Health contingent income transfers. Are they relevant?
HERO WP 2014/05: Authors: Kjell Arne Brekke, Department of Economics, University of Oslo and Snorre Kverndokk, Ragnar Frisch Centre for Economic Research, Oslo.
This paper is an extension of Brekke and Kverndokk (2014), which showed that a limited income transfers from a rich to a poor, both with equal health, will increase the concentration index. In this paper we will demonstrate that such health contingent income transfers are implicit in linear models commonly used in the health economic literature, except if the direction of causality is only in the direction of income to health. However, health contingent transfers may also appear with causality from income to health. We show this in a simplified version of a model in Brekke et al. (2011). The prevalence of health contingent transfers in simple models, indicate that such transfers may be as relevant as the non-contingent ones. Together with our previous results this indicates that we may expect the measured health inequality to be higher the more egalitarian a country is.