Impact of urban–rural medical insurance integration on consumption: Evidence from rural China

Abstract

Examining the impact of basic medical insurance integration on households’ welfare is essential for finding policy solutions to health and welfare inequality. Based on the different timing of implementing the urban–rural medical insurance integration in different prefectural cities in China, we employ a staggered difference-in-differences model to study the impact of this policy on rural household consumption. We find that the integration policy increases the treatment group’s non-medical consumption by 14% on average, compared to the control group. The effect is more significant for non-food consumption as the price elasticity of non-food demand is larger than that of food demand. As for the mechanism, we find evidence of the direct channel of reduced medical burden, and we also provide some indirect indication of the precautionary savings channel that the effect of medical insurance on household consumption is more significant for households with lower wealth or higher health risks. The policy implication of our findings is considerable since they provide a strong justification for that social insurance integration might be a solution to narrow the health and welfare gap within China.