The world is rapidly urbanizing with over half the population now living in urban areas. As the urban population grows, so does the proportion of these persons living in slums where conditions are deplorable. These conditions concentrate health hazards leading to higher rates of morbidity and mortality. This growing problem creates a unique challenge for policymakers and public health practitioners. While the Millennium Development Goals (MDGs) aim to address these conditions and standards for water and sanitation as well as pertinent health outcomes, little evidence on interventions exists to guide policymakers. Upgrades in slum household water and sanitation systems have not yet been rigorously evaluated to demonstrate whether there is a direct link to improved health outcomes. This study aims to show that slum upgrading as carried out in Ahmedabad, India, led to a significant decline in waterborne illness incidence. We employ a quasi-experimental regression model using health insurance claims (for 2001-2008) as a proxy for passive surveillance of disease incidence. We found that slum upgrading reduced a claimant's likelihood of claiming for waterborne illness from 32% to 14% and from 25% to 10% excluding mosquito-related illnesses. This study shows that upgrades in slum household infrastructure can lead to improved health outcomes and help achieve the MDGs. It also provides guidance on how upgrading in this context using microfinance and a public-private partnership can provide an avenue to affect positive change.