“Insuring Consumption against illness”

“Insuring Consumption against illness” Paul Gertler and John Gruber American Economic Review (2002) Presented by Osea Giuntella Getrler-Gruber(2002)- presented by OseaGiuntella

Introduction • One of the most sizeable and least predictable shocks to economic opportunities in developing countries is major illness. • 2 important costs of illness: • Cost of Medical Care used to diagnose and treat the illness • Loss associated with reduced labor supply and productivity • This is an important issue in developing countries (few individuals are covered by insurance) Getrler-Gruber(2002)- presented by OseaGiuntella

Main question of the Paper • To what extent are families able to insure consumption against major illnesses? • Gertler and Gruber investigate the effects of major illnesses on earnings and medical care expenditures • They use measures of individuals’ physical abilities to perform activities of daily living (ADLs) and try to focus on the impact of serious health shocks. Getrler-Gruber(2002)- presented by OseaGiuntella

Data • Source: Indonesian Resource Mobilization Study (IRMS) • Panel survey designed to evaluate an experimental increase in user fees charged at public medical care facilities in two of Indonesia’s 27 provinces (6 million of residents). • Two year period analysis: 1991-1993 • 4,889 households (3,933 in the sample used) • Data collected at the same time of the year • High response rate (91%), low attrition (7%) Rich set of measures, though incomplete information on wages and earnings . Getrler-Gruber(2002)- presented by OseaGiuntella

Indonesian Insurance system • Public health care provides extensive primary care at a modest user fee. But hospital care is more limited. • Many individuals opt to pay out of pocket for higher quality private sector services (over half of utilization is provided by the private sector) • 10 percent of the population is covered by health insurance provided to civil servants that covers utilization at public facilities • 4 percent of the population is covered by health insurance offered through employers Getrler-Gruber(2002)- presented by OseaGiuntella

Risk of Illness- Health Measures • 2 types of measures of change in health status: • Self-reported symptoms (ill and chronically ill) • Limitations in the physical ability to perform activities of daily living (ADLs) Self reported symptoms present 3 main limits: • symptoms may not represent relevant health changes • may overstate the effect of health status (justification) • wealthier and more educated individuals have different definitions of illness (more likely to report) (here the issue is unobserved heterogeneity which might influence households reporting of sickness, PSM might control for this) Getrler-Gruber(2002)- presented by OseaGiuntella

ADL`S (activities of daily living) • Self-ratings of ability to engage in specific activities, not based on general assessment of illness symptoms, which are more likely to be endogenous to labor –supply decisions. (limits of self reported data, though authors provide evidence of data reliability and consistency) • In contrast to self-reported symptoms, these measures tend to be negatively correlated with income and education in both U.S. and low-income samples. • 2 categories: • Intermediate ADL`s: ability to carry a heavy load for 20 meters; sweep the floor or yard; walk for 5 kilometers. • Basic ADL`s: bathe yourself; feed yourself; clothe yourself; stand from sitting in a chair; go to the toilet. Getrler-Gruber(2002)- presented by OseaGiuntella

Getrler-Gruber(2002)- presented by Osea Giuntella

Illness and family resources • Model : (1) • Δ(Lij) is the change in labor supply or earnings or medical care spending for individual iin community j (Poor data: earnings are reported only for one third of the heads, therefore they imputed wages based on market rates) • αj: community fixed effects( what about network effects?) • Dhij: change in health • Xijk: demographic controls (sex, wage, education, marital status, wife`s education, wife`s age, change in log family size) Getrler-Gruber(2002)- presented by OseaGiuntella

Health and Consumption • Do households insure consumption against these unexpected costs of illness? • Does consumption fall because of state-dependent utility or because families are unable to insure consumption? • (2) ΔlnXCij/nijis the growth in log per capita (nonmedical care) consumption for household i in community j (consumption is measured using self reported data; it would be interesting to look at the impact over different goods, food vs. non-food , checking for different sensitivity to shocks) Getrler-Gruber(2002)- presented by OseaGiuntella

Conclusion • Using measures of ill health that distinguish varying degrees of severity authors find that Indonesian households are not able to fully insure consumption against the economic costs of illness. • The more severe the illness, the less households are able to insure. • Nontrivial costs to the Indonesian economy from incomplete insurance. • Public disability insurance or subsidies for medical care may improve welfare by providing consumption insurance. Getrler-Gruber(2002)- presented by OseaGiuntella

Comments • What about urban versus rural households? (see Wagstaff 2006 with Vietnam data)What is the role of informal networks and social capital? Is `village`the right a basis for studying risk-sharing in development countries? (see also De Weerdta-Dercon, 2006 and Gertler et al. 2006). • An interesting extension on this line: Gertler et al. (2008) test whether access to micro-financial savings and lending institutions may help Indonesian families to smooth consumption after declines in adult health. • Results support the importance of these institutions in helping families to self-insure consumption against health shocks. Getrler-Gruber(2002)- presented by OseaGiuntella

“Insuring Consumption against illness” Paul Gertler and John Gruber American Economic Review (2002) Presented by Osea Giuntella Getrler-Gruber(2002)- presented by OseaGiuntella

“Insuring Consumption against illness”