This paper analyses household coping strategies for illness in four Lao villages. The villagers dealt with health expenditure themselves, using coping mechanisms which drew mainly on social networks within the community. They strongly believed in the principle of paying user fees and did not consider exemption from fees an option. A total of 12 households (6 per cent of households) faced catastrophic expenditure arising from healthcare payments. The national policy on exemptions did not protect the poor and the study demonstrates that there is an urgent need for the government to improve the design and implementation of exemptions or reform the policy on subsidising health care. Copyright © 2009 John Wiley & Sons, Ltd.