When people experience a major health shock, their medical expenses typically rise and their contribution to household income and production (cooking, childcare, etc.) declines (Wagstaff and Doorslaer, 2003; Gertler, Levine & Moretti, 2003; Gertler and Gruber, 2002). According to the WHO, “Each year, approximately 150 million people experience financial catastrophe, meaning they are obliged to spend on health care more than 40% of the income available to them after meeting their basic needs.” (WHO Factsheet No. 320, 2007)
Theory suggests that health insurance can address some of these problems. Unfortunately, rigorous evidence on the impact of insurance is scarce, and there are even fewer studies on the effects of insurance in developing countries.
The authors review past evidence on the impact of health insurance, focusing on studies in which the health insurance status of the subjects is plausibly exogenous, as well as studies that have attempted to eliminate the bias associated with self-selection. A majority of the rigorous studies are based on data from the United States. They follow Levy and Meltzer (2004, 2008) in both their choice of U.S. studies and in their main conclusions.