In the relation between income and health it has been suggested that individual level mechanisms are related either to absolute or to relative income. Both absolute income level and the individual's own income in relation to that of others are likely to affect health, but to distinguish between these effects in analyses has been difficult. The aim of this study is to distinguish between the effect on health of one's own position in the income distribution and the effect on health of the individual's ability to consume. Combining data from Sweden, Finland and Norway provides a setting where individuals with the same absolute income level may occupy different positions within their national income distribution. The data come from Swedish, Finnish and Norwegian surveys of living conditions from the mid 1990s. Both the position in the income distribution and the ability to consume is measured by household disposable equivalent income. In order to eliminate differences in price levels, household income is adjusted for purchasing power parities. The outcome measure used is limiting long-standing illness. There was a clear income gradient in health over the individual's relative position in their national income distribution. Stratifying for groups of household income adjusted for purchasing power parities, we still find a significant effect of the individual's relative position. In Nordic welfare states the relative position in the income distribution is related to limiting long-standing illness independently of the ability to consume among individuals with high ability to consume.