Is consumption insured against illness? Evidence on vulnerability of households to health shocks in rural Ethiopia

This article, by examining the impact of illness on consumption variation and the capacity of existing risk-sharing arrangements in insuring consumption against illness, provides some policy-relevant information. First, it gives some evidence concerning whether and to what extent illness affects the variation of consumption across households and through time. Second, it enables policy makers to evaluate the capacity of households and/or existing risk-sharing arrangements in insuring consumption against health risks. It also provides some information about the most vulnerable groups of the rural population and shows which types of consumption items are more sensitive to health shocks. Finally, it gives some clue as to what extent the smoothing process is incomplete, and it indicates the potential welfare gain of modifying and strengthening existing risk-sharing arrangements or introducing new health insurance or prepayment schemes in rural areas. © 2004 by The University of Chicago. All rights reserved.