Health shocks welfare consequences and policy implications

Abstract

Health shocks can affect the household economy through a substantial rise in out-of-pocket medical expenditure and loss of income. They are the most common idiosyncratic shocks in developing countries context and they increase the vulnerability of households to transient or chronic impoverishment and/or perpetuation of poverty from one generation to next. Thus there needs to be a policy emphasis on designing schemes to deal with welfare loss due to health shocks. Given this background, the objectives of the study are three-fold: to investigate characteristics of households vulnerable to welfare loss from health shocks, to assess the impact of these shocks on household consumption and investment and, to identify mechanisms through which health shocks affect children and infants in particular. To achieve these objectives, we use the longitudinal data of the ongoing Young Lives project conducted in the southern state of Andhra Pradesh, India. The project aims to study childhood poverty among two cohorts: 2000 children born in 2001-02 and 1000 children in 1994-95, through household and child surveys over a period of 15 years. newline newlineExisting literature has investigated the vulnerability to financial risks of medical care associated with health shocks using catastrophic health expenditure (CHE) measure. This measure has several limitations like setting arbitrary threshold levels, exclusion of those that did not seek medical care due to inability to pay and non-accounting for risks posed by different sources of financing. So we use self-reported measure of reduction in economic well-being of households due to serious illness or death of one or more members to determine the characteristics of vulnerable population. In addition, we investigate the effectiveness of the state insurance scheme in reducing the welfare loss from health shocks by exploiting the longitudinal nature of the data. Using three-level random intercept model that takes into account contextual and environmental factors like access to healthcare, we find that