Does Public Health Insurance Cause Crowding Into Public Facilities and Informality? The Case of Seguro Popular

Many low and middle-income countries are working to expand health insurance to previously uncovered people by creating health insurance programs intended for low-income people who would otherwise lack insurance coverage. Two concerns have been raised about these programs. First, people may be “crowded out” of private facilities and into public ones, increasing public expense and possibly degrading care through crowding. Second, public insurance could encourage informality by reducing the gap in compensation between formal sector and informal sector workers. We examine these questions in the context of Mexico’s Seguro Popular (SP) using longitudinal administrative data on childbirth. We focus on women with more than one observed birth and ask how SP affects the choice of provider for those whose first observed birth was in a public hospital, a private hospital, or a separate system of hospitals serving formal sector workers. We also look at how SP affects the utilization of care and newborn health. Because SP enrollment is endogenous, we instrument it using the rollout of a second program, SMSXXI, that provided health care for young children and enrolled other family members in SP. We find that the expansion of SMSXXI increased SP coverage of pregnant women. This in turn led to a higher probability of delivering in a public hospital, especially among those who had previously delivered in a private hospital. We find little impact of SP enrollment on the utilization of care or newborn health, with the notable exception that women who previously delivered in a private hospital were more likely to start prenatal care in the first trimester when they switched to SP, indicating a greater willingness to seek preventive care when it is free.