Out-of-pocket health expenditures and household poverty: evidence from kenya

Abstract

Background: Out-of-pocket health expenditures leave households exposed to the risk of financial catastrophe and poverty, whenever they entail significant dissaving, borrowing or the sale of key household assets. However, by enabling households to consume essential medical care in the event of a major illness or injury out-of-pocket outlays help households to restore health, and can thus increase their future labour productivity. Therefore, the effect of catastrophic health expenditure on household welfare is an empirical matter on which little evidence currently exists in Kenya. Methods: Using Kenya Household Health Expenditures and Utilization Survey (KHHEUS) data of 2007 (n = 8414), the thesis investigates impacts of out-of-pocket expenditures on health and on other dimensions of wellbeing. In particular we estimate a negative binomial model to examine the impact of out-of-pocket expenditures on health care utilization, a logit model to analyze determinants of catastrophic health expenditures, and a Two Stage Residual Inclusion (2SRI) model to measure effects of catastrophic expenditure on household poverty. In all cases, the common estimation problems of endogeneity, heterogeneity, multicollinearity and heteroskedasticity are addressed. Sensitivity analysis is used to check the robustness of the estimates.Findings: Descriptive statistics indicate that 17 percent of those who reported illness did not seek health care, with more than 50 percent quoting lack of money as the main hindrance. Among those who utilized health care, 12 percent experienced catastrophic expenditures, and 4 percent (2.5 million individuals) were impoverished or made poorer by these payments. The poor experienced the highest incidence of catastrophic expenditures. The econometric analysis reveals that out-of-pocket expenditures are a deterrent to health service utilization, are significantly and positively associated with catastrophic expenditure and with household poverty. It is further shown that catastrophic expenditures impoverish households through their large negative effects on health and wealth. Catastrophic expenditures exclude lowincome households from health care, and conditional on them getting care, they get it in insufficient quantity, and are forced into indebtedness or sale of assets to pay for it. Furthermore, even when catastrophic health expenditure enables the household to improvethe health of its members, labour market failures often prevent realization of potential gains from health investments. The findings of the thesis strongly point to a need to explore mechanisms for cushioning households against catastrophic out-of-pocket expenditures.