Health shock, catastrophic expenditure and its consequences on welfare of the household engaged in informal sector

Purpose Despite significant contribution by India’s informal sector, tattered conditions have inflated the burden of health shocks in many ways. This study tries to examine the economic burden of health shocks and its associated consequences on households whose members are involved in informal sector. We primarily focus on three objectives for our analysis: (1) compute distribution and magnitude of health shocks and health expenditure between formal and informal workers; (2) evaluate the incidence and intensity of catastrophic health expenditure (CHE), and measure its impoverishment effect; (3) estimate the major determinants of CHE for informal sector households. Methods Underlying objectives have been estimated using standard catastrophic and impoverishment measures (poverty headcount and poverty gap) and Poisson, logit and Tobit multivariate regression models. For empirical analysis, data is exploited from the recent round of Indian Human Development Survey (IHDS-II), 2012. Results We find that around 27% of households engaged in the informal sector spends more than 5% threshold on their health payment. We also find that OOP health expenditure pushes 7.12% informal sector households in poverty. Moreover, we also find that the impoverishment effect mainly rests on outpatient health expenditure and poverty deepening for informal sector households. Conclusion Our findings indicate that informal sector workers are highly vulnerable to health shocks and economic burden in terms of high treatment costs and low insurance coverage. Further, we also show that workers engaged in the informal sector witness greater probability of incurring CHE and impoverishment. Results from the Tobit model suggests that various factors such as insurance coverage, severity of illness and others are crucial predictor of catastrophic spending.