The Consumption-Health Nexus Revisited: Examining the Benefits of Social Insurance for the Poor in Indonesia

Households in developing countries are typically more vulnerable to illness episodes. This paper uses a panel micro data set from Indonesia to investigate whether households are able to smooth their consumption against idiosyncratic health shocks and to examine the mitigating effects of a social health insurance programme for the poor on such shocks. We find that Indonesian households manage to keep consumption smooth after deterioration in adult health. These findings are robust to various health measures and different specifications. The difference-in-differences (DiD) estimator shows a marginal effect of the insurance programme on insuring household consumption from major health problems. Further investigation reveals heterogeneous effects of the social insurance programme. While it plays a trivial role in protecting rural households, the effect of the health intervention is stronger in urban areas of the country. We argue that supply-side factors seem to be partly responsible for this finding.