Health shocks are among the most serious forms of uncertainty faced by poor families, and these families appear to be poorly insured against them, both in terms of limited access to formal insurance and the limited effectiveness of their informal insurance networks. Gruber and Gertler (2002) show that, in Indonesia, household non-health consumption decreases substantially when households experience health shocks. Households face particular difficulty in insuring severe illnesses: they are able to insure less than 40 percent of the income loss associated with illnesses that severely limit physical function. Much of the uninsured loss of consumption is due to lost income rather than higher health expenditure, but an insurance scheme that compensates for increased health expenditures might also mitigate income losses by enabling subscribers to get well faster. Fafchamps and Lund (2003) examine the ability of rural Philippine households to insure consumption against shocks. They find that households are particularly poorty insured against health shocks, compared to job losses or deaths. One of the key health risks and potential financial shocks faced by women in developing countries is complications during childbirth. A comtiination of proper antenatal care and institutional delivery is considered by many health specialists as having the potential to greatly reduce maternal mortality. Yet take-up in India of these preventative measures is low with a large fraction of births taking place at home, either without any assistance or with only the assistance of a traditional birth attendant. Nationwide, in 2003, the registrar general estimated that only 28 percent of births took place in an institutional facility (Registrar General, India, 2006). In a survey Duflo and Banerjee completed in rural Udaipur district in 2007 and 2008, 88 percent of births took place at home. In the baseline survey for the present study, in Karnataka, 85 percent of all births to women in the sample took place at home, nearly all without a trained physician in attendance. This number is lower (50 percent) for the births that occurred in the year prior to the survey, perhaps in part because of a government scheme to encourage institutional delivery discussed in more detail below. Moreover, many of these women received no antenatal care, and therefore had not been warned of possible complications during the pregnancies: 50 percent of all births, down to 15 percent of all births in the last year. If a complication does arise, the woman needs to either be transported to the nearest Primary or Community Health Center, which can sometimes be far away, poorly equipped, and require bribes;or be transported to a private facility, which generally requires payment in advance, and therefore tends to happen with delay. In our baseline survey, 13 percent of the births that took place in the last year had complications. In two-thirds of the cases where the women had to be transported to a health facility, they first had to collect money from somewhere to pay for the care, further delaying care at that crucial time. [This project will study how market players (private insurance) can be used to encourage the use of hospital delivery, and how this compares to the Impact of a government's incentive for institutional delivery.]
