Commercial Health Insurance, Precautionary Motives, and Household Consumption: Theoretical Analysis and Empirical Evidence
YI Xingjian, ZHANG Lingshuang, XU Shu, ZHOU Cong
School of Finance and Investment, Guangdong University of Finance; School of Insurance, Guangdong University of Finance; School of Economics, Southwestern University of Finance and Economics; School of Economics, Fudan University
Summary:
The construction of a social security system with Chinese characteristics must meet the requirements of China's new stage, concept, and paradigm of development. As a socioeconomic stabilizer and booster, the development of an insurance system plays an important role in the construction of a multilevel pension security system, in addition to the strategies of rural revitalization and “Healthy China.” The constructed system is a key aspect of China's accelerated construction of a new development paradigm featuring “dual circulation,” in which the domestic and overseas markets can reinforce each other, with the domestic market as the mainstay. Accelerating the development of commercial health insurance in China, deepening the supply-side structural reform of the insurance industry, and constantly developing new insurance tools to meet households' diversified health insurance needs will help to alleviate the precautionary savings motive and allow household consumption to continue expanding. Hence, it is of great practical significance to explore the effects of commercial health insurance on households' precautionary savings and consumption expenditure in detail, as well as the mechanisms of these effects. Based on 2015, 2017, and 2019 panel data from the China Household Finance Survey (CHFS), this paper empirically analyzes the role of commercial health insurance allocations in promoting household consumption expenditure by reducing precautionary savings. The main conclusions are as follows. First, commercial health insurance premium expenditure has a clear role in increasing the level of household consumption expenditure, but there are differences in its effects on different consumption categories. Considering the possible endogeneity problem, this paper uses the instrumental variable method to estimate the benchmark model and discusses the possible estimation biases caused by omitted variables, reverse causality, and self-selection in detail, and then deals with these biases. The results are consistent with those of the benchmark regression. This paper tests the robustness of the benchmark regression results by changing the core explanatory variables, sample groups, and estimation methods. The results still support the conclusion that commercial health insurance premium expenditure promotes household consumption. Second, our mechanism analysis shows that the allocation of commercial health insurance mainly reduces the level of household precautionary savings and thus promotes household consumption expenditure by alleviating the precautionary motives triggered by expenditure uncertainty in addition to subjective and objective health uncertainty. Third, the impact of commercial health insurance premium expenditure on household consumption is heterogeneous among households with different characteristics. In addition, the impact is generally more significant in households with low risk resistance, high background risk, low financial availability, and high financial exclusion. This paper makes three main contributions to the literature. First, we construct a two-period model including social insurance, commercial insurance, health risk, negative wealth shocks, and insurance claims to theoretically analyze the relationship between household commercial insurance premium expenditure and household consumption and savings behavior. The results provide strong theoretical support for the follow-up empirical research design and analysis. Second, this paper closely focuses on the entry point of the precautionary savings motive using subjective and objective health uncertainty, in addition to expenditure uncertainty and precautionary savings level as the mechanism variables. In addition, we examine the impact of commercial health insurance on household consumption expenditure in detail by reducing the precautionary savings motive based on CHFS microdata. The results deepen research into the impact of commercial insurance on household consumption behavior and provide a new perspective on the “mystery of household savings” in China. Third, according to individual, family, and regional characteristics, this paper examines the heterogeneous effects of commercial health insurance premium expenditure on different types of household consumption expenditure in detail, focusing on household risk resistance ability, background risk level, financial availability, and financial exclusion intensity. The results enrich the commercial insurance and household consumption literature. This paper also provides a realistic background and strategic orientations for building the new development paradigm of “dual circulation” and deepens our knowledge of the supply-side structural reform of the insurance industry in China, with a view to providing solid and effective empirical evidence and support for further improving commercial insurance protection, constructing a multilevel social security system, and allowing household consumption to continue expanding.
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