The economic consequences of health shocks
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.