Malaysian health reform socio-economics: Part 4

— David KL Quek
The Malaysian Insider
Feb 10, 2012

FEB 10 — Out-of-Pocket and Catastrophic Payments

So what is so terrible about out-of-pocket (OOP) payments for healthcare? Why are health economists and policymakers so enamoured with this unsavoury OOP payment that this healthcare financing mechanism has been universally targeted to be eradicated, or at least reduced?

Many health authorities from the WHO and World Bank have analysed this in great detail, taking into account especially poor countries around the world, including those in Asia, Africa, Central and South America. Malaysia too has been included in many multi-country analyses to ascertain if common themes and determinants are shared within the disparate health systems in the regions.

When one looks at poverty levels and unequal economic systems, the health determinant as a function of economic underdevelopment and social aberration unfortunately looms large in some really poor nations. While poverty per se cannot all be attributed to just ill health or the lack of access to proper health care, impoverishment as a result of quests for healthcare has been a classic example of what poor countries are doing wrong.

Since many if not most of the world’s poorest countries also have the worst vital and health indices, it is not surprising that they have been studied the most intently and comprehensively. The lack of universal or affordable access to health care remains one of the predominant determinants of poverty in these countries. Sadly, out-of-pocket payments are the usual if not the only manner of health financing in these countries, where there is little or no social or financial protection or safety nets.

What has been found is as follows: out-of-pocket health payments can drive individuals and households into poverty, but standard poverty measures do not adequately account for health needs, and cannot explain all the nuances of impoverishment which can follow catastrophic ailments.

Health economists believe that OOP payments and poverty levels although usually intimately linked may not necessarily be causative, one for the other, or vice versa. Many health analysts use mathematical and statistical measures to assess poverty on the basis of household resources net of OOP payments, but this is justified only if OOP payments are in response to basic needs not reflected in the poverty line. Diversity and unpredictability of health needs makes it difficult to adjust poverty lines for some of these households. Also not all OOP payments are non-discretionary especially for middle-income households, which may be voluntary based on perceived demand or need, so subtracting them from household resources would overestimate poverty. But conversely, leaving OOP payments as part of resources, could also underestimate poverty.

Van Doorslaer and others, in a 2007 paper in the Health Economist, actually analysed in detail how out-of-pocket payments influence healthcare payments and in particular catastrophic ailments and possible household impoverishment in Asia. Their data and analysis are worth perusing in detail.

WHO researchers have defined and set the threshold at 40 per cent of capacity to spend as non-subsistence effective (disposable) income. This is household expenditure net of the estimated cost of subsistence food needs. “Households are considered to suffer financial catastrophe if they spend more than 40 per cent of their disposable income — the income remaining after meeting basic food expenditure — on health services.” Once this threshold is exceeded then households are forced to reduce spending on other essential items such as housing, clothing and education, in order to pay for health services.

This is sometimes also known as subsistence spending. Subsistence spending on food is defined as the average food expenditure of households in the 45th to 50th percentile of food budget share distribution. This threshold is useful because it helps to assess the disruptive effect of out-of-pocket, OOP payments on the living standards of the poor.

Out-of-pocket payments take several forms, which include fee for services, whether as outpatient or in-hospital care (imposed by private and/or public sector providers), co-payments where insurance does not cover the full cost of care, and direct spending for self-treatment (for drugs and pharmaceuticals, including traditional/complementary-alternative therapies).

Thus, it would appear that having a prepayment mechanism or system of healthcare financing might be the better way to avoid such capricious and uncertain out-of-pocket costs and spending for health. But the solutions towards developing such a prepayment system are complex and depend largely on differing countries’ socioeconomic and political contexts, including the nature and speed of socio-economic as well as human capital development.

For Malaysia, the out-of-pocket payments are utilised for the following services, the bulk being for inpatient care, ambulatory care and medicines:

● Public sector care (7.17 per cent)

● Inpatient care (24.82 per cent)

● Ambulatory care (45.41 per cent)

● Medicines (24.66 per cent)

● Traditional/home/other (5.11 per cent)

It can be seen that the bulk of the OOP spending is on ambulatory care and medicines. But this statistic must be examined from the perspective of household spending and consumption patterns. From the above discussion, it would be clear that OOP payments for health care should be viewed and analysed more contextually, as a percentage of household consumption/spending.

Interestingly among the 14 nations studied, Malaysia had the lowest levels of out-of-pocket, OOP spending as a percentage of total household (HH) spending, even if this were to exclude food consumption expenditure.

For Malaysia, the so-called Catastrophic payment Headcount was found to be among the lowest in the entire 14-country cohort analysis. Some 0.36 per cent had to spend in excess of 25 per cent of their total household expenditure as OOP payments; 0.98 per cent more than 15 per cent; 2.01 per cent more than 10 per cent; and 6.62 per cent more than 5 per cent of total household expenditure as OOP payments. When non-food expenditure is considered, the numbers were even smaller with some 0.21 per cent more than 40 per cent, 0.78 per cent more than 25 per cent, and 2.48 per cent more than 15 per cent of OOP payments as shares of non-food expenditure, respectively.

This contrasts sharply with, for example Bangladesh, where 28 per cent of its households spent in excess of 5 per cent of the total household expenditure on health care and a substantial 4.5 per cent spent in excess of a quarter of the budget for healthcare! The figures for China are also dismal, i.e. 28.4 per cent spending in excess of 5 per cent of total household expenses, while another 2.8 per cent spending in excess of 25 per cent of their household budget. These are numbers, which clearly can impoverish some among the poor. The data for Indonesia and the Philippines are nearly similar, with some 9.5 to 9.2 per cent OOP spending in excess of 5 per cent and 1.13 and 1.14 per cent in excess of 25 per cent of household budget, respectively. Even Hong Kong had more than twice the percentage of catastrophic spending than Malaysia!

For Malaysia thus far, it would appear that our OOP spending on healthcare, including health catastrophes, is nowhere near the threshold or danger levels of concern! We are way off the marker of 40 per cent of household spending needed to push households into impoverishment. But this is not to say that we do not have any such healthcare-induced bankruptcies, but these are still in the sustainable (possibly) sub-unity or <1 per cent) level as can be adduced and seen in the available data.

What is interesting is that this paper summarised and concluded that: “Sri Lanka, Thailand and Malaysia stand out as low to middle income countries that have constrained both the OOP share of health financing and the catastrophic impact of direct payments.”

So what are the practical issues and impacts of out-of-pocket payments for health? Undoubtedly the most serious problem with paying out of pocket is the uncertainty and unexpectedness of ill health and medical costs. Unexpected and fortuitous medical cost has that way of eating into household expenditures, especially when these have not been budgeted for or factored in adequately.

For many, but especially for the marginal and indigent, households confronting a serious illness might have to sell limited assets, borrow, and/or cut back on expendable items of consumption, just to be able to pay for such usually urgent services. This sometimes-unavoidable economic shock can lead to rapid depletion of savings and/or assets, causing households to spiral down into indebtedness; many ending up being trapped in long-term debt and becoming pushed into poverty.

The opportunity cost to escape poverty from savings, investments or meagre assets could easily be exhausted when OOP payments come out of the blue. In direst straits, some would have to make that difficult choice between diverting disproportionately large portions of household resources to cover the costs of treatment. And if these were insufficient, they would sometimes even have to forego or delay treatment at the expense of health.

However, Malaysia has about the lowest statistics for poverty headcounts due to health OOP in Asia, even when we calculate according to two thresholds of poverty lines (US$1.08 and US$2.15 per day). Malaysia’s adjusted poverty gaps also remain lowest and insignificantly changed at the two baseline poverty levels.

Thus, although severity of poverty in some underdeveloped countries can sometimes lead to predicaments in prioritisation of subsistence needs versus medical choices, the extent to which this occurs differs from country to country. Sudden and unpredictable illness shocks can lead to severe disruption to material living standards and welfare, especially for those so impoverished! Hence, disruptive and catastrophic healthcare spending can have huge economic consequences not only to the individual but also to entire households and families. This however, appears to be a very small experience for Malaysia at this current point in time, at least where we have data for.

Therefore, while it is understandable that we make serious attempts to work towards health equity and access for all around the world, we also have to consider local, regional or even national peculiarities and context.

In principle, we recognise that WHO and the World Bank are right to emphasise the threat of spiralling OOP catastrophic payments. The danger of catastrophic health payments causing impoverishment, disruption of household living standards, and entrenching the already poor, has been substantiated repeatedly in many underdeveloped countries. WHO has been at the forefront at advocating fairness of health financing and ensuring protection against such catastrophic medical expenses, while at the same time encouraging governments to provide universal access for as broad a berth of basket of healthcare services as possible.

  1. #1 by monsterball on Friday, 10 February 2012 - 11:24 am

    The Govt is in desperate needs to churn in more funds and what better ways is to talk about health and sacrifices all must make to get it.
    We are with so many natural resources to bring in billions per year income to out country.
    Why compare us with this or that country.who has none?
    Brunei maybe small…but you never see our Govt compare with that country where both have oil….both export..whereas in Brunei..all citizens live peacefully and happily….no tax….all free health cares.
    Our incoming billions per year income are suck off by blood suckers for decades…and that is the differences between Brunei and UMNO b government.

  2. #2 by Loh on Friday, 10 February 2012 - 1:11 pm

    The deputy DG of Health Ministry Dr N bt Tun Hussein said that on average Malaysians spend 10% of the income on health, and on average a Malaysian pays 6 visits to doctors a year. The statistics quoted raises a number of issues. What constitute health expenditures? How has health services provided by public hospital been treated? What are taken as the averages? Is income data reliable?

    The figures quoted were averages. The 10% as average could vary from almost zero to over a hundred percent depending on the health condition and the income level of the individuals concerned. The government has no reason to play God in getting the citizens pay for all health expenditures, over and above the taxes they pay to keep the government going.

    Dr N said that the government is investigating to adopt best practices of other countries. She means that Malaysia’s practices are no good, else why look around for how others operate? Further, when others can succeed on their scheme, it does not mean that it would succeed in Malaysia too, bearing in mind the level of corruption prevailing in Malaysia.

    If the health ministry considers that the health services it provides to the citizens are less than praiseworthy, then it is for them to concentrate on how well the public health services can be improved. If private citizens choose to seek health services provided by the private sectors, and they have no complaints why should the government introduce compulsory health schemes to involve them making payment, and this would affect their ability to choose as they have been accustomed to.

    If the intention of the government is to allow patients who are currently receiving treatment from the public sector to seek treatment in the private sector which are run on profit motive, then the government is spending more money than necessary. Should not the government look to improve its health services so that patients do not have to seek treatment in the private sector in the first place. It is not correct for the government to finance treatment of the citizens in the private sector run on profit motive using the pool of the government revenue, it is ridiculous that the citizens have to bear the burden so that the government could implement the new policy aims at ‘being nice that patients currently seeking treatment in government hospitals have a choice to be treated in private facilities, in the words of the DG of the Health Ministry.

    The health Minister said that all health facilities should be made available to treat sick persons. He would be correct if the government chooses make private health services providers government services. In which case, there is no need for the citizens to actually pay. They should just walk in and get treated. The results would be medical professionals in the private sector would migrate en bloc. But the ministry of health was not interested in making private sector heath services public. Instead it is making public hospitals private. The intention was to enable some people to make health services a profitable venture with the government paying the bulk of the revenue to the private sector. With that employees in the private sector have to suffer collateral damages. But government employees will surely have the so-called payment absorbed by the government. It is the private sector employees who have to forgo the current health benefits provided by the employers to seek 1Care treatment. Certainly the employers will not agree to pay to both private insurance company and 1Care. They have no choice but to deny their employees the health benefits they currently enjoy. Anything with 1 as prefix is a mess. 1Malaysia is 1mess.

  3. #3 by k1980 on Friday, 10 February 2012 - 1:32 pm


    Ah Bang Jib has to go, and the time is now!

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