Policy Paper 15

In developing countries, where 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, these debates rarely consider the competing demands placed on the family budget, which will influence the acceptability of the program by the populace, and can be used to design the optimal policy. In this paper, we examine treatment effects associated with household insurance status providing a detailed examination of expenditure substitution patterns within a highly unequal developing country. In agreement with economic theory, the expansion of health insurance coverage via compulsory schemes creates additional burdens for households, which household accommodate via expenditure substitution. The observed variation in the household’s ability to accommodate increased expenditure can and should be used in future to assess policy options and design an optimal social health insurance program.