Coping with Health Shocks in American Households: Evidence from Survey of Income and Program Participation

We unravel two drastically different paths for the uninsured and for people with employer-sponsored health insurance (ESI) to cope with the economic consequences of health shocks. The uninsured individuals support their incomes mostly from other non-labor income sources, public transfers, and borrowing. The overall budget constraint of the uninsured tightens to the extent that they are not able to adequately increase medical consumption and maintain necessary consumption in response to shocks. In contrast, people with ESI maintain most of their income by keeping their jobs, increase their medical expenses without sacrificing necessary consumption and are more likely to recover from illness. Overall, our results highlight the economic and health benefits of health insurance in response to health shocks.