How Do You Feel? The Effect of the New Cooperative Medical Scheme in China

In 2003, a public insurance system was introduced in Chinese rural areas. In the meantime, subjective health status improved. We used a unique household longitudinal survey to analyse how the introduction of an insurance system, known as the New Cooperative Medical Scheme (NCMS), has contributed to the change. This health insurance programme was launched sequentially over counties starting in 2003, and households voluntarily chose whether to participate the programme after its launch by the county. These characteristics make it feasible to disentangle two channels of the influence of the NCMS on self-reported health status. One is the insurance effect of the coverage, which can be estimated by comparing the insured households with non-participants in the villages located in counties that have launched the programme (NCMS counties); the other is the general equilibrium effect that affects all residents in the NCMS counties, and can be estimated by comparing non-participants with the non-exposed households. The longitudinal data also allow us to examine how the effect changes with the duration of households' subscription to the programme. The empirical findings include: first, a positive extensive margin: an individual feels better about his or her health status when covered by the NCMS. However, there is no intensive margin: there is no additional gain in the self-assessment of health status with the individual's number of years enrolled in the programme. Second, we find a positive general equilibrium effect of introducing the NCMS programme on non-participants in the NCMS county. This effect accumulates over time.