Health insurance coverage for low-income households : consumption smoothing and investment

Abstract

I estimate the e ects of public health insurance on consumption smoothing and investigate the extent to which the public insurance interacts with private arrangements of self-insurance. Exploiting a dramatic expansion in health insurance coverage in rural China, I nd that the introduction of public health insurance helps households completely insure against severe health shocks. The health insurance also reduces the magnitude of decline during a health shock in investments in children's education, agricultural activities and durable goods. The evidence suggests that the bene t of social insurance for low-income households could also come from reducing the use of costly smoothing mechanisms.