Health Empirics

The majority of studies on out-of-pocket healthcare payments have focused on current welfare losses to households, reflected in their impact on poverty, while largely neglecting possible future welfare losses. Using consecutive rounds of household-level health survey data and a three-step Feasible Generalised Least Squares method, we examine whether health shocks make households vulnerable to poverty, estimate vulnerability across different population subgroups, and examine its transition in India. We find that the mean household vulnerability has remained above 0.7 from 1995 to 2018, indicating a high probability that a household will fall into poverty due to health shocks. In addition, female-headed households, households in rural areas, households with poor hygiene practices, households with low-educated heads, and households without insured members have a higher incidence of poverty vulnerability. Contrary to expectations, households with members covered by government-sponsored insurance are found to be more vulnerable than others. The results suggest that the determinants of health shocks need to be taken into account when designing poverty-reduction strategies. The paper recommends expanding a pre-designed health insurance, sanitation, and basic education drive that could effectively normalise the effects of health shocks on vulnerable households in India.