Effects of the Resident Basic Medical Insurance Reform on Household Consumption in China

Abstract

This paper investigates the causal relationship between the Urban and Rural Resident Basic Medical Insurance (URRBMI) reform and household consumption in urban China using data from the Chinese Household Income Project survey and employing combination of the propensity score matching and difference-in-differences methods. The results yield three conclusions. First, the reform affected both the amount and share of household consumption. Specifically, the reform led to an increase in total household consumption, encompassing both medical and nonmedical expenditures. Among these, the proportion of medical consumption increased, while the proportion of nonmedical consumption reduced. Second, the impact of the URRBMI reform varied across consumption categories within nonmedical expenditure. Specifically, consumption for education and entertainment industries are positively impacted by the URRBMI reform in terms of both quantity and proportion. Third, low-income households benefit more from the URRBMI reform compared to middle- and high-income households. The main channels through which the URRBMI reform affects household consumption were the price effect and the crowding out effect on precautionary savings.