SMERU Publication

Working Paper
Topic: Health, Policy Analysis, Poverty, Vulnerability, & Inequality, Social Protection

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Financial Consequences of Ill Health and Informal Coping Mechanisms in Indonesia

Robert Sparrow
Australian National University

Ellen Van de Poel
Erasmus University Rotterdam

Gracia Hadiwidjaja, Athia Yumna, Nila Warda, Asep Suryahadi
The SMERU Research Institute

Editor
Stephen Girschik
Australian Volunteers International

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, I15

TABLE OF CONTENTS

ACKNOWLEDGEMENTS
ABSTRACT
TABLE OF CONTENTS
LIST OF TABLES
LIST OF FIGURES
I. INTRODUCTION
II. EMPIRICAL APPROACH

2.1 Smoothing and Financial Risk of Illness
2.2 Methods
2.3 Data

III. RESULT

3.1 Patterns in Self‐reported Ill Health and Coping Response
3.2 Consumption Smoothing and Coping with Risk

IV. CONCLUSION
LIST OF REFERENCES
APPENDICES