Health care spending and hidden poverty in India

India has a high level of out-of-pocket (OOP) health care spending, and lacks well developed health insurance markets. As a result, official measures of poverty and inequality that treat medical spending symmetrically with consumption goods can be misleading. We argue that OOP medical costs should be treated as necessary expenses for the treatment of illness, not as part of consumption. Adopting this perspective, we construct poverty and inequality measures for India that account for impoverishment induced by OOP medical costs. For 2011/12 we estimate that 4.1% of the population, or 50 million people, are in a state of “hidden poverty” due to medical expenses (based on official poverty lines). Furthermore, while poverty in India fell substantially from 1999/00 to 2011/12, the fraction of the remaining poverty that is due to medical costs has risen substantially. Economic growth appears less “pro-poor” if one accounts for OOP medical costs, especially since 2004/05, and especially in rural areas. Finally, we look beyond poverty rates to show how OOP health costs affect the entire shape of the consumption distribution.