15 concerned with the distribution of health care payments _per se,_ but rather with their effect on the distribution of income. The decomposition proposed by Aronson et al. provides a useful framework for assessing the merits of WHO's index. The decomposition emphasizes that progressive and regressive payments have different effects on income inequality, the former reducing income inequality, the latter increasing it. The WHO index's inability to distinguish between progressive and regressive payments thus renders it incapable of distinguishing between a health care financing system that reduces income inequality and one that increases it. If it is true that the concern of policymakers lies with the impact of health care payments on income inequality, this is a serious limitation of the index. The decomposition also emphasizes that if we wish to examine the influence of health care payments on household's ability to purchase food and other key goods and services, we need to assess the progressivity of health payments on prepayment income _before food spending._ Assessing the impact of health care payments on income _after_ food has already been netted out, as the WHR does, makes little sense. In addition, the decomposition provides a framework for empirically disentangling (a) the vertical redistribution associated with progressivity (K) from vertical redistribution associated with health care absorbing a larger share of income (g), and (b) redistribution attributable to vertical differences _(V)_ from redistribution attributable to horizontal differences (H). Since the policy issues in each case are different, this seems to be a major advantage of the Aronson et al. decomposition and a major limitation of the WHO index.

# **VI. An Empirical Illustration: Out-of-Pocket Payments in Vietnam, 1993-98**

In this final section, we compare empirically the usefulness of WHO's FFC index and the alternative Aronson et al. approach, using data on out-of-pocket payments in Vietnam as an illustration. As indicated in the Introduction, this is not an uninteresting case study, since around 80% of health spending in Vietnam is paid out-of-pocket [2]. Furthermore, three key changes occurred during the 1990s [2]. First, user fees in the public sector rose. The increase was especially pronounced for hospital care, where fees appear to have risen by over 1000% in real terms between 1993 and 1998, but were also noticeable in commune health centers even though these were still supposed to be free in 1998. Second, there was a large rise in fees for private clinics and doctors. These apparently rose by nearly 600% over the period 1993-98. Third, expenditures on drugs actuallyfell over the period 1993-98, due to a 30% fall in the real price of medicines during the period in question. The latter seems to have been due in part to deregulation of the pharmaceutical sector and in part to increased donor assistance in drug supplies.

## _DATA, VARIABLE DEFINITIONSAND COMPUTATIONS_

The data are taken from the 1992-93 and 1997-98 Living Standards Measurement Surveys (LSMS) undertaken jointly by the government of Vietnam and the World Bank. For the purpose of this exercise, the household is taken as the unit of analysis. After deletion of cases with missing information, the sample contained 4800 households in 1993 and 5999 in 1998. Household prepayment income is measured by total household consumption, gross of out-ofpocket payments for health services. Household postpayment income is simply prepayment