Does non‐profit health insurance reduce financial burden? Evidence from the Vietnam living standards survey panel

Many low‐income countries are implementing non‐profit medical insurance to increase access to health services, especially among low‐income households, and to raise additional revenue for financing public health services. This paper estimates the effect of insurance on out‐of‐pocket health expenditures using the Vietnam Living Standards Surveys for 1993 and 1998 and appropriate models for panel data. Our findings suggest that health insurance reduces health expenditure when unobserved heterogeneity is accounted for. Failure to capture unobserved heterogeneity produces contrary results that are consistent with previous cross‐sectional studies in the literature. Health insurance is found to reduce out‐of‐pocket expenditure between 16 and 18% and the reduction in expenditure is more pronounced for individuals with lower incomes. At mean income, the effect of health insurance is to reduce health expenditures between 28 and 35%. Copyright © 2005 John Wiley & Sons, Ltd.