Expenditure Response to Health Insurance Policies: Evidence from Kinks in Rural China

Yi Lu, Julie Shi, Wanyu Yang   Published : October, 2019   JEL Code: C14 · D12 · G22   URL to this Article: https://doi.org/10.1016/j.jpubeco.2019.104049

Abstract

This paper utilizes administrative data to analyze expenditure responses to the health insurance policy in rural China, and clear visual evidence of bunching is observed at the kink point. A static response model with optimization frictions estimates that a complete elimination of the reimbursement would cause the total expenditure per visit to decrease by 34.5%, and approximately one-third of the studied population makes decisions with errors. Heterogeneous expenditure responses and optimization frictions are observed across demographic groups. Cost-benefit and counterfactual analyses indicate that the current policy generates the greatest welfare gains.

Keywords

Bunching; Health care; Health insurance; Optimization friction