A household’s ability to cope with adverse shocks is essential to well-being and is a critical welfare measure. Quantifying this, however, remains a challenge.
Analysis of unit-level data from the Household Consumption Expenditure Survey (HCES 2022-23) has revealed a dramatic decline in the incidence of poverty since 2011-12. As important as this may be, I wish to go beyond the discussion of poverty and focus on households’ vulnerability to adverse shocks, particularly for the bottom 50 per cent of the population. A household’s ability to cope with adverse shocks is essential to well-being and is a critical welfare measure. Quantifying this, however, remains a challenge.
We attempt to overcome this challenge by looking at shocks to households in the form of medical expenditure. Even though most households typically incur some form of medical spending in a given year, some households are exposed to larger medical shocks in the form of hospitalisation, where the expenditure incurred is a significantly higher lump-sum amount. While health shocks deprive individuals of their freedom, the associated sizeable medical expenditure also imposes an economic burden on family members as precious resources get diverted from other expenditure items to those needed for providing medical care.
First, I quantify the proportion of Indian households that are subjected to adverse medical shocks associated with hospitalisation. Then, I quantify the vulnerability related to hospitalisation in terms of the proportion of their monthly household expenditure that is devoted to medical expenses if the household has experienced hospitalisation. Finally, I study the change in consumption status of the household by comparing the consumption decile that the household belonged to with medical expenditure included in its household monthly expenditure and compare it to the consumption decile that the household belonged to when we exclude medical spending from the household monthly expenditure. The objective of this is to highlight that households that have incurred high medical spending due to hospitalisation might not have enough resources for other items, such as food or durable goods, and therefore are vulnerable to lowering their consumption status once we construct the consumption decile groups based on household expenditure that excludes medical outlays.
As stated earlier, the emphasis of this analysis is on the bottom 50 per cent population where the proportion of households that incurred hospitalisation expenditure increased from 17 per cent in 2011-12 to 22 per cent in 2022-23. This includes an increase from 18 per cent to 23 per cent for rural households and from 16 per cent to 20 per cent for urban households. This reflects a significant improvement in accessibility to healthcare for the poorest 50 per cent population across rural and urban areas of India.
Next, we study the ratio of health expenditure to the overall household expenditure with and without hospitalisation. The analysis reveals that for the bottom 50 per cent of the households, their health expenditure without any hospitalisation was 3.3 per cent of their monthly household expenditure in 2011-12 which increased marginally to 3.6 per cent in 10 years. However, in sharp contrast, households that experienced hospitalisation have witnessed a significant decline in the share of their health expenditure as a ratio of their monthly household expenditure from 10.8 per cent to 9.4 per cent in 10 years.
A noticeable difference is also observed between rural and urban areas. In rural areas, for the bottom 50 per cent, the ratio of health expenditure of households without hospitalisation increased marginally from 3.4 per cent to 3.6 per cent over 11 years. Still, during the same period for households that experienced hospitalisation, this ratio declined significantly from 11.15 per cent to 9.14 per cent. We found a similar result for urban areas but less pronounced. For households that did not experience hospitalisation, it increased marginally from 3.2 per cent to 3.6 per cent, but during the same period, for households that experienced hospitalisation, it declined from 10.3 per cent to 9.9 per cent. These results highlight that healthcare that involves significant hospitalisation expenditure is becoming more affordable for the poorest half of the Indian population, especially in rural areas.
Now, we explore the vulnerability or change in the consumption status of households due to health expenditure, particularly for those that incurred the hospitalisation burden. The results reveal that among the poorest half of the population, 40 per cent of those who experienced hospitalisation faced a decline in their consumption status in 2011-12. However, by 2022-23, despite the rising incidence of hospitalisation, only 33 per cent of these households faced a decrease in their consumption status.
In terms of conventional odds ratios, these results imply a 23 per cent reduction in the odds of households facing a decline in consumption status due to hospitalisation. This effect was more pronounced in rural areas where 44 per cent of the bottom 50 per cent of households that incurred hospitalisation faced a decline in their consumption status in 2011-12. This reduced significantly to 36 per cent by 2022-23, implying a reduction of 29 per cent in the odds of poor rural households experiencing a decline in overall consumption status due to hospitalisation. For poor urban households, the odds fell by 14 per cent over the 11 years.
So overall in the last decade, healthcare has become more accessible and affordable to the bottom 50 per cent of the Indian population. We also find that there is a significant decline in the odds of households facing a loss in overall consumption status due to the financial burden associated with hospitalisation — which is a strong measure of vulnerability. These results are more pronounced for rural households and particularly for households that have young children and elderly members within the family. These noteworthy trends are closely associated with public health policies in India, particularly Ayushman Bharat Yojana, which targets the financial burden of hospitalisation for the poor.
The writer is member, Economic Advisory Council to the PM
