Effect of Health Shocks on Poverty Status in South Korea: Exploring the Mechanism of Medical Impoverishment

Background: South Korea has the highest out-of-pocket burden for medical expenses among the Organisation for Economic Co-operation and Development (OECD) member countries and has no formal sickness benefit system, along with United States and Switzerland, greatly increasing the risk of poverty due to a sudden illness. Methods: We identify the causal effect of health shocks on poverty status and explore the mechanisms of medical impoverishment by analyzing longitudinal data from 13 670 households that participated in the representative Korean Welfare Panel Study (KOWEPS) from 2007 to 2016. In this study, we define a health shock as a case in which no household members were hospitalized in the previous year, but together they had more than 30 days of hospitalization in this year. The propensity score matching method was combined with a mediation analysis in this work. Results: The proportion of households in absolute poverty increased by 4.6–8.0 percentage points among households that experienced a health shock compared with matched controls. The selection effects due to health shock were estimated to be 5.6–8.2 percentage points. On average, a sudden hospitalization reduces annual non-medical expenditures and equivalized disposable income by just over 3.2 million KRW (2500 USD) and 1.2 million KRW (1000 USD), respectively. Health shock induces impoverishment after one year through both the medical expense and work capacity pathways, which explain 12.8% and 12.8% of the total effect, respectively. However, when we decompose the mediation effect of a health shock on poverty status after two years, we find that a health shock leads to poverty mainly through labor force nonparticipation (9.9%). Conclusion: Income stabilizing scheme to protect households that experience a health shock should be introduced as a policy alternative to confront the issue of medical impoverishment.

The Effect of Health Shock and Basic Medical Insurance on Family Educational Investment for Children in China

This paper explores the role of basic medical insurance in protecting family investment in child education. First, this paper establishes a two-phase overlapping generation model to theoretically analyse the impact of basic medical insurance on investment in child education under the influence of the impact of parental health. The results show that health shock reduces parental investment in child education, and medical insurance significantly alleviates the negative impact of parental health shock on investment in child education. Furthermore, this paper establishes a two-way fixed effect regression model based on the data of China Family Panel Studies (CFPS) in 2014 and 2016 to empirically test the above results. The results showed that parental health shocks negatively affect investment in child education, and paternal health shock has a more significant impact than maternal health shock. However, medical insurance significantly reduces this negative impact, provides security in investment in child education, and promotes the improvement of human capital.

Moral Hazard Heterogeneity: Genes and Health Insurance Influence Smoking after a Health Shock

Decision-making in the realm of health behaviors, such as smoking or drinking, is influenced both by biological factors, such as genetic predispositions, as well as environmental factors, such as financial liquidity and health insurance status. We show how the choice of smoking after a cardio-vascular health shock is jointly determined by the interaction between these biological and environmental constraints. Individuals who suffer a health shock when uninsured are 25.6 percentage points more likely to reduce smoking, but this is true only for those who have a low index of genetic predisposition to smoking. Individuals with a low index of genetic predisposition are more strategic and flexible in their behavioral response to an external shock. This differential elasticity of response depending on your genetic variants is evidence of individual-level heterogeneity in moral hazard. These results suggest that genetic heterogeneity is a factor that should be considered when evaluating the importance and fairness of health insurance policies.JEL CODESI12, I13, D63, D91

Negative shocks predict change in cognitive function and preferences: assessing the negative affect and stress hypothesis

In the context of the current COVID-19 pandemic, households throughout the world have to cope with negative shocks. Previous research has shown that negative shocks impair cognitive function and change risk, time and social preferences. In this study, we analyze the results of a longitudinal multi-country survey conducted in Italy (N = 1652), Spain (N = 1660) and the United Kingdom (N = 1578). We measure cognitive function using the Cognitive Reflection Test and preferences traits (risk, time and social preferences) using an experimentally validated set of questions to assess the differences between people exposed to a shock compared to the rest of the sample. We measure four possible types of shocks: labor market shock, health shock, occurrence of stressful events, and mental health shock. Additionally, we randomly assign participants to groups with either a recall of negative events (more specifically, a mild reinforcement of stress or of fear/anxiety), or to a control group (to recall neutral or joyful memories), in order to assess whether or not stress and negative emotions drive a change in preferences. Results show that people affected by shocks performed worse in terms of cognitive functioning, are more risk loving, and are more prone to punish others (negative reciprocity). Data do not support the hypotheses that the result is driven by stress or by negative emotions.

Health shocks and vulnerability to poverty in Congo

The analysis of the link between poverty and health status in developing countries is a major focus of development policy. However, few studies, particularly in the Congo, focus on a prospective analysis of poverty and consider the variability of future consumption after a health shock. The objective of this study is to estimate vulnerability to poverty and analyse the factors that lead to a loss of well-being after a health shock in Congo. The study uses data from the 2011 Congolese Household Survey (CHS). Estimation of vulnerability to poverty and modelling of the effect of the health shock on expected future consumption are performed using the three-step feasible generalized least squares (FGLS) method. This method is also used to identify the socio-demographic determinants of vulnerability. On average, 26.8% of households are vulnerable to poverty in Congo. Health shocks accentuate this vulnerability. Households living in rural areas are more vulnerable to poverty than those in urban areas. Furthermore, household size and the level of education and marital status of the head of household have an impact on vulnerability. In view of the results obtained, poverty reduction efforts should focus on strategies to develop social safety nets and/or health insurance programmes to stabilize consumption in the event of a health shock in the household.