Can Health Insurance Mitigate Shocks to Consumption? Evidence from China
Posted: 17 Jun 2007
Date Written: July 2007
Households in developing countries are more susceptible to risk than households in developed countries (Bardhan and Udry, 2001): because insurance markets tend to be underdeveloped or non-existent, households that experience economic shocks tend to either draw down their asset base, leading to asset-based poverty traps (Carter and Barrett, 2005), or decrease their consumption. In this paper, we analyze whether China's New Rural Cooperative Medical System (NCMS) has affected the way that rural Chinese households deal with economic shocks. The NCMS is intended to protect China's 800 million farmers from catastrophic health shocks by providing baseline coverage. Introduced in 2002, the program is being made available in more counties each year to meet a goal of national coverage by 2010. The program is voluntary, although households pay a nominal fee to participate. Our recently-collected data from 1500 rural households in two Chinese provinces include three important advantages. First, households were chosen from the National Bureau of Statistics sampling frame, so detailed consumption data are available over time. Second, the survey includes detailed information about health shocks over the past year. Third, survey respondents include households who participate in the NCMS program, those that choose not to participate, and those who are unable to participate because they live in counties that have not yet introduced NCMS programs. Using propensity score matching, we assess the extent to which NCMS participation mitigates health shocks to consumption.
Keywords: insurance, health shocks, consumption, China
JEL Classification: I1, I3, O2
Suggested Citation: Suggested Citation