Impact of Urban-Rural Medical Insurance Integration on Consumption : Evidence from Rural China

Examining the impact of basic medical insurance integration on households’ welfare is essential for finding policy solutions for health and welfare inequality. Based on the various implementation time of the urban-rural medical insurance integration in different prefectural cities of China, we employ a staggered difference-in-differences model to study the impact of this integration on rural household consumption. Using the survey data of China Health and Retirement Longitudinal Study from 2011 to 2018, we find that the integration policy increases the non-medical consumption by 14%. The effect is more significant for non-food consumption as the price elasticity of non-food demand is larger than that of food. As for the mechanism, we find evidence of the direct channel of reducing 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 social insurance integration as the solution of health and welfare inequality