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The Macroeconomic and Welfare Implications of China ’ s Rural Health Insurance and Pension Reforms

We assess the impact of recent rural health insurance and pension reforms on macroeconomic outcomes and welfare in a dynamic general equilibrium model calibrated to the Chinese economy. These reforms provide modest rural pensions and reimbursement of a portion of healthcare costs, but at rates that are lower than those in place in the urban sector. We show the reforms lead to modest reductions in labor supply and savings and lower income per capita but large welfare improvements overall. The welfare gains are driven by rural health insurance providing relief from the risk of catastrophic medical expenditures that reduce household savings and force long working hours. In contrast, the pay-asyou-go rural pension results in a small net welfare loss due to induced changes in savings behavior. Our welfare results hold when incorporating the projected old-age dependency ratio for the year 2050 and increasing reimbursement rates to match current urban levels. JEL classifications: E62, H55, I13