In the absence of formal health insurance, we argue that the strategies households adopt to finance health care have important implications for the measurement and interpretation of how health payments impact on consumption and poverty. Given data on source of finance, we propose to (a) approximate the relative impact of health payments on current consumption with a ‘coping’-adjusted health expenditure ratio, (b) uncover poverty that is ‘hidden’ because total household expenditure is inflated by financial coping strategies and (c) identify poverty that is ‘transient’ because necessary consumption is temporarily sacrificed to pay for health care. Measures that ignore coping strategies not only overstate the risk to current consumption and exaggerate the scale of catastrophic payments but also overlook the long-run burden of health payments. Nationally representative data from India reveal that coping strategies finance as much as three-quarters of the cost of inpatient care. Payments for inpatient care exceed 10% of total household expenditure for around 30% of hospitalized households but less than 4% sacrifice more than 10% of current consumption to accommodate this spending.
Ignoring health payments leads to underestimate poverty by 7–8% points among hospitalized households; 80% of this adjustment is hidden poverty due to coping. Copyright © 2008 John Wiley & Sons, Ltd.