I POfL;Y RESEARCH WORKING PAPER 2715

# Summary findings

Wagstaff and van Doorslaer compare egalitarian concepts of fairness in health care payments (requiring that payments be linked to ability to pay) and minimum standards approaches (requiring that payments not exceed a prespecified share of prepayment income or not drive households into poverty). They develop indices for both sets of approaches.

The authors compare the "agnostic" approach, which does not prespecify exactly how payments should be linked to ability to pay, with a recently proposed approach that requires payments to be proportional to ability to pay. They link the two approaches using results from the income redistribution literature on taxes and deductions, arguing that ability to pay can be thought of as prepayment income less deductions deemed necessary to ensure that a household reaches a minimum standard of living or food consumption.

The authors show how both approaches can be enriched by distinguishing between vertical equity (or redistribution) and horizontal equity, and show how these can be quantified. They develop indices for "catastrophe" that capture the intensity of catastrophe as well as its incidence and also allow the analyst to capture the degree to which catastrophic payments occur disproportionately among poor households. Their measures of the poverty impact of health care payments also capture both intensity and incidence.

To illustrate the arguments and methods, tbe authors use data on out-of-pocket health spending in 'Vietnam in 1993 and 1998-an interesting application, rince 80 percent of health spending in that country w;S out-ofpocket in 1998. They find that out-of-pocket payments had a smaller disequalizing effect on income listribution in 1998 than 1993, whether income is measured as prepayment income or as ability to pay (that is, prepayment income less deductions, regardless of how deductions are defined). The underlying caus- of the smaller disequalizing effect of out-of-pocket payments differs depending on whether the benchmark distribution is prepayment income or ability to pay.

The authors find that the incidence and int,t :sity of catastrophic payments-in terms of both prep ayment income and ability to pay-declined between 1993 and 1998, and that both the incidence and the int.ensity of catastrophe became less concentrated among -he poor. They also find that the incidence and intensit) of the poverty impact of out-of-pocket payments dirinished over the period. Finally, they find that the pov erty impact of out-of-pocket payments is due primarily to poor people becoming even poorer rather tha i the nonpoor becoming poor and that in Vietnam r0 1998 it was not expenses associated with inpatient carc that increased poverty but nonhospital expenditures.

This paper-a product of Public Services for Human Development, Development Research Group-is part of a larger effort in the group to investigate the links between poverty and health. Copies of the paper are available free from the W)orld Bank, 1818 H Street NW, Washington, DC 20433. Please contact Hedy Sladovich, room MC3-607, telephone 202 '73-7698, fax 20)2-522-1154, email address hsladovich @worldbank.org. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The authors may be contacted at awagstaff@ worldbank.org or vandoorslaer(a econ.bmg. eu r.nl. November 2001. (48 pages) _The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished 'he papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed il this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent._ Produced by the Policy Research Dissemination Center