Measuring Equity in Health Care Financing: Reflections on and Alternatives to the World Health Organization’s Fairness of Financing Index

World Bank Without wishing to incriminate them in any way, I am grateful to Deon Filmer, Maureen Lewis, and Martin Ravallion for comments on an earlier draft of this paper. The findings, interpretations and conclusions expressed in this paper are entirely those of the author. They do not necessarily represent the views of the World Bank, its Executive Directors, or the countries they represent. ii Summary In its latest World Health Report, the World Health Organization argues that a key dimension of a health system's performance is the fairness of its financing system. In addition to discussing the ways policymakers can improve this aspect of performance, the report proposes an index of fairness, discusses how it should be operationalized, and presents a league table of countries ranked by the fairness with which their health services are financed. This paper provides a critical assessment of the WHO index. It shows that the index cannot discriminate between health financing systems that are regressive and those that are progressive, and cannot discriminate between horizontal inequity and progressivity/regressivity. The paper compares the WHO index to an alternative and more illuminating approach developed in the income redistribution literature in the early 1990s and used in the late 1990s to study the fairness of various OECD countries' health financing systems. It ends with an illustrative empirical comparison of the two approaches using data on out-of-pocket payments for health services in Vietnam for two years—1993 and 1998. This analysis is of some interest in its own right, given the large share of health spending from out-of-pocket payments in Vietnam, and the changes in fees and drug prices over the 1990s.