This paper investigates the ability of families in Indonesia to insulate their consumption against major illnesses, using a unique panel dataset that combines health status measures with consumption information. The authors find that while families can smooth consumption during minor illnesses, they struggle to do so during severe illnesses that significantly limit physical function. The deviation from full consumption smoothing is significant, particularly for illnesses that severely limit physical function, with families smoothing less than 30% of the income loss from these illnesses. The study suggests that formal disability insurance could bring substantial welfare gains, and that public subsidies for medical care, which spread the costs of illness across healthy and sick times, also contribute to welfare improvements. The findings highlight the importance of addressing health shocks through comprehensive insurance mechanisms, especially in developing countries where formal health insurance coverage is limited.This paper investigates the ability of families in Indonesia to insulate their consumption against major illnesses, using a unique panel dataset that combines health status measures with consumption information. The authors find that while families can smooth consumption during minor illnesses, they struggle to do so during severe illnesses that significantly limit physical function. The deviation from full consumption smoothing is significant, particularly for illnesses that severely limit physical function, with families smoothing less than 30% of the income loss from these illnesses. The study suggests that formal disability insurance could bring substantial welfare gains, and that public subsidies for medical care, which spread the costs of illness across healthy and sick times, also contribute to welfare improvements. The findings highlight the importance of addressing health shocks through comprehensive insurance mechanisms, especially in developing countries where formal health insurance coverage is limited.