Decomposing the Redistributive Effect of Health Care Payments Introduction

Payments towards health care, apart from securing access to health services, may also redistribute income. While such redistribution may be intended or unintended, policymakers are generally interested in the degree to which it occurs because of consequences for the distribution of goods and services other than health care. The rationale for being more concerned with the redistributive impact of payments for health care than with those for many other goods and services appears to stem from the fact that—to a large extent and especially in lowincome settings—most out-of-pocket expenditure for health care is of an involuntary nature [1, 2]. The redistribution can be vertical and horizontal. The former occurs when payments are disproportionately related to ability to pay. The extent of vertical redistribution can be inferred from measures of progressivity (see TN#16). Horizontal redistribution occurs when persons with equal ability to pay contribute unequally to health care payments. This Note describes how total redistributive effect can be measured, and decomposed into its vertical and horizontal components.