Centre for Development Economics
Department of Economics, Delhi School of Economics


The Distributional Consequences of Micro Health Insurance: Can a Pro-Poor Program Prove to be Regressive?


Ketki Sheth

University of California, San Diego

Monday, 11th August 2014 at 3:00 PM

Venue : Seminar Room (First Floor)
Department of Economics, Delhi School of Economics

All are cordially invited

Despite the rapid growth of micro health insurance (MHI) programs, there is little empirical evidence of their distributional consequences. If health care consumption increases with income and households pay identical premiums, then MHI may result in unintended regressive transfers from poorer to wealthier households. This paper assesses the effect of household responses (self-targeting) on the progressivity of the distribution of MHI transfer and health care benefits. Partnering with a microfinance organization in rural Maharashtra, India, I exploit an imbalanced randomized controlled trial of their MHI program to separately identify the following: 1) the initial health care distribution by income among eligible households, 2) differential demand for MHI, and 3) heterogeneous effects of MHI on health care by income. I estimate that among those eligible for MHI, households Below the Poverty Line (BPL) spend 34% less on health care than non-BPL households prior to MHI. This relationship persists even among the sub-sample of households that choose to enroll in the MHI program, suggesting that MHI will lead to poorer households subsidizing wealthier households unless there are offsetting heterogeneous effects of MHI on health care by income. Using panel data with household fixed effects, I estimate that MHI improves health care consumption more for BPL households by approximately USD 3 per month of coverage. I further corroborate this result using a difference-in-difference approach that compares the health care distribution by income across MHI enrollment and coverage status. These results suggests that poorer households are more sensitive to cost reductions in health care and that gains in health care are concentrated among poorer households, thereby narrowing the gap in health care among the insured. Strikingly, almost two years after the introduction of MHI, there is no significant relationship between health care and income among the insured. Thus, even though ex-ante health care consumption suggests MHI will result in regressive premium redistribution, ex-post behavior suggests the poor will not subsidize wealthier households.

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