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The economic consequences of health shocks

Author

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  • Wagstaff, Adam
Abstract
While there is a great deal of anecdotal evidence on the economic effects of adverse health shocks, there is relatively little hard empirical evidence. The author builds on recent empirical work to explore in the context of postreform Vietnam two related issues: (1) how far household income and medical care spending responds to health shocks, and (2) how far household consumption is protected against health shocks. The results suggest that adverse health shocks - captured by negative changes in body mass index (BMI) - are associated with reductions in earned income. This appears to be only partly - if at all - due to a reverse feedback from income changes to BMI changes. By contrast, there is a hint - the relevant coefficient is not significant - that adverse BMI shocks may result in increases in unearned income. This may reflect additional gifts, remittances, and so on, from family and friends following the health shock. Medical spending is found to increase following an adverse health shock, but not among those with health insurance. The impact for the uninsured is large, equal in absolute size to the income loss associated with a BMI shock. The lack of impact for the insured points to complete insurance against the medical care costs associated with health shocks, and is consistent with the very generous coverage of Vietnam's health insurance program in this period. The question arises: have Vietnamese households been able to hold their food and nonfood consumption constant in the face of these income reductions and extra medical care outlays? The results suggest not. For the sample as a whole, both food and nonfood consumption are found to be responsive to health shocks, indicating an inability to smooth nonmedical consumption in the face of health shocks. Further analysis reveals some interesting differences across different groups within the sample. Households with insurance come no closer to smoothing nonmedical consumption than uninsured households. Furthermore, and somewhat counterintuitively, better-off households - including insured households - fare worse than poorer households in smoothing their nonmedical consumption in the face of health shocks, despite the fact that in the case of insured households there are no medical bills associated with an adverse health event. Why the poor rely on dissaving and borrowing to such an extent, and do not apparently reduce their food and nonfood consumption following an adverse health shock while the better-off do, may be because the levels of food and nonfood consumption of the poor are simply too low relative to basic needs to enable them to cut back in the face of an adverse BMI shock.

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  • Wagstaff, Adam, 2005. "The economic consequences of health shocks," Policy Research Working Paper Series 3644, The World Bank.
    • Handle: RePEc:wbk:wbrwps:3644
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    References listed on IDEAS

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    Cited by:

    1. Halla, Martin & Zweimüller, Martina, 2011. "The Effect of Health on Income: Quasi-Experimental Evidence from Commuting Accidents," IZA Discussion Papers 5833, Institute of Labor Economics (IZA).
    2. Martine Audibert & Jean-François Brun & Jacky Mathonnat & M.-C. Henry, 2011. "Malaria, Production and Income of the Producers of Coffee and Cocoa: an Analysis from Survey Data in Côte d'Ivoire. Malaria, coffee and cocoa production and income," CERDI Working papers halshs-00557214, HAL.
    3. Jacky MATHONNAT & Jean-François BRUN & Martine AUDIBERT & Marie-Claire HENRY, 2006. "Malaria, Production and Income of the Producers of Coffee and Cocoa: an Analysis from Survey Data in Côte d’Ivoire. Malaria, coffee and cocoa production and income," Working Papers 200631, CERDI.
    4. Achyuta Adhvaryu & Anant Nyshadham, 2011. "Labor Complementarities and Health in the Agricultural Household," Working Papers 996, Economic Growth Center, Yale University.
    5. Pablo Gottret & George J. Schieber & Hugh R. Waters, 2008. "Good Practices in Health Financing : Lessons from Reforms in Low and Middle-Income Countries," World Bank Publications - Books, The World Bank Group, number 6442.
    6. Yasushi Iwamoto & Miki Kohara & Makoto Saito, 2006. "On the Consumption Insurance Effects of Long-term Care Insurance In Japan: Evidence from Micro Household Data," CIRJE F-Series CIRJE-F-443, CIRJE, Faculty of Economics, University of Tokyo.
    7. Mayer-Foulkes David A, 2011. "A Survey of Macro Damages from Non-Communicable Chronic Diseases: Another Challenge for Global Governance," Global Economy Journal, De Gruyter, vol. 11(1), pages 1-27, March.
    8. Jeannette Amaya Lara & Fernando Ruiz Gómez, 2011. "Determining factors of catastrophic health spending in Bogota, Colombia," International Journal of Health Economics and Management, Springer, vol. 11(2), pages 83-100, June.
    9. Midori Matsushima & Hiroyuki Yamada, 2013. "Public Health Insurance in Vietnam towards Universal Coverage: Identifying the challenges, issues, and problems in its design and organizational practices," OSIPP Discussion Paper 13E003, Osaka School of International Public Policy, Osaka University.
    10. Liu, Dan & Tsegai, Daniel W., 2011. "The New Cooperative Medical Scheme (NCMS) and its implications for access to health care and medical expenditure: Evidence from rural China," Discussion Papers 116746, University of Bonn, Center for Development Research (ZEF).
    11. Abegunde, Dele Olawale & Stanciole, Anderson E., 2008. "The economic impact of chronic diseases: How do households respond to shocks? Evidence from Russia," Social Science & Medicine, Elsevier, vol. 66(11), pages 2296-2307, June.
    12. Lindelow, Magnus & Wagstaff, Adam, 2005. "Health shocks in China : are the poor and uninsured less protected ?," Policy Research Working Paper Series 3740, The World Bank.
    13. Cuong Viet Nguyen, 2012. "The Impact Of Voluntary Health Insurance On Health Care Utilization And Out‐Of‐Pocket Payments: New Evidence For Vietnam," Health Economics, John Wiley & Sons, Ltd., vol. 21(8), pages 946-966, August.
    14. Menon, Nidhiya & van der Meulen Rodgers, Yana & Nguyen, Huong, 2014. "Women’s Land Rights and Children’s Human Capital in Vietnam," World Development, Elsevier, vol. 54(C), pages 18-31.
    15. Charles Kenny, 2009. "There's more to life than money: Exploring the levels|growth paradox in income and health," Journal of International Development, John Wiley & Sons, Ltd., vol. 21(1), pages 24-41.
    16. You, Xuedan & Kobayashi, Yasuki, 2009. "The new cooperative medical scheme in China," Health Policy, Elsevier, vol. 91(1), pages 1-9, June.
    17. Mendola, Mariapia & Bredenkamp, Caryn & Gragnolati, Michele, 2007. "The impoverishing effect of adverse health events : evidence from the western Balkans," Policy Research Working Paper Series 4444, The World Bank.
    18. Samik Chowdhury, 2015. "Public Retreat, Private Expenses, and Penury," Journal of Developing Societies, , vol. 31(2), pages 153-183, June.
    19. Pheeha Morudu & Umakrishnan Kollamparambil, 2020. "Health shocks, medical insurance and household vulnerability: Evidence from South Africa," PLOS ONE, Public Library of Science, vol. 15(2), pages 1-17, February.
    20. Rama Pal, 2013. "Out-of-Pocket Health Expenditure: Impact on the Consumption of Indian Households," Oxford Development Studies, Taylor & Francis Journals, vol. 41(2), pages 258-279, June.
    21. Giammanco, Maria Daniela & Gitto, Lara, 2020. "Government measures and economic activity during the COVID-19 outbreak: some preliminary short-term evidence from Europe," MPRA Paper 105072, University Library of Munich, Germany.
    22. Minh Thi Nguyen, 2014. "Moral Hazard And Adverse Selection In Health Insurances, Evidence From A Transitional Economy," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 59(02), pages 1-21.
    23. Michael Grimm, 2006. "Mortality and survivors'consumption," Working Papers DT/2006/13, DIAL (Développement, Institutions et Mondialisation).
    24. Celikay, Ferdi & Gumus, Erdal, 2009. "Türkiye'de Sağlık Hizmetleri ve Finansmanı [Health Services and their Financing in Turkey]," MPRA Paper 42362, University Library of Munich, Germany.

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    Keywords

    Safety Nets and Transfers; Environmental Economics&Policies; Health Economics&Finance; Inequality; Rural Poverty Reduction;
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