In developing countries, health insurance is not a commonly purchased
financial instrument. Recent debates have revolved around extending
health insurance coverage to a wider range of the population, primarily via
compulsory insurance schemes. However, the debate rarely considers the competing
demands placed on the family budget. In this paper, we have examined
expenditure substitution patterns for both insured and uninsured households
in a highly unequal developing country allowing for selection on insurance status.
Our analysis suggests that expansion of health insurance coverage via
compulsory schemes will create additional burdens for households, especially
in terms of food purchases, and are, therefore, likely to require simultaneously
implemented welfare or subsidy policies in order to be effective. It is not clear,
then, that the benefits of a compulsory insurance scheme will outweigh the additional
costs in terms of behavioural constraints, fiscal constraints and public
sector service delivery capacity constraints.