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Financial Consequences of Ill Health and Informal Coping Mechanisms in Indonesia

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  • Robert Sparrow
  • Ellen Van de Poel
  • Gracia Hadiwidjaja
  • Athia Yumna
  • Nila Warda
  • Asep Suryahadi

Abstract

We assess the financial risk of ill health for households in Indonesia, the role of informal coping strategies, and the effectiveness of these strategies in smoothing consumption. Based on household panel data, we find evidence of financial risk from illness through medical expenses, while income from informal wage labour is exposed to risk for the poor and income from self-employed business activities for the non-poor. However, this lead to imperfect consumption smoothing only for the rural population and the poorest quartile; the non-poor seem to be able to maintain current spending. Borrowing and drawing on buffers, such as savings and assets, seem to be key informal coping strategies for the poor, which infers potential negative long term effects. While these results suggest scope for public intervention, the financial risk from income loss for the rural poor is beyond public health care financing reforms. Rather, formal sector employment, which reduces income risks, seems to be a key instrument for financial protection from illness.

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File URL: https://crawford.anu.edu.au/acde/publications/publish/papers/wp2012/wp_econ_2012_07.pdf
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Bibliographic Info

Paper provided by The Australian National University, Arndt-Corden Department of Economics in its series Departmental Working Papers with number 2012-07.

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Length: 32
Date of creation: 2012
Date of revision:
Handle: RePEc:pas:papers:2012-07

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Keywords: Illness; income; consumption smoothing; coping strategies; Indonesia;

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  1. Wagstaff, Adam & Paci, Pierella & van Doorslaer, Eddy, 1991. "On the measurement of inequalities in health," Social Science & Medicine, Elsevier, vol. 33(5), pages 545-557, January.
  2. Santos Silva, Joao & Tenreyro, Silvana, 2005. "The Log of Gravity," CEPR Discussion Papers 5311, C.E.P.R. Discussion Papers.
  3. Kochar, Anjini, 1995. "Explaining Household Vulnerability to Idiosyncratic Income Shocks," American Economic Review, American Economic Association, vol. 85(2), pages 159-64, May.
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  5. Townsend, R.M., 1991. "Risk and Insurance in Village India," University of Chicago - Economics Research Center 91-3, Chicago - Economics Research Center.
  6. Wagstaff, Adam, 2007. "The economic consequences of health shocks: Evidence from Vietnam," Journal of Health Economics, Elsevier, vol. 26(1), pages 82-100, January.
  7. Islam, Asadul & Maitra, Pushkar, 2012. "Health shocks and consumption smoothing in rural households: Does microcredit have a role to play?," Journal of Development Economics, Elsevier, vol. 97(2), pages 232-243.
  8. Erreygers, Guido, 2009. "Correcting the Concentration Index: A reply to Wagstaff," Journal of Health Economics, Elsevier, vol. 28(2), pages 521-524, March.
  9. Paul Gertler & Jonathan Gruber, 2002. "Insuring Consumption Against Illness," American Economic Review, American Economic Association, vol. 92(1), pages 51-70, March.
  10. Sparrow, Robert & Suryahadi, Asep & Widyanti, Wenefrida, 2013. "Social health insurance for the poor: Targeting and impact of Indonesia's Askeskin programme," Social Science & Medicine, Elsevier, vol. 96(C), pages 264-271.
  11. Erreygers, Guido, 2009. "Correcting the Concentration Index," Journal of Health Economics, Elsevier, vol. 28(2), pages 504-515, March.
  12. Nguyen Thi Nhu Nguyet & Eiji Mangyo, 2010. "Vulnerability of households to health shocks: an Indonesian study," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 46(2), pages 213-235.
  13. Willard G. Manning & John Mullahy, 1999. "Estimating Log Models: To Transform or Not to Transform?," NBER Technical Working Papers 0246, National Bureau of Economic Research, Inc.
  14. Menno Pradhan & Fadia Saadah & Robert Sparrow, 2007. "Did the Health Card Program Ensure Access to Medical Care for the Poor during Indonesia's Economic Crisis?," World Bank Economic Review, World Bank Group, vol. 21(1), pages 125-150.
  15. Buntin, Melinda Beeuwkes & Zaslavsky, Alan M., 2004. "Too much ado about two-part models and transformation?: Comparing methods of modeling Medicare expenditures," Journal of Health Economics, Elsevier, vol. 23(3), pages 525-542, May.
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