Does Health Insurance Lead to Ex-ante Moral Hazard? Evidence from China’s New Rural Cooperative Medical Scheme

This paper examines whether participating in the New Rural Cooperative Medical Scheme (NRCMS), a publicly subsidized health insurance program in rural China, encourages individuals to engage in risky health behaviors. Despite its rapidly increasing coverage rate, relatively little attention has been paid on the impact of NRCMS on the lifestyle choices of its enrollees. Based on the 2000-2009 longitudinal data from the China Health and Nutrition Survey (CHNS), we find that NRCMS participation significantly increases people's tendency of smoking, drinking, spending time in sedentary activities, consuming high-calorie food as well as being overweight. These unhealthy lifestyle changes in turn lead to elevated disease risks, indicating that the insurance-induced "ex-ante moral hazard" is present in rural China. The findings are robust to the variation in model specification and sample selection as well as to the introduction of instrumental variables that control the endogeneity of insurance participation. Our results call for further reforms in the pricing and administration policies of China's largest health insurance campaign, and provide implications on evaluating public insurance schemes in other developing countries.