Locked out? China’s health insurance scheme and internal migration

Abstract

Providing health insurance with certain geographical restrictions may lead to misallocations in the labour market by hindering migration. This paper tests whether the rural health insurance first introduced in 2003, the New Cooperative Medical Scheme (NCMS), had unintended and negative effects on rural-to-urban migration mobility in China. The NCMS offers health insurance only to people with rural household registration, and they can benefit from the NCMS only when visiting the hospitals near their registered location in the household registration system. An event-study approach to a new dataset collected from provincial yearbooks in China reveals at the county level that the NCMS reduces the percentage and rate of growth of the percentage of rural residents who are rural-to-urban migrants and who work outside their home county. Using the China Health and Nutrition Survey (CHNS), my instrumental variable (IV) results show that being enrolled in the NCMS reduces the probability of individual-level migrating. The IV is a time-variant dummy indicating the counties that have relative early NCMS implementations. I also use the CHNS to construct a county-level dataset and replicate the county-level results. Together, the results suggest that the NCMS “locks” the rural labour force into rural areas and further hinders geographical job mobility in China.