One Size Does Not Fit All: Income-Sensitive Thresholds for Catastrophic Health Expenditure

Abstract This study develops an inverse rank-weighted index (IRWI) to adjust catastrophic thresholds for out-of-pocket expenditure (OOPE) components. The proposed method eliminates the arbitrariness of the existing proportionate approach by ensuring fairness in determining component-specific catastrophic thresholds. It measures the effective expenditure share of each OOPE component while considering the concentration of component-specific spending across household income levels. Using nationally representative household survey data on healthcare consumption from 2017–18, the study estimates catastrophic health expenditure (CHE) at both aggregate and component levels in India under uniform, proportionate, and IRWI thresholds. The findings reveal that the uniform threshold significantly underestimates CHE incidence, whereas component-specific thresholds identify twice as many households that experience CHE. Shifting from the proportionate method thresholds to IRWI thresholds significantly alters CHE estimates. The IRWI approach offers a more reliable framework for integrating component-specific and aggregate CHE assessments. It underscores the need for income-sensitive, component-specific thresholds to accurately quantify financial hardship and prevent underestimating healthcare-related economic burden.