Health insurance and consumption: Evidence from China's New Cooperative Medical Scheme

We exploit a quasi-natural experiment arising from the introduction of a health insurance program in rural China to examine how the insurance coverage affects household consumption. Results show that, on average, the health insurance coverage increases nonmedical-related consumption by more than 5%. This insurance effect is observed even in households with no out-of-pocket medical spending. In addition, the insurance effect is stronger in households with worse self-reported health status. These results are consistent with the precautionary savings argument. The insurance effect also varies by household experience with the program. In particular, the effect is significant only in villages where some households have actually obtained reimbursement from the insurance program. The program within these villages stimulates less consumption among new participants than among households that have participated in the program for more than a year.