The Vulnerability of the Uninsured to the Health Shocks in Peru

Presenter: Martin Valdivia, GRADE

Abstract

In most developing countries, job-based social security offers the most complete protection against health shocks. However, wide informality in these economies makes this system available only to a privileged few leaving a wide range of households highly vulnerable to health shocks as often there are no alternatives available. Uninsured households are thus often forced to face catastrophic health expenditures (CHE) in the form of medicines, tests or hospitalization often making them fall into poverty. Recent literature has widely analyzed the incidence and distribution of CHEs in developing countries showing not only its general importance but also its anti-poor bias. However, this metric hides other very important effects particularly deleterious to the poor as those able to afford such CHEs would obviously not been the most vulnerable as they are able to use part of their income, savings or social connections to afford such CHEs. Those without such resources are left without proper medical care increasing the likelihood their illnesses or accidents turn into chronic conditions or disabilities. Also, health shocks lead to income shocks when the ill is an income earner or an income earner needs to stop or reduce working to take care of elders or children. Human capital investments can also be threatened if school expenditures for healthy children cannot be sustained as a result of the health emergency, which could have permanent implications for the child development at the school.

This study analyzes the importance of all these and other mechanisms using a unique database representative of the socio-economic situation of Peruvian households that also includes crucial information about the incidence and relative magnitude of health shocks. We use a panel of households from the annual National Household Survey (ENAHO) that goes from 2002 to 2006. The incidence and distribution of CHEs varies substantially with the particular specifications used in the literature. Between 10-15% of Peruvian households faced CHEs in 2006, and the poor, and those with more members, especially with children and elderly, were affected the most regardless of the specification used for the estimation. Beyond the expenditure component of the health shock, income losses also help explain falls into poverty. Moreover, income losses make it harder for such households to return to the previous income levels once the health shock passes. We are currently exploring differentiated household abilities to smooth consumption when facing health shocks, both small and large.

These results clearly support the need of a public universal health insurance that not only cover basic treatments and illnesses but also those more complicated ones as they have catastrophic permanent consequences for poor households. Moreover, it is important that income losses are also considered as a key catastrophic consequence of large health shocks that are particularly deleterious for the poor without formal jobs.