Relationship between healthcare utilization and household out-of-pocket healthcare expenditure: evidence from an emerging economy with a free healthcare policy

Despite the free public healthcare policy in Sri Lanka, households' out-of-pocket healthcare expenditures are steadily increasing. Parallel to this, there is an emerging private healthcare sector based on a user-pays approach. This study, therefore, examines the relationship between healthcare utilization and out-of-pocket healthcare expenses at household level. Using a double-hurdle model with 42,288 household observations drawn from the household income and expenditure survey (2012/2013 and 2016 waves), we find that out- and in-patient care in public hospitals under ‘free healthcare policy’ is positively associated with household out-of-pocket healthcare expenses, imposing a significant financial burden on the family budget. This relationship is even greater for utilization of private out- and in-patient care. The recent regulatory and fiscal interventions of the government have favourably moderated this relationship for out-patient care but not for in-patient care. The results recommend introducing public policies to further strengthen the monitoring process for private healthcare sector while ensuring the sustainability of free healthcare policy. The paper provides policy implications for richly categorized out-of-pocket healthcare expenditure and healthcare utilization types.