Financial and Income Losses From Illness Shock in China: Results From Surveys in Eight Provinces

An illness shock may cause two kinds of economic losses: the direct financial loss mainly due to medical spending and the indirect economic loss due to the reduction of income. This article studies the illness burden in China between 1990 and 2000 by analyzing, at the same time, the direct medical cost and the indirect income loss. The analyses are conducted in two steps. First, a quintile analysis is used to assess the level and the distribution of health financing burden across the population. Second a fixed-effect panel model is used to capture the effect of illness shock on households' long-term income. The paper highlights the increase of households' health financial burden in the 1990s, as well as its unequal distribution among income groups. The data suggest that, despite of an increase in coverage between 1991 and 1997, the insurance system actually failed to protect the poor against catastrophic medical expenditure. A significant negative effect of illness shock on long-term income is captured by the chronic illness indicator but not by the general illness indicator, which suggests that chronic illnesses, compared to non-chronic illnesses, may induce additional income loss. The paper also shows that the effect of illness shock varies by region and working status: urban households are more vulnerable to long-term income effect of illness than rural ones; people with more flexible work (self-employees and collective companies' employees) are more likely to cope with the health shock than people with less flexible work (private or state companies' employees) and the unemployed. Finally, insurance membership turned out to have no effect on the protection of households against the loss of income due to health shocks.