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Can insurance increase financial risk?: The curious case of health insurance in China

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  • Wagstaff, Adam
  • Lindelow, Magnus

Abstract

We analyze the effect of insurance on the probability of an individual incurring 'high' annual health expenses using data from three household surveys. All come from China, a country where providers are paid fee-for-service according to a schedule that encourages the overprovision of high-tech care and who are only lightly regulated. We define annual spending as 'high' if it exceeds a threshold of local average income and as 'catastrophic' if it exceeds a threshold of the household's own per capita income. Our estimates allow for different thresholds and for the possible endogeneity of health insurance (we use instrumental variables and fixed effects). Our main results suggest that in all three surveys health insurance increases the risk of high and catastrophic spending. Further analysis suggests that this is due to insurance encouraging people to seek care when sick and to seek care from higher-level providers.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Health Economics.

Volume (Year): 27 (2008)
Issue (Month): 4 (July)
Pages: 990-1005

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Handle: RePEc:eee:jhecon:v:27:y:2008:i:4:p:990-1005

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Web page: http://www.elsevier.com/locate/inca/505560

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