This study aims at understanding the nature of health problems in urban areas, healthcare costs and the ways in which households cope with these unforeseen expenses. Based on a household survey in peri-urban areas ofPune, we find that on an average, households spend 5 to 6 percent of their total monthly expenditure on healthcare. Use of private health services was spread across income groups. The lower income group is on anaverage, spending more on current ailments - those requiring their immediate attention. Chronic ailments on the other hand, appear to be life-style related, with costs increasing with the increase in incomes. The proportion of disabilities and the average per head cost on disabilities was higher for the poor. We find that childbirth related expenses are significantly more among higher income households. A large proportion of households had to resort to borrowings to meet major health emergencies and most of these borrowings came from informal sources.