The role of consumer choice in out-of-pocket spending on health: A mixed-methods approach

Analyses of out-of-pocket healthcare spending often suffer from an inability to distinguish necessary from optional spending in the data without making further assumptions. We propose a two-dimensional rating of the spending categories often available in household budget survey data where we consider the requirement to pay for necessary healthcare as one dimension and the incentive to pay extra for additional services, higher quality options or more convenience as a second dimension to assess the distortionary potential of higher spending for additional healthcare or higher quality options. We use three waves of a large German Household Budget Survey and decompose the Kakwani-index of total out-of-pocket healthcare spending into contributions of the eleven spending categories available in our data, across which user charge regulations vary considerably. We compute and decompose Kakwani-indexes for the different spending categories to compare the degrees of regressiveness across them. The results suggest that categories with higher incentives for additional spending exhibit smaller contributions to the overall regressive effect of total out-of-pocket spending than categories where spending is presumably mostly on necessary and effective care. Assessing the consumer choice potential of different spending categories is important because extra spending among the better-off may outweigh necessary spending in aggregate expenditure data, and may also hint at potential inequalities in the quality of provided healthcare.