Income-dependent impacts of health insurance on medical expenditures: Theory and evidence from China

Policymakers are interested in the impact of health insurance on individuals' medical expenditures not only the average effect for the overall population, but also the possible heterogeneous effects for subgroups. This paper focuses on the heterogeneous impacts of a nationwide health insurance program in China, the New Rural Cooperative Medical Scheme, on its enrollees' out-ofpocket (OOP) expenditures for different income groups, since previous studies find no significant reduction in OOP for the general population. We firstly develop a theoretical model, showing that the reduction in OOP for the rich would be greater. Then, we test the theoretical prediction using a unique sample. The empirical finding is consistent with the model prediction, and the pattern of income -dependent impacts is robust to different estimation strategies.