When Income Declines and Morbidity Rises: An Inquiry into Consumption Smoothing in the Transition to Retirement in China

Florian Paulsen

doi:10.21467/ajss.8.1.193-204

Authors

Florian Paulsen College of Social Sciences, National Chengchi University, Taiwan https://orcid.org/0000-0002-2165-8683

DOI:

https://doi.org/10.21467/ajss.8.1.193-204

Abstract

China still relies on out-of-pocket (OOP) medical spending, having a high prevalence of catastrophic payments with large poverty impacts for individuals. Taking age-associated morbidity into account, people of an advanced age encounter health-related income shocks more often than younger cohorts. Exploiting the Harmonized China Health and Retirement Longitudinal Study (CHARLS), I use a fixed effects regression model to investigate whether pensions and health insurance allow for consumption smoothing in the presence of health shocks. I provide suggestive evidence that pensions slightly decrease non-food consumption when health shocks occur. Moreover, health insurance does not seem to completely substitute costly smoothing mechanisms. I record an ongoing trend of increasing OOP spending on hospitalization, with health insurance reducing these by 19 percent. Financial transfers from family members remain an important unofficial insurance channel for households to cope with health shocks.

Keywords:

Health Insurance, Pension, Consumption Smoothing

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