Health Shocks and Economic Vulnerability in Rural India: Break the Vicious Circle (Recommendations to Seva Mandir)

This paper examines the vulnerability of rural households, in Udaipur district in India, to health shocks that push them deeper into poverty.

The paper attempts to answer the question: How to break the economic vulnerability to health shocks. It describes how 'Seva Mandir', a non-government organization (NGO) in Udaipur, searched for answers to the following questions:

• What is the extent and nature of health shocks in Udaipur rural areas, and how do households cope with these shocks?
• What options does 'Seva Mandir' have, to help households reduce their vulnerability to health shocks?

The paper presents the following findings:

• Health shocks are frequent and there is a huge variability in health expenditures;
• There are important gaps in market-provided insurance;
• The Government fails to provide poor people with free health services;
• Informal insurance mechanisms exist, but are not sufficient;
• Poor people do not seek health care because of financial constraints, and households are not able to smooth consumption;
• 'Seva Mandir' can intervene at the intersection of formal and informal coping mechanisms by putting in place an insurance system.

The paper discusses issues such as adverse selection, moral hazard, fair subsidies and the kind of services, and suggests three insurance schemes that combine the best solutions to these different issues.

It concludes by outlining an action plan to evaluate and compare the impact of each scheme through a randomized evaluation.