Radhika Joshi, IIM, Bangalore

This paper examines how the increase in use of health care due to health insurance subsidies leads to diffusion of information about the benefits of treatment and thus encourages others to seek treatment. In particular, using administrative data from a novel health insurance scheme from the Indian state of Karnataka, we examine whether the increase in use of health care today results in increase in health care use in the same local area (group of villages) in future time periods. Our identification strategy controls for (1) local area specific health condition fixed effects to account for time invariant factors related to disease prevalence and (2) local area specific time fixed effects to control for changes in health and insurance related outreach activities over time. In our baseline results, we find that 1 new hospitalization today results in 0.35 future hospitalizations for the same condition. We are also able to document that these effects increase over time as patients have more time to ascertain the health benefits of treatment. Finally, the role of health insurance in spatially diffusing information seems to be more pronounced in densely populated areas where word of mouth diffusion of information might be easier.