The purpose of this study was to determine whether households with chronic disease are vulnerable to CHE and to examine the effects of CHE on financial. Consequently, the incidence rate of CHE was higher in households with chronic disease than those without. This is because households with chronic diseases incur large OOP, and income decreases because of health deterioration. That is, the numerator increases, and the denominator decreases, potentially leading to an increase in the incidence rate of CHE. In Korea, specifically, since the national health insurance coverage is not enough, CHE is highly likely to occur in households with chronic diseases .
Furthermore, when CHE occurs in households with chronic disease, almost all financial strain indicators deteriorated in the following year. This study involved two main analyses. First, the logistic regression was conducted to evaluate financial ratio indicators applied threshold model. Second, we analyzed the linear regression to determine which components of the ratio indicators affected.
We analyzed four financial ratio indicators: the surplus, LADR, solvency, and liquidity. To summary the results, first, the surplus indicator deteriorated. It could interrupt the cash flow. In additional analysis, it turned out that the income loss and increase in living costs affected the surplus indicator. If households with chronic diseases have CHE, the patient could not work, and even other household members may give up the work to take care of the patient so that it could reduce income. Furthermore, it seems that medical expenses increased the total living costs. However, on the contrary, total living expenses without OOP decreased. It can be interpreted that households reduce other consumption to pay for OOP.
Secondly, LADR was deteriorated, which means that CHE weakens a household’s capacity to hold liability. The LADR is an assessment of the amount of liability that can be repaid through liquid assets which can be mobilized immediately in the event of an unavoidable situation, in which a household must repay all its liability at one time [15, 18, 21]. The LADR is the ratio of total liabilities to liquid assets. As a result of the further analysis, CHE did not affect total liability, but significantly reduced liquid assets. It can be interpreted households pay for the medical costs by withdrawing liquid assets, not borrowing money from the bank. The decline in liquid assets can hinder cash flow, making expenses more difficult and increasing the burden of paying off the liabilities.
The solvency indicator has an enormous financial scale compared to other indicators, but the results showed that CHE affects it. This indicator reflects the full capacity to hold household liability, so that it should care with alert. From the further analysis, CHE had no significant impact on non-liquid assets. Instead, CHE is associated with reduced liquid assets. It can be interpreted that CHE occurs suddenly, and individuals rely on financial assets available for immediate use. Using liquid assets can be viewed as a financial coping strategy, but is not, as this will eventually lead to a decline in household finances.
Finally, as a result of liquidity indicator, it was also deteriorated, which means households are losing ability to cope with unexpected economic problems. The increase in the liquidity indicator indicates that the money to maintain the present economic condition will disappear. In this case, households would become very unstable, both psychologically and economically.
In the results of further analysis to identify what is cause, it turned out that CHE confers a negative effect on both sides, however, the decrease in liquid assets was higher.
From the results of the four financial ratio analyses, we can figure out several facts as follows: first, the likelihood of household financial strain is high if CHE occurs in households with chronic diseases. And it is not due to a decrease in absolute wealth, income, or an increase in debt, but rather because the relative balance between financial elements is broken. Second, the main factor in the deterioration of the financial ratio index was a decrease in liquid assets. This can be interpreted as people using liquid assets rather than using debt or non-liquid assets when CHE occurs. Since three of the four indicators (LADR, solvency, and liquidity indicators) contain liquid assets, this affects all indicators in a chain. Liquid assets and income are different. Income is “newly incoming money,” and liquid assets are “accumulated money” through income. For example, if an employee uses an outpatient service or even pays for expensive medicine, it will not reduce the incoming money (i.e., the salary) but reduce the accumulated money. If OOP were to affect income, then it might be the case that a patient's illness (OOP implied) is so severe that they may not be able to maintain work activities and would lose their wage. Previous studies that analyzed only the impact of CHE on income-based poverty did not point out any differences between incoming money and accumulated money.
Third, CHE increased the total cost of living and decreased income, which leads to the deterioration of the surplus indicator. Traditionally, the surplus indicator has been used for short-term evaluation [14, 15]; however, the deterioration of the indicator can develop into a long-term problem when it comes to chronic diseases because it implies loss of workability. To determine whether income reduction occurs through labor, we analyzed the effects of CHE on labor-related income and non-related income.
As a result, labor-related incomes declined. Since the CHE represents the more severe status of chronic diseases, so it can be interpreted that CHE affects the work power of household members negatively. This interpretation is supported by the fact that non-labor-related incomes were not affected. Of all income types, the only increase occurred in private transfer income. It can be considered as borrowing money from nearby acquaintances to offset OOP and reduced earned income. In other words, Korean people are heavily relying on social networks than the social security system which must protect household finances by giving public transfer income. However, the private transfer income may not be enough to cover the decreasing disposable income. In addition, even if a household reduces the expenditure of non-medical expenses, the total living expenses remain elevated because of OOP. As the living expenses increase and income decreases, the household cash flow shows a deficit.
Existing studies argued that exploiting liability, borrowing, and use savings are the financial coping strategy that can protect households from poverty [5, 6]; however, this strategy breaks the balance of financial fitness in households. In this study, we demonstrated that several financial strain indicators deteriorated. These are important facts for an economically advanced country like Korea because one of the reasons for bankruptcy in households in the Korean community is that the households fail to balance the liability/assets ratio. There was no significant increase in liability in this study; however, the relative size of assets could be more critical than absolute liability size. Even a small liability, if a household is incapable of servicing it, will cause an over-liability situation . If assets are reduced, the ability to maintain liability falls. Households can be classified as credit-impaired in the event of a default and may become bankrupt . The financial ratio analysis was conducted to understand this point.
The limitations of this study are as follows: this study did not analyze whether CHE causally affects financial indicators. This is about the correlation. In order to analyze the causal impact, it is necessary to measure the amount of difference in financial indicators before and after the time of the occurrence of CHE. However, it is difficult to calculate the difference because the financial indicators are measured as a ratio. And there is a problem that selection bias may occur as the number of samples decreases during the calculation process. In addition, there is a possibility that the relationship between the CHE indicator and the Surplus indicator has endogeneity. For example, households with a strong consumption propensity will show high in both indicators, and households with low consumption propensity will show low.
Also, this study is the use of family units of independent and dependent variables. Due to this, we could not use individual units of control variables, such as self-reported health. We suggest that subsequent studies should utilize panel analysis, considering that chronic diseases are suffered over the long term. In particular, liability may have a positive impact on maintaining consumption in households in the short term, but it would likely become an economic burden to repay over the long term. In other words, since the economic burden of liability occurs over time, we must observe a long-term impact. Moreover, income, assets, and liabilities are influenced by the characteristics of households that are not observed; however, panel analysis can control for such effects.