We assess the economic risk of ill health for households in Indonesia and the role of informal coping strategies. Using household panel data from the Indonesian socio-economic household survey (Susenas) for 2003 and 2004, and applying fixed effects Poisson models, we find evidence of economic risk from illness through medical expenses. For the poor and the informal sector, ill health events impact negatively on income from wage labour, whereas for the non-poor and formal sector, it is income from self-employed business activities which is negatively affected. However, only for the rural population and the poor does this lead to a decrease in consumption, whereas the non-poor seem to be able to protect current household spending.
Borrowing and drawing on family network and buffers, such as savings and assets, seem to be key informal coping strategies for the poor, which may have negative long-term effects.
While these results suggest scope for public intervention, the economic 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.
Keywords: illness, income, consumption smoothing, coping strategies, Indonesia