April 4, 2007—Households, especially the poorest, pay out-of-pocket for an unexpectedly high 85 percent of private health spending in Latin America and the Caribbean (LAC), compared to the 72 percent average in Europe and the OECD (Organisation for Economic Co-operation and Development).
Today, after two decades of reforms in the health sector of many LAC countries, households in the region are still overexposed to health shocks that can force them to cut the budget for other basic needs and even fall below the poverty line, according to a new World Bank study.
“Beyond Survival: Protecting Households from Health Shocks in Latin America” is based on empirical evidence from six case studies: Argentina, Chile, Colombia, Ecuador, Honduras, and Mexico. Applying a classical insurance framework to examine household behavior in the face of financial shocks from sickness and other adverse health events, the authors conclude that Latin American households are over-burdened with out-of-pocket spending and lack sufficient access to instruments to help them moderate the risks.
“Public expenditures on health care are low in most countries in the region, but private spending on health – particularly spending out of pocket paid when services are needed - is correspondingly high,” said Truman Packard, World Bank Senior Economist and one of the authors of the report.
Despite Latin America’s moderate economic growth of 5 percent in 2006 and significant progress in reducing poverty in recent years, adverse health events or normal life-cycle events (such as old age) not only sap the health of individuals, but can also impoverish their households. Besides treatment costs, households bear the cost of productive time loss from work, as well as the opportunity costs due to days spent taking care of ill family members. This combination of costs can force individuals and households to cut nonmedical consumption, a situation that affects the already poor population the most. One of the cases in the study shows that in Argentina, 5 percent of all nonpoor households fell below the poverty line for at least three months in 1997 as a result of health spending, and similar results were observed in Chile and Honduras. Meanwhile in Ecuador, 11 percent of nonpoor households fell below the poverty line in 2000. “With total health expenditures accounting for 6.4 percent of gross domestic product, Latin America and the Caribbean is the highest-expending region in the world after the countries of the Organization for Economic Cooperation and Development,” said Cristian Baeza, a World Bank Acting Director of Health and co-author of the report. The report carries four main messages for policy makers in the LAC region: Health out-of-pocket payments —and loss of income as a consequence of illness— can impoverish households and plunge already poor people into a transgenerational cycle of abject poverty. People need protection from the potentially ruinous costs of health care and loss of income due to illness. These costs rival losses of income from unemployment as a cause of poverty. Risk pooling in LAC has mostly benefited formally employed salaried workers who are covered by mandatory public and quasi-public risk pooling mechanisms. - Extending risk pooling to individuals who work in the large and growing informal labor sector is a priority in LAC. This means inventing contribution mechanisms for non-poor households to participate in risk pooling that are not linked to workplace or labor status.
“Around the world, including in Latin America, health care costs are rising,” said Guillermo Perry, World Bank Chief Economist for the Latin America and the Caribbean Region. To reduce the contribution-benefit gap, the report recommends that policymakers should delink risk-pool financing from the status of the worker, shift away from the use of payroll taxes, reduce the contribution cost, and increase the benefits for all participants. | 
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