Health Shocks, Household Consumption, and Child Nutrition Aida Galiano (University of Zaragoza) & Marcos Vera-Hernández (UCL & IFS)

Motivation In developing countries: Lack of well functioning credit/insurance markets Risk translates into welfare loss, inefficient production choices, and deficient human capital accumulation Important question: How well insured are households against health shocks? –Important for policy: the role of health insurance

Objective In this paper we look at how households react to health shocks –How their consumption, debts, transfers and savings change with health shocks –Who gets affected within the household Three waves of a panel of very poor households in relatively small towns of Colombia –Detailed data on household consumption –Children anthropometrics

Connection with the literature: This paper is related to two branches of the literature: A policy oriented literature that analyzes the role of health shocks and health insurance in developing countries

Connection with the literature: A more methodological literature: –Standard test: If household is fully insured against idiosyncratic shocks, consumption growth should be uncorrelated with shocks (or changes in income) once aggregate shocks are controlled for –The consumption smoothing literature has usually summarized shocks by measuring income changes –Little attention to the nature of the shock

Connection with the literature: A more methodological literature: One could claim that some elements of household consumption are part of the health production function Health care expenditures Food Fuel (indoor pollution is an important problem) Transport (health facilities are distant) Clothes (blankets, shoes to keep the person warm)

Connection with the literature: A more methodological literature: –In a poor environment, household might need to increase some consumption items (i.e. food) in order to improve the health of the individual that has fallen ill –Under those circumstances, if the households are fully insured then household consumption should increase with health shocks

Connection with the literature: A more methodological literature: –It is much harder to think how to do a test of full insurance –Null correlation between health shocks and household consumption would usually imply full insurance –However, this is unclear if consumption is part of the health production function –A positive correlation between consumption and health shocks does not imply that the household is fully insured

Preview of the results: Following a health shock to an adult working men, the household increases: –Total household consumption –Health care expenditure –Food consumption –Non-health care consumption –A few more items such as fuel and transportation However, childrens weight decreases Which is evidence against full insurance despite the increase in household consumption It is very important to understand intrahousehold behaviour when testing for full insurance

Data Familias en Accion: –Conditional Cash Transfer programme in Colombia –Mothers receive a cash transfer every two months –The cash transfer is the sum of the nutritional subsidy and the educational subsidy –The mother receives the nutritional subsidy is she has at least one child under 6 and all her children under 6 are up to date with preventive visits –The nutritional subsidy is independent of the number of children –The educational subsidy is per child that regularly attends school

Data Familias en Accion (FeA) Survey: –Survey collected to evaluate the FeA programme –Three waves of data collected: –Wave 1: Summer of 2002 –Wave 2 : July to November 2003 –Wave 3 : December 2005 to March 2006 –Municipalities smaller than 100,000 inhabitants and could not be capital of a department –Sample of eligible households (the poorest of the poorest)

Data Very poor households: The average family size is 7 Average consumption is about 114 US dollars per month Share of food consumption in total consumption is 73%. 20% of children are chronically disnourished

Data Health shocks We consider health shocks of individuals that have worked for paid at least once in their lives Shock=1 if the individual has been unable to perform his/her daily activities in the last 15 days due to health reasons Moreover, we differentiate the shocks according to gender and age of the person that suffers the shock: –Male/Female & 12-17, or 18-64, 65 or older.

Data Dependent variables Household consumption in US$, 2003 prices Children anthropometric variables: –Height per Age z-score –Weight per Age z-score –Weight per Height z-score Weight per Age z-score for child i = (Wi – Mi)/SDi Wi = Weight of child i Mi = Median weight amongst children of the reference population with the same age and sex as child i SDi = Standard deviation of weight of those children of the reference population with the same age and sex as child i

Empirical specification for childs anthropometrics i=individual, h=household, m=municipality, t=time S j M = health shock suffered by male in age group j S j F = health shock suffered by female in age group j Θ mt = municipality – time fixed effect (to control aggregate shocks) X = household composition, variables that reflect eligibility to FeA, childs age Standard errors are clustered at the municipality level to consider autocorrelation The empirical specification for household consumption is the same, but without the subscript I

Results: Household Consumption (US$)

Results: Anthropometrics children 0-10

Household consumption increases after a health shock of a old person Food consumption increases for males (usually the person that brings more income) Results are consistent with the household trying to improve the health of the breadwinner Is the household fully insured against health shocks? Exactly for the same type of shocks (male ), we see that childrens weight decreases But food consumption in the household increases There must be an intrahousehold reallocation of resources

Results: specific items

Conclusions When a male suffers a health shock The household increases consumption (including food) but childrens weight decreases Evidence that the household is not fully insured and there is an intrahousehold relocation of resources

Conclusions The paper gives a warning about using the null correlation between consumption growth and shocks as evidence of full insurance Risk associated with health shocks is not fully insured by health insurance as there are other expenses (food, transportation, fuel…) that might need to increase with health shocks