Out-of-pocket Health Expenditure in Latin America and the Caribbean: The Efficiency Rationale for Extending Social Protection in Health

Do out-of-pocket costs reduce the efficiency of health financing systems?

This report mentions two main factors which affect the efficiency of health financing systems namely, high out-of-pocket expenditures by households and untargeted and unorganized implicit public subsidies. It states that precise information is required in order to define out-of-pocket costs. Private insurance expenses form a significant part of the out-of-pocket costs in Latin American and Caribbean countries.

The study finds that low-income workers in the informal sector comprise a large proportion of the excluded population. Some of the factors which help in explaining the lack of insurance affiliation are:

  • When services are available for free, people are not inclined to take an insurance that they have to pay for;
  • Transaction costs associated with administering portfolios made up of informal workers, prevent them from taking insurance covers.

The paper suggests that out-of-pocket expenditures could be a factor in improving the efficiency of health expenditure in the following areas:

  • Expenditures by individuals based on arguments of classical insurance theory;
  • Grouping beneficiaries and organizing expenditures and contributions;
  • Organizing the implicit subsidies to workers in the informal sector.