The impact of basic health insurance on household consumption

Basic medical insurance is a key institutional arrangement for unlocking the latent consumption capacity of households in China. Drawing on panel data from the China Family Panel Studies (CFPS), this paper systematically examines the impact of basic medical insurance on household consumption and its underlying mechanisms. The study finds the following: Basic medical insurance has a significant positive effect on household consumption. Its mechanism of action is primarily manifested through three channels: first, the income effect, which improves residents’ health capital stock and enhances their earning capacity; second, the substitution effect, which reduces the uncertainty of out-of-pocket medical expenses and releases precautionary savings; and third, the trust effect, which strengthens residents’ institutional trust in the government and improves their future expectations. This study provides new micro-level evidence for understanding how universal social security systems unlock residents’ consumption potential, and offers targeted policy insights for deepening the reform of the basic medical insurance system and enhancing the precision and effectiveness of social security for the people.