title: Catastrophic medical expenditure risk.
abstract: We propose a measure of household exposure to particularly onerous medical expenses. The measure can be decomposed into the probability that medical expenditure exceeds a threshold, the loss due to predictably low consumption of other goods if it does and the further loss arising from the volatility of medical expenses above the threshold. Depending on the choice of threshold, the measure is consistent with a model of reference-dependent utility with loss aversion. Unlike the risk premium, the measure is only sensitive to particularly high expenses, and can identify households that expect to incur such expenses and would benefit from subsidised, but not actuarially fair, insurance. An empirical illustration using data from seven Asian countries demonstrates the importance of taking account of informal insurance and reveals clear differences in catastrophic medical expenditure risk across and within countries. In general, risk is higher among poorer, rural and chronically ill populations.
authors.affiliation: Faculty of Business and Economics, University of Lausanne, CH-1015 Lausanne, Switzerland. Electronic address: gabriela.flores@unil.ch.
authors.forename: Gabriela
authors.initials: G
authors.lastname: Flores
authors.affiliation: Erasmus School of Economics, Erasmus University Rotterdam, 3000 DR Rotterdam, The Netherlands; Tinbergen Institute, Amsterdam, The Netherlands; School of Economics and Regional Studies, University of Macedonia, Egnatia 156, Thessaloniki 54636, Greece. Electronic address: odonnell@ese.eur.nl.
authors.forename: Owen
authors.initials: O
authors.lastname: O'Donnell
mesh_terms: D001208:Asia; D002388:Catastrophic Illness / Q000191:economics*; D003430:Cross-Sectional Studies; D005382:Financing, Personal / Q000706:statistics & numerical data; D005102:Health Expenditures; D006306:Health Surveys; D006801:Humans; D019458:Insurance Coverage / Q000191:economics; D007348:Insurance, Health / Q000191:economics; D015233:Models, Statistical; D018570:Risk Assessment / Q000379:methods* / Q000706:statistics & numerical data
keywords: Asia; Catastrophic payments; Medical expenditures; Reference-dependent utility; Risk