Medical insurance, labor supply, and anti‐poverty initiatives: Micro‐evidence from China

The high cost of medical care and its association with poverty have given rise to a growing concern for developing countries, but how insurance plans affect household income and alleviate poverty has been rarely discussed. This study aims to bridge this research gap by examining a medical insurance reform in China, a major program of the targeted poverty alleviation (TPA) strategy, which offers higher reimbursement rates and lower medical deductibles for low‐income households. We use an administrative data set on impoverished people in a Chinese county to examine how exogenous changes in the medical insurance system affect the income structure of low‐income households. We apply a two‐part model to a Difference‐in‐Differences framework, with households that received reimbursement of the insurance reform as the treatment group and others as the control group. Our results imply that the medical insurance reform could increase the overall household income diversity. The mechanism analysis suggests that the medical insurance reform improves the health conditions of patients and encourages caregivers to engage more in off‐farm work.