Here is a statistic that should worry anyone who works on health financing. In its 2025 global monitoring report on universal health coverage, released in December, the WHO and World Bank found that the share of the world’s population facing financial hardship from out-of-pocket health spending fell from 34 percent in 2000 to 26 percent in 2022.
That sounds like progress. The report itself warns against reading it that way. The decline, it says, is driven by global poverty reduction rather than by improvements in financial protection.
Put plainly: fewer people are being ruined by medical bills mainly because fewer people are poor to begin with. The systems meant to protect them have not improved nearly as much as the headline suggests.
How medical bills trap households
The mechanism is well understood. A household without insurance, or with insurance that does not cover what it needs, pays for care at the point of use. For a poor family, a hospital admission, a course of medicines or a chronic condition can consume savings, force the sale of livestock or land, or push them into debt. Children are pulled out of school. The family’s earning capacity falls just as its costs rise.
The WHO and World Bank’s 2023 monitoring report, using 2019 data, put numbers on this. More than 1 billion people spent over 10 percent of their household budgets on health care. About 1.3 billion were pushed or further pushed into poverty by out-of-pocket payments, including 344 million people already living in extreme poverty.
Those are the people we can see in household surveys. The ones we cannot see are harder to count.
The people who don’t show up in the data
Financial hardship indicators measure what households spend. They cannot measure what households chose not to spend because they could not afford it.
A family that skips a hospital visit, rations insulin or never fills a prescription does not register as experiencing catastrophic spending. On paper, it is financially protected. In reality, it has traded financial ruin for untreated illness.
This is the uncomfortable blind spot in how we track out-of-pocket costs. The poorest households often look better in the statistics because they have been priced out of care entirely. A country can appear to improve on financial protection while access for the poor actually gets worse.
That is why financial protection indicators should never be read alone. They need to sit next to measures of unmet need and forgone care, or they can reward exactly the wrong outcome.
Where the money actually goes
If you want to know what is driving out-of-pocket spending, look at medicines first. WHO has long reported that in many low- and middle-income countries, medicines account for a large share of health spending, and that most people buy them out of pocket.
This has a practical implication that policymakers often miss. Free consultations do not make care free. Many countries have abolished user fees at public clinics, only to see patients handed a prescription and sent to a private pharmacy because the public facility is out of stock. The fee was removed from the counter and reappeared at the chemist’s.
Any reform that promises to cut out-of-pocket costs without a credible plan for medicine supply is promising something it cannot deliver.
Countries that have moved the number
Out-of-pocket shares can fall, and fast, when governments decide to spend. India’s National Health Accounts estimates show the out-of-pocket share of total health expenditure dropping from 62.6 percent in 2014-15 to 39.4 percent in 2021-22, as government health spending rose.
Contrast that with Nigeria, where World Bank data put out-of-pocket spending at roughly three-quarters of current health expenditure in recent years. Nigeria has had a national health insurance scheme for two decades. Coverage has stayed low, and households continue to carry most of the cost.
The difference is not mainly in the design of insurance products. It is in how much public money flows into the system and whether it reaches the services people actually use.
The uncomfortable incentive
Why do so many countries tolerate high out-of-pocket spending? Because it is, in a narrow fiscal sense, convenient. It raises money for the health system without a tax increase. It rations demand without a minister having to announce rationing. And the burden falls on people who are sick, poor and politically quiet.
Replacing out-of-pocket payments with public financing means raising revenue, whether through general taxation, payroll contributions or other sources, and that means political fights. Leaving the burden on households avoids the fight. The cost is paid in debt, forgone care and lost income, none of which appears on a government balance sheet.
What should change
A few principles follow from all this.
- Track forgone care alongside financial hardship. A falling hardship rate means little if unmet need is rising.
- Start with medicines. Reliable supply of essential medicines in public facilities does more for household budgets than most insurance reforms.
- Protect the poorest first. Exemptions and fully subsidised enrolment for the poorest households matter more than broad schemes that the poor cannot navigate.
- Be honest about revenue. Financial protection requires public money. Pretending otherwise just shifts the bill back to patients.
One household, one illness
It is worth following the mechanism through a single household, because the aggregate statistics flatten what actually happens.
Take a family of five in a rural area, living on the income from a small farm and occasional day labour. The father develops a chronic condition that needs regular medicines and periodic tests. The nearest public clinic offers free consultations, but its pharmacy is often out of stock, so prescriptions are filled at a private pharmacy. The tests are only available at a private laboratory in the district town, a bus ride away.
At first the family pays from savings. Then they sell a goat. Then they borrow from a relative. When a relative’s help runs out, they borrow from a moneylender at high interest. The eldest daughter leaves school to help on the farm, because the father is weaker and cannot work full days. The medicines are rationed to make them last, so the condition worsens. Eventually there is a hospitalisation, and a larger debt.
In a household survey, this family will show up in some years as experiencing catastrophic spending. In other years, when they simply stop buying medicines because they cannot, they will look financially protected. Their health, and their daughter’s education, will not show up in the financial protection statistics at all.
That is the trap: not a single catastrophic bill, but a slow grind in which illness reduces income, cost reduces treatment, and reduced treatment worsens illness.
The strongest counterargument
There is a serious case for some level of out-of-pocket payment, and health financing experts have made it for decades.
Co-payments, the argument goes, discourage unnecessary use of services, help fund facilities that are chronically underfunded by governments, and give patients some leverage over providers. When care is entirely free, demand can outrun supply, leading to queues, rushed consultations and informal payments anyway. Some middle-income countries use modest co-payments while protecting the poor through exemptions, and they argue that this is sustainable in a way that fully free care is not.
This argument partly holds. Very small co-payments for some services, combined with effective exemptions for poor households and people with chronic conditions, can coexist with good financial protection. And it is true that abolishing fees without funding the services that fees used to pay for can leave facilities worse off, with stock-outs and demoralised staff.
But the argument weakens in three places. First, exemptions for the poor are notoriously hard to administer, and in practice many eligible people never receive them. Second, the evidence that user fees mainly deter “unnecessary” care is weak. They tend to deter necessary care among the poorest, who are most price-sensitive. Third, in countries where out-of-pocket spending makes up the majority of health spending, the debate is not about modest co-payments. It is about households financing the health system themselves.
Second-order effects
The damage from out-of-pocket spending extends beyond health.
Education. When families face health shocks, children, often girls, are pulled out of school to save money or to help at home. That affects earnings for a generation.
Women’s health and autonomy. In households where women have less control over money, out-of-pocket costs can mean women delay their own care, including maternal care, until it is urgent.
Informal payments. Where formal fees are abolished but facilities are underfunded, informal payments often appear. These are harder to measure, harder to regulate and fall unpredictably on patients.
Trust in public services. When “free” care turns out to cost money at the pharmacy, people learn not to trust government promises about health. That makes later reforms harder to implement.
Private sector growth. High out-of-pocket spending fuels a largely unregulated private sector of pharmacies, drug shops and clinics. Some provide good care. Many do not, and patients have little way to tell the difference.
What this means for different decision-makers
For finance ministries, the question is whether health spending is treated as consumption to be cut in hard times or as protection against poverty. When public health budgets fall, out-of-pocket spending rises, and the poverty consequences land on the social protection budget later.
For health ministries, the priority should be the services and products that drive the most out-of-pocket spending in their own country. Household expenditure surveys can show where the money goes. In many places, it will be medicines and diagnostics, not consultations.
For hospital and clinic managers, there is a practical duty to know what patients are actually paying, including for items sent out to private pharmacies and laboratories. A facility that calls itself free while routinely sending patients elsewhere to buy what they need is not free.
For funders, the lesson is to avoid financing parallel free services that disappear when projects end. Support for domestic financing mechanisms, including efforts to raise public revenue for health, lasts longer.
For clinicians, there is a simple habit worth building: asking patients whether they can afford what is being prescribed. Cost-related non-adherence is common and usually invisible unless someone asks.
What to watch next
Watch whether countries begin to report unmet need and forgone care alongside financial hardship indicators, so that improvements in one are not masking deterioration in the other. Watch what happens to out-of-pocket shares as international health aid declines in many countries, since cuts to external funding can shift costs back onto households quickly. And watch the medicines budget in any country announcing free health care. It is usually the clearest early signal of whether the promise will hold.
A test for any “free care” announcement
When a government announces free health care, three questions reveal quickly whether households will actually pay less. Are medicines and diagnostics included, and is there a budget to keep them in stock? Are facilities compensated for the fees they lose, or will they recover the money informally? And will anyone measure what patients actually pay a year later? If the answers are vague, the announcement is a promise about the counter, not about the household budget.
The takeaway
Out-of-pocket spending is not just a financing statistic. It is a mechanism that turns illness into poverty, and poverty into worse health. The global numbers are moving in the right direction, but largely for reasons that have little to do with health systems.
If we want credit for protecting households, we should measure whether our systems are doing it, including for the people who never walked through the door.
In your health system, where do patients end up paying even when care is supposed to be free? We want to hear it.
