Does Health Insurance Decrease Health Expenditure Risk in Developing Countries? The Case of China∗

This paper studies the impact of health insurance on individual out-of-pocket (OOP) health expenditure in China. Using the China Health and Nutrition Survey data between 1991 and 2006, we apply two-part and sample selection models that address key empirical challenges: censored data and selection on unobservables. We find that although the probability of positive OOP health expenditures increases with the availability of health insurance, the actual level of OOP health expenditures decreases. More specifically, for a person with positive OOP health expenditures, having health insurance reduces the level of OOP expenses by 11.4 13.6 percent. This result is highly statistically significant. If, on the other hand, the level of OOP expenses is a priori unknown, we do not find a significant relationship between health insurance and OOP spending levels. In addition, health insurance has stronger effects for individuals with either very low or very high health spending levels based on results from a quantile regression. JEL: I11, C33, C34 This research uses data from the China Health and Nutrition Survey (CHNS). We thank the National Institute of Nutrition and Food Safety, China Center for Disease Control and Prevention; the Carolina Population Center, University of North Carolina at Chapel Hill; the National Institutes of Health (NIH; R01-HD30880, DK056350, and R01-HD38700); and the Fogarty International Center, NIH, for financial support for the CHNS data collection and analysis files since 1989. We thank those parties, the China-Japan Friendship Hospital, and the Ministry of Health for support for CHNS 2009 and future surveys. We would also like to thank James Manley, Pedro de Araujo, Thomas Rawski, Adam Wagstaff, and participants of the Midwest Economic Association Meetings in St. Louis 2011 for helpful comments. All remaining errors are ours. Corresponding author. Towson University, Department of Economics, Stephens Hall, Room 101K, 8000 York Road, Towson, MD 21252, e-mail: [email protected] Allegheny College, Department of Economics, 520 Main street, Meadville, PA 16335. e-mail: [email protected]