Including Private Health Care Costs in Measuring Nations’ Redistributive Effort

Abstract

Because they do not account for the private component of household’s health care expenses, measures of nations’ redistributive effort inconsistently account for the financial burden their health-care system places on different households. We recalculate the effect of government policy on income distribution by adjusting household income not just for taxes and social transfers, but also for private health expenditures. Examining eight LIS datasets, we show the degree of bias in typical measures of post-government income distribution. In Switzerland and the U.S., for instance, post-government poverty rates climb by 3-4 percentage points once households’ private medical expenses are subtracted from income. Future assessments of governments’ redistributive effect should uniformly account for the distributional impact of their health-care financing policies.