Effects of health insurance on labour supply: Evidence from the health care fund for the poor in Viet Nam

The expansion of health insurance in emerging countries raises concerns about unintended negative effects of health insurance on labour supply. This paper examines the labour supply effects of the Health Care Fund for the Poor (HCFP) in Vietnam in terms of the monthly number of work hours and the probability of employment. Employing Difference-in- Differences Matching methods on the Vietnam Household Living Standard Survey 2002-2006, we show that HCFP, which aims to provide poor people and disadvantaged minority groups with free health insurance, has a positive labour supply effect in the short run. However, in the longer run, the net effect becomes negative due to the income effect. This is manifested in both average work hours per month and the probability of employment albeit the effect on the latter is statistically insignificant. Interestingly, the finding of the income effect is mainly driven by the non-poor recipients living in rural areas. This raises the question of targeting strategy of the programme to avoid unintended labour supply distortion.

JEL Classifications: I13, J22

Keywords: health insurance, labour supply, Health Care Fund for the poor, Vietnam