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Equilibrium labor market effects of non-contributory health insurance schemes

Abstract

Universal health coverage is intended to protect individuals against health and financial consequences of adverse health events. Not all countries provide social health insurance and this is particularly an issue in developing economies where individuals often lack resources to purchase essential healthcare. Developing countries, for example, Peru, Colombia and Mexico have implemented such system in the past decade. Other countries like Brazil began implementation of SUS (Brazil's Universal Health Insurance) since 1988. In particular, Mexico introduced Seguro Popular (SP) program in 2002, a non-contributory health insurance that was directed to half of the country's population, uncovered by social protection or employer-provided health insurances. To the extent that SP is a transfer to informal sector workers and the nonemployed, and a tax to formal sector workers, it may have changed the incentives for individuals to participate in the labor market and in which sector to work (formal or informal). Our goal is to study the impacts of SP on labor market.This will be done by structurally estimating a labor market model that allows us to address three main questions (i) How much of the increase in informality in Mexico is due to the introduction of non-contributory health insurance?, (ii) Do individuals value health insurance?, and (iii) What are the welfare impacts of increases in the value of non-contributory health insurance?. The model will be fitted to the Mexican Employment data and used to simulate changes in welfare, employment, informality and wages of different non-contributory health insurance policies. The results will shed light on whether and how health reforms extending coverage to individuals in the informal sector or out of the labor force can promote welfare, employment and labor formality. Whether the results of the reform in Mexico can be generalized or extended to other settings is an empirical question. I will exploit the reform introduced in Brazil by the Programa Saúde da Família (PSF). From 1994, PSF aimed to promote coverage of primary care services provided by the public system wasimplemented across municipalities in the country. I will perform similar analysis as done for Mexico so we can compare Mexico and Brazil results. (AU)