Insuring the Economic Costs of Illness
One of the most sizable and least predictable shocks to the economic opportunities of families in developing countries is major illness. There are two important economic costs associated with illness: the cost of the medical care used to diagnose and treat the illness, and the loss in income associated with reduced labor supply and productivity. The size and unpredictability of both of these costs suggests that families may not be able to smooth their consumption over periods of major illness, especially in developing countries where few individuals are covered by formal health and disability insurance (World Bank, 1993 and 1995a). While families with sick members in developed countries are able to access formal insurance markets, families in low income countries must rely on informal mechanisms such as drawing on savings, selling assets, transfers from their family and social support networks, and borrowing from local credit markets. The possibility that there is less than full consumption smoothing through these mechanisms suggests a potentially large loss in welfare from this shock to the household's resources.
Last updated: 04/26/07
