On health insurance and household decisions : an econometric policy analysis

Abstract

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.