Unintended Effects From the Expansion of the Non-Contributory Health System in Peru

IMF Working Papers, April 23, 2021

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Canonical URL: Unintended Effects From the Expansion of the Non-Contributory Health System in Peru

Over the last two decades, the Peruvian government significantly augmented coverage of the non-contributory public health care system Seguro Integral de Salud (SIS).
Expansion improved welfare and public health indicators by limiting the risk of catastrophic health-related costs for previously uninsured individuals and allowing for appropriate treatment of illnesses.
Expansion also generated unintended consequences for informality, tax revenues, and GDP because a few formal agents bear costs for a service that the majority of (informal) agents receive for free.

A general equilibrium model calibrated for Peru is used to simulate the expansion of SIS and quantify unintended effects.

Overall welfare increases following the expansion of SIS.
Informality rises by 2.7 percent.
Tax revenues decrease by roughly 0.1 percent.
Output (GDP) decreases by roughly 0.1 percent.
The economic relevance of these aggregate results appears negligible given the extent of the expansion in eligibility.
This muted aggregate impact arises because the expansion of coverage was mostly funded by reducing the spending per-insured person.
If public spending is increased to improve quality of service given universal coverage, the model finds larger costs.

Expanding non-contributory coverage can improve welfare and public health outcomes but may incentivize greater informality, producing small negative effects on tax revenues and output under the model calibration.
Funding strategy matters: achieving universal coverage by reducing per-insured spending limits macroeconomic distortions but may compromise service quality.
Increasing public spending to raise quality under universal coverage leads to larger fiscal and macroeconomic costs in the model, implying a trade-off between breadth of coverage and per-capita service quality.

Source: Unintended Effects From the Expansion of the Non-Contributory Health System in Peru, Jose L. Torres, April 23, 2021.