As compared to other countries in South East Asia, India’s health care system is characterized by very high out of pocket payments, and consequently low financial protection and access to care. This paper describes the relative importance of ill-health compared to other adverse events, the conduits through which ill-health affects household welfare and the coping strategies used to finance these expenses.
Cross-sectional data are used from a survey conducted with 5241 households in Uttar Pradesh and Bihar in 2010 that included a household shocks module and detailed information about health care use and spending.
Health-related adverse events were the second most common adverse events (34%), after natural disasters (51%). Crop and livestock disease and weddings each affected about 8% of households. Only a fourth of households reported to have recovered from illness and/or death in the family (by the time of the survey). Most of the households’ economic burden related to ill-health was depending on direct medical costs, but indirect costs (such as lost earnings and transportation or food costs) were also not negligible. Close to half of the health expenditures were made for chronic conditions. Households tried to cope with health-related expenditures mostly by dissaving, borrowing and selling assets. Few households reported having to reduce (food) consumption in response to ill-health.
In the absence of pre-financing schemes, ill-health events pose a substantial threat to household welfare in rural India. While most households seem to be able to smooth consumption in the short term, coping strategies like selling assets and borrowing from moneylenders are likely to have severe long term consequences. As most of the households’ economic risk related to ill-health appears to depend on out of pocket spending, introducing health insurance may contribute significantly to alleviate economic hardship for families in rural India. The importance of care for chronic diseases, however, represents a big challenge for the sustainability of community based health insurance schemes, since it is necessary to ensure a sufficient degree of risk pooling.