Impact of Chronic Disease Shocks on Household Consumption in China: The Role of Multi-Level Health Insurance

Expanding and enhancing the quality of consumption is crucial to satisfy the increasing demand for a higher standard of living. However, the rising risk of chronic diseases impacts not only the level of consumption but also impedes the optimization of consumption patterns. This research utilizes Staggered Difference-in-Differences (DID) and Difference-in-Differences-in-Differences (DDD) models to evaluate the effects of chronic disease shocks on both the levels and structures of household consumption, leveraging data from the China Family Panel Studies (CFPS) across four survey waves from 2012 to 2018. Additionally, the study examines the effects and mechanisms of the multi-level health insurance system in mitigating the impact of chronic disease shocks. The study discerns a significant decrease in household consumption expenditure, obstruction in the enhancement of consumption structures, and a constriction of consumption diversity attributable to chronic disease shocks. Heterogeneous analysis reveals that the impact of chronic shocks varies across factors such as age, capital endowment, urban versus rural residence, and the availability of healthcare resources. Moreover, the analysis highlights the heterogeneous mitigating effects of the multi-level health insurance system, particularly through diminishing out-of-pocket medical expenses and the propensity for precautionary savings. The findings accentuate the imperative for the enhancement and equalization of the multi-level health insurance system to fortify household consumption, offering significant policy insights for the realization of the “Healthy China” vision. JEL Classification: P36, D12.