Measuring household vulnerability to medical expenditure shock: method and its empirical application

To investigate household vulnerability for inability to cope with medical expenditure shock, we propose a method of measuring household vulnerability to medical expenditure shock by allowing for the heteroscedasticity and dependence of medical expenditure shock and income shock. Using the data from China Health and Nutrition Survey, we estimate the vulnerability of Chinese households, and further investigate crucial characteristics associated with it by comparing the vulnerability levels among groups with different characteristics and an empirical regression with Shorrocks-Shapely decomposition of R squared. Our research shows that health status contributes most to the household vulnerability, and good health helps to reduce the household’s vulnerability. Households with stable income and high-education have greater ability to cope with uncertain medical expenditure, and are less vulnerable. Medical insurance plays a limited role in reducing household vulnerability, and the specific type of medical insurance has little influence. All of these findings are conducive to identifying vulnerable households and designing policies to reduce the vulnerability of households.