When Illness Becomes Debt: Catastrophic Health Expenditures and Financial Distress—Evidence From India's Healthcare System

Vollständiger Abstract

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ABSTRACT This study examines the association between catastrophic health expenditure (CHE) and distress financing among India's uninsured “missing middle,” a population largely excluded from public insurance schemes and private coverage. While healthcare‐induced financial hardship is well documented, evidence on subsequent coping strategies among this unprotected demographic remains limited. Using nationally representative data from the 75th round of the National Sample Survey Organisation (NSSO, 2017–18), we analyze 36,610 hospitalized individuals. CHE is defined as out‐of‐pocket spending exceeding 10% of annualized household consumption. Distress financing is measured as reliance on borrowing, asset sales, or informal contributions to fund hospitalization. Employing Linear Probability and Logit estimators controlling for state fixed effects, we find that experiencing CHE is associated with a 24‐percentage point increase in the probability of resorting to distress financing. Furthermore, our interaction models reveal that the marginal association between CHE and distress financing is smaller for private hospital users compared to public hospital users. This does not imply that private care offers greater financial protection. Instead, this difference likely reflects socioeconomic‐based selection and differential access to credit among patients opting for private facilities. These findings underscore the acute vulnerability of India's missing middle to health‐related economic shocks. This highlights an urgent policy need to expand equitable risk‐pooling, strengthen prepayment mechanisms, and design comprehensive financial protection strategies. The study contributes to the understanding of health‐induced financial distress and provides empirical insights relevant for the design of equitable and resilient healthcare financing policies in developing economies.