Endogenous health risks, poverty traps, and the roles of health insurance in poverty alleviation

BACKGROUND: Family education investment is a key factor in reducing intergenerational transmission of poverty. At the price of higher health risk, the poor may overdraw their bodies to earn more money to invest in education. This study investigates the effect of physical overdraft, health risks and health insurance on poverty and economic growth. METHODS: This paper proposes an economic development model of endogenous health risks and poverty by setting up a physical overdraft decision. Furthermore, we introduce mutual health insurance mechanism to analyze its poverty alleviation effects. RESULTS: First, this study shows that health risks weaken the economy and are among the leading causes of poverty. Second, mutual health insurance can alleviate, but not completely eliminate, the negative impact of health risks on the economy. Third, appropriate health insurance arrangements can lift some or even all poor households out of poverty. CONCLUSION: Health risks have a significant effect on poverty. Furthermore, health insurance mechanisms have the advantages of transferring health risks, reducing poverty and improving health equity.