Climate risk and health expenditure: extreme drought in herb-producing regions and the price of Chinese medicine

Introduction Climate risk is understood to raise health expenditure by increasing illness and the demand for care. A second route has received little attention. Botanical medicines are grown, so climatic stress where they are cultivated alters the cost of a medical input and may raise what households and insurers pay even when population health is unchanged. This study examines that route in China. Methods We assemble a monthly national price index for Chinese medicinal materials, official consumer price indices (CPIs) for Chinese medicine, Western medicine and medical services, and a provincial panel of household health expenditure. Climatic stress is measured as a standardized accumulated water deficit and weighted twice over the same events, by herb-producing area and by population, separating the input-cost route from the illness route. Estimation is by local projection with season-preserving permutation inference, supported by falsification, influence and confounding analyses. Results Extreme drought in herb-producing regions is associated with a rise in the wholesale price of medicinal materials of about 10–20 percent over 6–18 months and in the consumer price of Chinese medicine of about 2–4 percent. Western medicine and medical service prices show no comparable rise, and the same deficit weighted by population is unrelated to either. The association is robust to alternative thresholds, sample periods and controls for health-sector inflation and regulatory reform. Rural household expenditure responds more strongly than urban. Discussion Climate risk is linked to health budgets through the supply chain for medical inputs as well as through morbidity, with implications for reserve policy, reimbursement design and financial protection of households.