The Urban and Rural Resident Basic Medical Insurance Reform and the Release of Consumption Potential of Chinese Rural Residents

Abstract

Unlocking the consumption potential of rural markets is a critical pathway to enhancing the domestic economic circulation in China. A robust medical insurance system mitigates the financial risks of medical expenditures, stabilizes household expectations, and boosts consumption. While previous studies have explored the impact of medical insurance on residents’ consumption levels, the direct relationship between medical insurance reforms and average consumption propensity—a key indicator of consumption potential—has received limited attention. This paper systematically examines the effects of the Urban and Rural Resident Basic Medical Insurance (URRBMI) reform on rural consumption potential in China. First, it constructs a two-stage survival model to analyze how disease shocks influence income and expenditure uncertainties, providing a theoretical framework for understanding the URRBMI reform’s impact on rural residents’ average consumption propensity. Second, using data from the China Household Finance Survey (CHFS) spanning 2013 to 2019, the study employs a progressive difference-in-differences (DID) approach to empirically evaluate the reform’s effects. Third, the paper investigates the influence of changes in financing levels and benefit structures of the URRBMI on rural residents’ consumption potential and healthcare utilization post-2020. The study yields several important conclusions. First, the URRBMI reform has significantly increased the average consumption propensity of rural residents, thereby unlocking rural consumption potential. Its effects are particularly pronounced among lower-income groups and regions with higher levels of system integration. Second, the reform enhances rural consumption propensity by improving healthcare-seeking behaviors and reducing income uncertainties. However, due to the rapid increase in demand for medical services and induced consumption behaviors, the reform has not substantially reduced rural residents’ medical expenditure risks. Third, the URRBMI reform has contributed to upgrading the consumption structure in rural areas. Fourth, the post-2020 decline in the number of URRBMI participants is not due to increased financing standards but is instead attributed to individuals transitioning to the Urban Employee Basic Medical Insurance (UEBMI) system and the reduction in duplicate insurance coverage. To optimize the policy’s outcomes, the government should focus on improving the compensation mechanism and supporting regulatory measures to address the high cost of healthcare for rural residents. Additionally, policymakers should prioritize the gradual establishment of a universal and integrated medical insurance system to promote equitable benefits across all population groups. This study provides several key contributions. First, from a research perspective, it focuses on average consumption propensity as a direct link between income and consumption, offering a novel approach to understanding consumption potential. By examining the impact of URRBMI reform through the lens of consumption propensity, the paper deepens insights into rural consumption dynamics. Second, the theoretical framework innovatively integrates disease shocks into a two-period survival model, accounting for income and expenditure uncertainties to analyze the internal mechanisms through which the URRBMI reform influences consumption behavior. This approach enriches the existing theoretical literature. Third, the use of a progressive DID method refines empirical analysis, addressing methodological gaps in prior studies. The findings provide critical data and decision-making references for advancing urban-rural medical insurance integration. A more equitable, universal medical security system can effectively enhance rural residents’ financial stability, consumption capacity, and overall well-being.