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In the "basic" approach, medical expenses are catastrophic if they exceed a prespecified percentage of consumption or income; the approach tells us if expenses cause a large percentage reduction in living standards. The ability-to-pay (ATP) approach defines expenses as catastrophic if they exceed a prespecified percentage of consumption less expenses on nonmedical necessities or an allowance for them. The paper argues that the ATP approach does not tell us whether expenses are large enough to undermine a household's ability to purchase nonmedical necessities. The paper compares the income-based and consumption-based variants of the basic approach, and shows that if the individual is a borrower after a health shock, the income-based ratio will exceed the consumption-based ratio, and both will exceed the more theoretically correct Flores et al. ratio; whereas if the individual continues to be a saver after a health shock, the ordering is reversed and the income-based ratio may not overestimate Flores et al.'s ratio. Last, the paper proposes a lifetime money metric utility (LMMU) approach defining medical expenses as catastrophic in terms of their lifetime consequences. Under certain assumptions, the LMMU and Flores et al. approaches are identical, and neither requires data on how households finance their medical expenses.
This article was published in the following journal.
Name: Health economics
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Depiction of medical issues or themes via the arts including visual, oral, or written forms of expression.
An acute or prolonged illness usually considered to be life-threatening or with the threat of serious residual disability. Treatment may be radical and is frequently costly.
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Using an INTERNET based personal journal which may consist of reflections, comments, and often hyperlinks.
Those funds disbursed for facilities and equipment, particularly those related to the delivery of health care.