Does Health Insurance Coverage Influence Household Financial Portfolios? A Case Study in Urban China

Abstract

Health insurance lowers the medical financial burden of the insured through a risk-sharing mechanism, and more importantly, reduces the motivation for precautionary saving. This paper explores the relationship between health insurance coverage and household financial portfolios. We choose 2002 urban China as a case study when the health insurance system had a problem of limited adverse selection. Using data from the 2002 Chinese Household Income Project Survey, we find that health insurance coverage influences households’ preference for financial assets, especially for the risky financial assets. These effects become more pronounced as the coverage rate of health insurance in the family increases. Our results are consistent with precautionary saving theory which suggests that future expenditure risk could affect household asset portfolios. Therefore, development of social security or a health insurance system could effectively promote the development of financial markets, especially riskier aspects of financial markets.

Keywords

health insurance / financial portfolio / risk exposure / precautionary saving

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Higher Education Press