteristics and
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Table 1 Definition and descriptive statistics of variables: 2006 (n = 90,696). Variables
Descriptions
Catastrophic health expenditure (unit: 1000 Korean won, %) No
Dependent variables Total income Income Ordinary inc Earned inc Business inc Property inc Transfer inc Social security Pension Oth security P trans inc Non ord inc Other income Inc asset Inc loan Total expenditures Household expenditures C exp Food Housing Electricity Durable goods Clothes Health Education Culture Transportation Other consumption Non c exp Other expenditure Control variables Sex of the head of household Age of the head of household Education level of the head of household
Residence Household size Elderly Children Schooling children
Income + other income Ordinary income + non-ordinary income Ordinary income Earned income Business income Property income Transfer income Social security benefits Public pension Social security benefits except for public pension Private transfer income Non-ordinary income, such as wedding or funeral money, retirement grant, etc. Sale of assets Loans, debt Household expenditures + other expenditures Consumption expenditures + non-consumption expenditures Consumption expenditures Excluded expenditures on alcohol and eating out Monthly rent, facilities and repairing, management expenses, etc. Electricity, water, heat, etc. Furniture, domestic appliances, kitchen utensils, etc. Clothes Medicines, health care consumption goods, health care services Tuition, textbooks, supplementary education expenses, etc. Books and newspaper, TV, entertainment, etc. Transportation, new car purchase, communication, etc. Cosmetics expenditures, wedding and funeral, accessories, etc (excluded expenditure on tobacco). Non-consumption expenditures: such as taxes, insurance premiums, and saving Expenditure for increase of property + expenditure for decrease in debt Head is female Under middle school High school Over college Urban Number of household members Number of elderly (presence of elderly) Number of children below 5 years (presence of children below 5 years) Number of school-age children (presence of school-age children)
Yes
5938 2788 2627 1738 591 62 236 82 49 33 154 161
4539 2055 1807 873 267 69 597 257 72 184 340 248
2906 2392 514 5938 2506 1903 262 73
2280 1685 594 4539 2403 1999 193 35
99 79 101 71
66 35 39 1134
210 92 341 319
40 33 157 147
369
196
167
88
26.1% 48 28.4% 38.7% 32.9% 83.3% 3.0 0.26 (20.7%) 0.52 (47.0%)
43.3% 59 58.4% 24.4% 17.1% 76.1% 2.3 0.73 (54.7%) 0.54 (50.7%)
0.08 (6.8%)
0.04 (3.7%)
Notes. Weighted mean, percentage.1 US dollar = 1024.31 Korean won.
educational attainment of the household members are also included. However, health status information for each household member was not available. Data from 90,696 households from the 2006 HIES survey were analyzed. A sample weighting variable, based on different household sampling probabilities was used. 2.2. Model for estimation The study focus was to identify the relationships between catastrophic expenditures and household income composition, and between such expenditures and expen-
diture patterns. All income sources and a wide variety of expenditure categories were used as dependent variables (Table 1). The dependent variables were log-transformed to correct for distribution skewness. The independent variable was the presence of a catastrophic expenditure produced following the method of Xu et al. [24]. Most income sources and expenditure categories contained zero values and distribution skewness; therefore estimates produced by an ordinary least squares (OLS) model could be biased. This problem was addressed using a double-hurdle model, originally developed by Cragg [27] which assumed that households make two decisions to
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consume. To observe a positive level of expenditure, two separate hurdles have to be overcome [28]. First hurdle have to be passed to make a decision whether to spend or not. Then a decision on the amount of the expenditure is made by passing second hurdle. The first decision can be analyzed by a probit model, the second decision, by a standard regression model. Total income as well as total, household, and consumption expenditures had no zero value. Therefore, these variables were analyzed using the Tobit model [29]. The minimum of these variables were used to estimate the unknown censoring threshold [30]. 2.2.1. Income sources Total income includes the income and other income categories. Income comprised of ordinary income, including earned, business, property, and transfer incomes and non-ordinary income, such as wedding or funeral money as well as retirement grants. Other income was from the sale of asset and borrowing. Households with catastrophic health expenditures had a lower average earned income than those without catastrophic expenditures (873 vs. 1738 Korean Won (KRW), respectively) but more transfer income (597 vs. 236 KRW, respectively) (Table 1). Furthermore, they received three times more social security benefits and two times more private transfer benefits. In addition, they depended on loans for their 13.1% of total income as compared to 8.7% in households without catastrophic expenditures. However, it should be noted that these results were not adjusted for the differences in household characteristics. 2.2.2. Expenditures Total expenditures comprise household and other expenditures. The household expenditure category includes consumption and non-consumption expenditures, such as taxes, insurance premiums, and savings (Table 1). The consumption expenditure category includes expenditures on food, housing, electricity, durable goods, clothes, health, education, culture and transportation. Expenditures for property increases or for debt reduction were classed as other expenditures. 2.2.3. Catastrophic health expenditure A catastrophic health expenditure was defined as a health expenditure 40% greater than the ability of the household to pay, as described by Xu et al. [24]. The ability to pay was the total consumption expenditures less the subsistence expenditure, which was the average food expenditure of those households whose food share of their total expenditure was in the 45th to 55th percentile range. This definition of the minimum cost of living was established as an alternative to the method of Wagstaff and van Doorslaer, who considered the ability to pay as the total consumption expenditure less the actual food expenditure of each household, which may include luxury food expenditures [17]. Here, the consumption expenditure category was used as a proxy variable for monthly income to allow direct comparison of the present results with those of Xu et al. [24]. Consumption expenditures have been considered as an appropriate and stable indicator of permanent income [31]. Subsistence expenditure was adjusted for household
size according to the consumption equivalence scale (0.56) proposed by Xu et al. Within the expenditure data, the health care expenditure category consisted of medicine, health utilities, and health services expenditures at the household level. Outof-pocket health expenditures were calculated as health care expenditures less the amount spent on nutritional substances (e.g., ginseng). The proportion of total households with catastrophic health expenditures was 2.9% in 2006. This means that 2.9% of total households spent 40% over their ability to pay on health expenditures. In this study it was assumed that households spending catastrophic health expenditures faced health shocks. That is, health care expenditures were considered to have been mandatory rather than voluntary. To identify and characterized such health shocks, the composition of health expenditures between households with and without catastrophic health expenditures were compared. 2.2.4. Control variables Each model was adjusted for differences in the sex, age, and education level of the head of a household. As well, the numbers of elderly, children below the age of 5 years, school-age children, and household members were used as control variables, as was area of residence, i.e., urban vs. rural. Sex and age of the head of a household, and age structure of the residents of a household were used as proxy variables for the health care needs of a household. The proportion of households with a female head was 43.3% in households spending catastrophic expenditures and 26.1% in general households. The head of households with catastrophic health expenditures was older than the head of households without catastrophic health expenditures. The number of elderly was also higher in households with catastrophic health expenditures. The education level of the head of household facing catastrophic health expenditures was lower. Households in rural areas were likely to spend health expenditures catastrophically. 3. Results 3.1. Structure of health expenditure in household with and without catastrophic health expenditures The structures of health expenditures of households with and without catastrophic health expenditures are compared in Table 2. Most households with catastrophic health expenditures spent on health services (97.5%) or prescriptions (71.2%) incurred the catastrophic cost through their use of medical care institutions. Eighty-three percent of households with catastrophic health expenditures had members who visited a hospital and over 25% of households with catastrophic health expenditures had a member hospitalized. Households who used dental services incurred a higher proportion of catastrophic health expenditures compared to households without catastrophic health expenditures (24.6% vs. 7.8%, respectively). Households with catastrophic health expenditures spent 88.5% of their health expenditures on health services.
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Table 2 Structure of health expenditure in household with and without catastrophic health expenditures (Unit: 1000 KRW). Probability of occurring
Health expenditure Drug expenditure Oriental drug Western drug Prescription Medical device expenditure Medical device supplies Glasses Contact lenses Other medical device Health service expenditure Oriental medicine Outpatient Inpatient Dental After childbirth Other health service
Unconditional mean
Proportion to health expenditure
Without cata
With Cata
Without cata
With Cata
Without cata
With Cata
77.9% 63.0% 7.9% 32.9% 45.5% 30.3% 26.7% 4.0% 0.5% 1.5% 58.4% 5.9% 52.9% 1.3% 7.8% 0.0% 4.3%
100.0% 85.3% 20.0% 41.3% 71.2% 26.1% 19.0% 4.0% 0.2% 6.3% 97.5% 13.9% 83.2% 28.9% 24.6% 1.1% 9.6%
71.19 24.83 8.57 6.05 7.75 7.77 4.05 2.66 0.31 0.76 38.59 1.21 21.09 4.95 9.38 0.08 1.89
1133.66 94.37 45.21 14.26 33.70 35.80 5.55 4.08 0.22 25.96 1003.49 8.11 215.52 398.02 348.96 14.20 18.69
100.0% 34.9% 12.0% 8.5% 10.9% 10.9% 5.7% 3.7% 0.4% 1.0% 54.2% 1.7% 29.6% 7.0% 13.2% 0.1% 2.7%
100.0% 8.3% 4.0% 1.3% 3.0% 3.2% 0.5% 0.4% 0.0% 2.3% 88.5% 0.7% 19.0% 35.1% 30.8% 1.3% 1.7%
Notes. Without cata, households without catastrophic health expenditures; with cata, households with catastrophic health expenditures. 1 US dollar = 1024.31 Korean won.
If prescription costs were included, this amount would be greater than 90%. Households not experiencing catastrophic health expenditures spent 34.9% on drugs, 10.9% on medical devices, and 54.2% on health services. Since events requiring hospitalization rarely occurred, the average expenditure on inpatient health service was 4950 KRW in non-catastrophic expenditures households. In contrast, households with catastrophic health expenditures spent an average of 398,017 KRW on inpatient services. Expenditure on inpatient care accounted for 35.1% of health expenditure of households with catastrophic health expenditures, but only 7.0% in non-catastrophic health expenditures households. These results showed that households with catastrophic health expenditures were more likely to experience health shocks than non-catastrophic expenditures households. 3.2. Income sources of households with catastrophic expenditures The results of the income source equations in the double-hurdle model after adjusting for sex, age, and education level of the head of household; numbers of elderly, children below the age of 5 years, school-age children, and household members; and area of residence are presented in Table 3. The first hurdle of the model estimation predicts the probability of occurrence of an income, while the second part of the model predicts the effects of presence of catastrophic health expenditures on the logarithm of the nonzero income sources. Catastrophic health expenditures showed a positive and significant correlation with the total income including other income (loan) as well as ordinary income. However, the income sources of households with catastrophic expenditures were different from households without such expenditures. The catastrophic expenditure households had less earned, business, and property incomes, and they depended more on transfer and other ordinary income sources than the households without such expenditures.
Catastrophic health expenditures increased the probability of receiving transfers and increased the conditional transfer income level. In addition, loan amounts in households with catastrophic health expenditures were higher than those in households without catastrophic health expenditures. 3.3. Expenditures of households with catastrophic expenditures Total expenditures and consumption expenditures in households with catastrophic health expenditures were Table 3 Regression results of for income sources. Variables
Part 1 Coef. of Cata
Part 2 Coef. of Cata
Total income Income Ordinary inc Earned inc Business inc Property inc Transfer inc Social security Pension Oth security P trans inc Non ord inc Other income Inc asset Inc loan
– 0.061 0.008 −0.118*** −0.033 −0.113*** 0.150*** 0.225*** −0.163*** 0.319*** 0.049 0.111*** 0.025 0.000 0.121***
0.125*** 0.025 0.014 −0.108*** −0.245*** −0.241** 0.302*** 0.205*** −0.204*** 0.540*** 0.170*** 0.126** 0.226*** 0.129*** 0.734***
Notes. Robust standard errors in parentheses. Coef. of Cata, coefficient of ‘presence of catastrophic health expenditures’; the first part of the model predicts the probability of occurrence of income, while the second part of the model predicts effects on the logarithm of the nonzero income. The regressions are shown after adjusting for sex, age, and education level of the head of household; numbers of elderly, children below the age of 5 years, school-age children, and household members; and area of residence. All dependent variables were log-transformed. Total income has no zero value. Therefore, this variable was analyzed using Tobit model. ** P < 0.05. *** P < 0.01.
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Table 4 Regression results for expenditure. Variables
Part 1 Coef. of Cata
Part 2 Coef. of Cata
Total expenditures Household expenditures Consumption expenditure Food Housing Electricity Durable goods Clothes Health Education Culture Transportation Other consumption Non-consumption expenditure Other expenditures
– – – 0.049 −0.253*** −0.127* −0.129*** −0.240*** 6.660*** −0.337*** −0.105* 0.114 −0.380*** −0.126*** −0.083**
0.125*** 0.246*** 0.320*** −0.145*** −0.198*** −0.257*** −0.174*** −0.308*** 2.912*** −0.654*** −0.317*** −0.272*** −0.507*** −0.069 −0.102***
Notes. Robust standard errors in parentheses. Coef. of Cata, coefficient of ‘presence of catastrophic health expenditures’; The first part of the model predicts the probability of occurrence expenditure, while the second part of the model predicts effects on the logarithm of the nonzero expenditure. The regressions are shown after adjusting for sex, age, and education level of the head of household; numbers of elderly, children below the age of 5 years, school-age children, and household members; and area of residence. All dependent variables were log-transformed. Total expenditures, household expenditures, and consumption expenditures have no zero value. Therefore, these variables were analyzed using Tobit model. * P < 0.10. ** P < 0.05. *** P < 0.01.
significantly higher than in households without catastrophic health expenditures (Table 4). This result might be explained by suggesting that extremely high health expenditure incurred total expenditure of households. However, after adjusting for household characteristics, all expenditure categories, except health expenditures were significantly lower in households with catastrophic health expenditures than in households without such expenditures. In particular, catastrophic health expenditures were associated with a lower probability of education expenditures and a lower conditional level of education expenditures. This marked decline in education expenditures was observed after adjusting for household characteristics and it suggests that catastrophic health expenditures may reduce education expenditures. The conditional level of expenditure for property increases and for debt reduction also decreased in households with catastrophic health expenditures. 4. Discussion In this study, the presence of catastrophic health expenditure was hypothesized to be associated with economic shock, to a household. For example health crisis may result in a loss or a reduction in productivity of household members [4]. Our study compared income compositions and expenditure patterns of households with and without catastrophic health expenditures in South Korea. The results provided evidence of the economic difficulties faced by households with catastrophic health expenditures. After adjusting for differences in household characteristics, earned, business, and property incomes
were significantly lower, while incomes from transfer and loans were significantly higher, in households with catastrophic expenditures than in those without catastrophic health expenditures. Previous studies have reported that, as a strategy to cover earned income loss, a household may diversify their income sources through personal business ventures or real estate rental [4,7,14,32]. However, these results were not consistent with our study. As well, labor supply adjustments, which have been reported in rural areas of low-income countries [4,7], were not observed in our study. Instead, households with catastrophic health expenditures were subsidized by publically funded security schemes, as well as by relatives or friends. This observation is in contrast with differed from the results of an urban Vietnamese study in which the economic effect of a health shock on unearned income was not significant [4]. In Russia, households with members experiencing chronic diseases depended on transfer income, but this transfer income mainly consisted of income from private transfers [29]. Our results, when compared to Russian study, suggest that the social safety net in Korea may work better than that in Russia. However, in our study, households with catastrophic health expenditures were also dependant on private transfers suggesting that the social safety net in South Korea is still insufficient. Another source of income for households with catastrophic health expenditures was external loans. As income financed by such debts is accompanied by interest charges and mandatory expenditure, researchers investigating these issues in other countries have been concerned about the long-term impact of such debts on household economies [12,15]. The same concerns may be valid for South Korea. The credit loan market in South Korea expanded sharply after the economic crisis in 1997. While this expanded loan system can allow households with few resources to obtain money easier than before, it could still impoverish households with high financial interest payment and mandatory expenditure schedules. Differences between households with and without catastrophic expenditures were also found in expenditure patterns. Although total expenditures in households facing catastrophic health expenditures, including health expenditures, were higher due to increased mobilization of resources, spending in consumption categories, other than health expenditures, were significantly lower than in households without catastrophic health expenditures. It could be true that households that were spending on catastrophic health care found it difficult to reorganize their resources sufficiently to offset their health expenditures, and may have been obliged to reduce the levels of consumption of other items [16,29]. A study in rural China reported that the percentages of expenditure for non-medical items were significantly lower in households with hospitalization or ill health compared to those without hospitalization or ill health, but that the impact was not significant for the consumption of some items [18]. A study of Vietnamese households showed that households with health shocks spent less on food, but more on housing and electricity than those without such shocks [4]. The increase in consumption related to housing and electricity arose because these types of expen-
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diture are typically considered necessary when caring for the sick household members. In South Korea, however, the presence of catastrophic health expenditures was significantly associated with lower expenditures on each item, including housing, electricity, food, clothes, and education. A possible explanation of this result is that the threshold defining a catastrophic expenditure set by Xu et al. was too high. This resulted in all households categorized as having catastrophic health expenditures facing extreme budget limitations after subtracting their health expenditures. Our food expenditure category did not include money spent on eating out and alcohol. This exclusion may have resulted in the lower degree of difference in food expenditures in this study compared with those other countries [4,18] The decreases in the percentages spent on education, culture, clothes, and transportation were greater than the decreases in expenditures on food. In particular, the decline in education expenditures was considerable. This result was evident even after adjusting for various household characteristics, including the presence of school-age children, suggesting that the marked decline was not related to household characteristics. This observation implies that the children of households experiencing catastrophic expenditures may receive insufficient domestic care and low human capital investment. This study had several data limitations. First, the data did not include information regarding the health status of household members. Sick individuals who do not utilize health care and then do not make health care expenditures because of their high cost could not be considered. Therefore, the current results may underestimate the impact of health shocks. In contrast, luxury expenditures, such as cosmetic surgery or hospitalization in a private room, may be included. Thus out-of-pocket expenditures may include luxury care expenditure. In our study, it is assumed such cases were uncommon, and most catastrophic expenditures are likely to occur due to expenditures associated with necessary, non-luxury health services. A related report indicating that catastrophic health expenditures are affected by health status supports that assumption [33]. Moreover, expenditure on luxury care while sacrificing the consumption of necessary goods and services is less likely. A second limitation of this study was the difficulty of identifying causality between ill health and income composition changes, and between ill health and household expenditure patterns. In the available cross-sectional data, the sequence of events was not available. In our study, the differences in income composition and the low expenditures in all categories except health expenditures were deemed as indicators of coping strategies used by householders to cover large, involuntary health expenditures. We assumed that ill health occurred first, and then income composition and expenditure patterns were adjusted subsequently. 5. Conclusion and policy implication Despite several limitations, our results may have important policy implications for South Korea. Although poor households in South Korea were protected under Medical Aid Scheme and households with high health expen-
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ditures were compensated by the government’s “stop loss” system, there are considerable numbers of South Korean households facing catastrophic health expenditures; expenditures that can threaten the well-being of many households. A possible explanation is that there are poor households that have been excluded from the Medical Aid Scheme. The “stop loss” policy in the South Korean NHI system was intended to prevent people from facing large financial losses. However, the system only applied to amounts paid for NHI-covered services. Unfortunately, “stop loss” policy may be ineffective because there are numerous services not covered by the NHI. One study in the USA reported that “stop loss” polices that did not consider the poor and that only applied to Medicare-covered services could not reduce the financial burden of the poor [34]. Out study results, together with previously published reports, suggest that expansion of insurance coverage, as well as lowering of out-of-pocket expenditures in Korean NHI benefits may be necessary in protecting households from the occurrence of health related economic catastrophe and the resulting decline of household well-being due to catastrophic health expenditures.
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