Quantitative analysis of health insurance reform in China: Pure consolidation or universal health insurance?

Abstract

We quantify the macroeconomic and welfare effects of a social health insurance reform that occurred in China in 2016 using a two-sector model with endogenous rural-to-urban migrant workers. The calibrated model mimics the rural-to-urban migration and rural-urban wage gap from 2007 through 2016. We find that the health insurance reform depresses rural-to-urban migration and leads to reallocation of labor and capital in both the rural and urban sectors. As the result, we find that the consolidation of premium and reimbursement expands the rural-urban wage gap by approximately 6.8% but universal health insurance coverage narrows the rural-urban wage gap by approximately 0.9%. Keeping the government deficit unchanged, the welfare results favor universal health insurance relative to pure consolidation.