This paper investigates the extent to which the health systems of the Western Balkans (Albania, Bosnia and Herzegovina, Montenegro, Serbia and Kosovo) have succeeded in providing financial protection against adverse health events. We examine disparities in health status, health care utilization and out-of-pocket payments for health care (including informal payments), and explore the impact of health care expenditures on household economic status and poverty. Data are drawn from LSMS surveys and methodologies include catastrophic-health analysis, poverty incidence analysis adjusted for health payments, and multivariate regression analysis. On balance, we find that economic status is significantly associated with health care-seeking behavior in all transition economies and the cost of illness can increase the incidence and depth of poverty. The impoverishing effect of health expenditures is most severe in Albania and Kosovo, followed by Serbia, Bosnia and Herzegovina and Montenegro. Moreover, health care costs seem to place a heavier burden on the weakest strata of the population, such as children and people with chronic illness, with serious consequences for the breaking out of the illness-poverty vicious circle.