Financial Consequences of Ill Health and Informal Coping Mechanisms in Indonesia

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 labor is exposed to risk for the poor and income from self-employed business activities for the non-poor. however, only for the rural population and the poor does this lead to imperfect consumption smoothing, while the non-poor seem to be able to protect 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 seems to be a key instrument for financial protection from illness, by also reducing income risk. key words: illness, income, consumption smoothing, coping strategies, Indonesia jel: o15, i1