Impact of Health Insurance for the Poor on Labor Market Out comes: Evidence from Indonesia.

I examine the impact of a health insurance program for the poor implemented in Indonesia in 2005 on labor supply and informal work measured by employment status outside of the private and public formal sector. As a first step to its ambitious plan for universal coverage, this program extended subsidized health insurance coverage to a large proportion of Indonesia’s poor and near-poor population. Using a rich longitudinal survey, I estimate the average treatment effect on the treated using a combined propensity score matching method with difference in differences. The richness of the data allows me to control for a set of observable characteristics used by the government to allocate the benefit as well as an extensive combination of controls at the individual, household and community level. I find a significant negative impact on labor supply. This impact is driven by women, both at the intensive and extensive margin of labor supply. These results are in line with the fact that individuals with higher value for health insurance are more inclined to modify their labor market behavior. This decrease in labor supply has important policy implications as it may cause a negative impact on economic development, poverty and socioeconomic status of women. The results are not suggestive of an impact on informality. This lack of an effect on informal status is encouraging for developing countries in the verge of implementing universal care reform