Heterogeneous effects of health shocks in developed countries:evidence from Australia

We examine how health shocks impact on households' decision to save, and how different socioeconomic and ethnic groups respond to health shocks in Australia. We find that health shocks are associated with a substantial reduction in individual savings. We do not find any substitution of labor supply by a partner in response to an individual's health shocks. We extend previous work by examining whether access to formal health insurance or government benefits mitigate the economic consequences of a health shock. We find evidence that negative health shocks are associated with an increase in receipts of public transfers and benefits in the following years. There is evidence that the fall in savings is greater for low-income individuals. Individuals who have private health insurance are more affected by health shocks, compared with individuals who do not have private health insurance, suggesting a role for selection into private health insurance.