Economic impacts of health shocks on households in low and middle income countries: a review of the literature

Abstract

Poor health is a source of impoverishment among households in low -and middle- income countries (LMICs) and a subject of voluminous literature in recent years. This paper reviews recent empirical literature on measuring the economic impacts of health shocks on households. Key inclusion criteria were studies that explored household level economic outcomes (burden of out-of-pocket (OOP) health spending, labour supply responses and non-medical consumption) of health shocks and sought to correct for the likely endogeneity of health shocks, in addition to studies that measured catastrophic and impoverishment effects of ill health. The review only considered literature in the English language and excluded studies published before 2000 since these have been included in previous reviews. We identified 105 relevant articles, reports, and books. Our review confirmed the major conclusion of earlier reviews based on the pre-2000 literature--that households in LMICs bear a high but variable burden of OOP health expenditure. Households use a range of sources such as income, savings, borrowing, using loans or mortgages, and selling assets and livestock to meet OOP health spending. Health shocks also cause significant reductions in labour supply among households in LMICs, and households (particularly low-income ones) are unable to fully smooth income losses from moderate and severe health shocks. Available evidence rejects the hypothesis of full consumption insurance in the face of major health shocks. Our review suggests additional research on measuring and harmonizing indicators of health shocks and economic outcomes, measuring economic implications of non-communicable diseases for households and analyses based on longitudinal data. Policymakers need to include non-health system interventions, including access to credit and disability insurance in addition to support formal insurance programs to ameliorate the economic impacts of health shocks.