Assessing progressivity of out-of-pocket payment: with illustration to Malaysia

Throughout the world, policy makers are considering or implementing financing strategies that are likely to have a substantial impact on the equity of health financing. The assessment of the equity implication is clearly important, given the potential impact that alternative finance sources have on households. Households incur out-of-pocket payment directly from their budget, apart from their public or private insurance. Out-of-pocket payment is the primary concern, given their undesirable impact on households. Progressivity measures departures from proportionality in the relationship between out-of-pocket payment and ability to pay. It is the most frequently used yardstick to assess the equity of out-of-pocket payments in empirical studies. This paper provides an evaluation of such progressivity measures, undertaken using four approaches (proportion approach, tabulation approach, concentration curve and Kakwani's index), in order to reveal their usefulness and underlying notion. It is illustrated empirically with data on out-of-pocket payment for health care in Malaysia for 1998/1999, based on the nationally representative Household Expenditure Survey. Results indicate that out-of-pocket payments are mildly progressive, whilst the four approaches have their benefits and limitations in assessing equity implications. This analysis is of interest from a policy perspective, given Malaysia's heavy reliance on out-of-pocket payments to finance health care. Copyright (c) 2006 John Wiley & Sons, Ltd.