The role of supply responses in public insurance expansion: evidence from the New Cooperative Medical Scheme in China

In our study, we explore the relationship between the New Cooperative Medical Scheme (NCMS) - a significant health insurance expansion in rural China - and healthcare supply, utilizing a nationwide dataset spanning from 2004 to 2011. Our findings reveal notable positive supply-side responses to the NCMS insurance expansion, characterized primarily by a substantial increase in the number of inpatient beds at township health centers serving rural residents. Moreover, we estimate large increases in the number of county hospitals; however, these effects lack statistical significance. These findings indicate that the surge in demand prompted by NCMS enrollment gain is associated with greater healthcare investment by existing rural providers rather than encouraging new providers to enter the market. Furthermore, when adjusting for these supply-side responses, we find that responsive healthcare supply plays a crucial role in mediating the effectiveness of the NCMS: the growth in inpatient care utilization following the NCMS is significantly mitigated once the availability of inpatient beds is controlled. These insights underscore the universal importance of responsive healthcare supply in the effectiveness of public insurance expansions.