REMITTANCES serve as an informal health insurance scheme for vulnerable Jamaicans, according to a recently published Inter-American Development Bank (IDB) working paper.

It signals that remittances tend to cover the cost of illness and accidents, wrote Diether Beuermann, Inder Ruprah and Ricardo Sierra — the authors of the paper .

“Our main findings suggest that health shocks adversely affect total household expenditures by an average of 19 per cent,” according to the article entitled Do Remittances Help Smooth Consumption During Health Shocks? Evidence From Jamaica. “However, remittances totally offset these adverse effects, indicating that in light of idiosyncratic shocks, remittances serve as a social insurance mechanism that offers full protection.”

The paper defines a health shock as an accident and illness that affects households rather than an economy. Jamaicans without health insurance utilise remittances to take care of doctor bills, purchase medicine and so on.

“Furthermore, we find that remittances are not relevant as an insurance mechanism against health shocks in the presence of formal private health insurance,” said the report. “By contrast, remittances constitute a powerful form of insurance in the absence of private health insurance.”

Remittances and the tourism sector earn the most foreign exchange for the island. For the March quarter 2014 net remittances totalled US$461 million or 6.9 per cent more than a year earlier, according to Bank of Jamaica data.

The country received some US$1.85 billion in net remittances over 12 months ending March 2014.

The IDB paper also found that households with health shocks cut back less on “moral hazards” than households without remittances. Specifically alcohol consumption drops by one-third in households with remittances compared with a drop by a half in households without.

“Therefore, alcohol consumption is partially offset by remittances, but it still drops significantly,” said the report. “We interpret this result as evidence of weak moral hazard, given that only one third of decreased alcohol consumption observed without the insurance provided by remittances is offset within remittance receivers.”

It also found that households preparing for family events including weddings and funerals continued with planned spending despite health shocks. The authors reckon it relates to the nostalgia of these events.

“Wedding budgets are mainly unaffected by health shocks. Expenses in funerals appear to be negatively affected in the absence of remittances by 17 log-points (or 15.6 per cent). However, when remittances are in place, expenses in funerals are even increased as a result of health shocks,” stated the paper.