Wealth, Education and Demand for Medical Care: Evidence from Rural China

Since the 1980s health care reform in rural China, the coverage of public health insurance has considerably diminished and the price of medical service continues to increase. Using data from the 1991 and 1997 China Health and Nutrition Surveys, this paper examines the rural residents’ demand for medical care and illustrates the impact of the reform. Our study reveals a positive relationship between education and health status, and a negative relationship between education and medical expenditure. Simultaneously, the income effect of medical care is inelastic (0.31), which means that individuals with lower income are burdened with higher medical expenditure. In addition, the income effect significantly influences the decision to seek care when ill, which implies a credit constraint in health care consumption. There has been a persistent increase of inequality in rural China. Our study suggests that the situation is much worse if we take into account the health inequality and higher medical expenditure of the poor people.