Universal health coverage is a key global policy goal. Yet in many developing countries, access to health insurance remains tied to formal employment, leaving informal workers and the poor without protection, often with adverse consequences for health outcomes (Bennett et al. 1998). Mexico’s Seguro Popular (SP), introduced in the early 2000s, was one of the most ambitious efforts to address this gap. It extended free public health insurance to those outside the formal sector, covering nearly half the population that previously lacked insurance. A central question is how such policies affect labour markets. Providing free insurance outside formal jobs could reduce incentives to work formally, potentially increasing informality. At the same time, it may improve financial protection and access to care. This column asks how Seguro Popular affected employment and informality, and – crucially – how much households actually valued it, and what that tells us about the effectiveness of free insurance as a policy tool.

Health insurance and the informality challenge

In many developing countries, access to health insurance is tightly linked to formal employment. Workers in the informal sector – often the majority of the labour force – typically lack health coverage and social protection. This creates a dilemma for policymakers. Extending free or subsidised health insurance to the uninsured promises major benefits for health and financial security. But it may also distort labour market incentives by reducing the appeal of formal jobs that bundle wages with benefits.

Mexico before Seguro Popular exemplified this problem. Health insurance was largely available only through formal employment, leaving informal workers and those not employed exposed to potentially catastrophic health costs. By 2002, roughly half of Mexico’s population lacked any form of health insurance. Seguro Popular aimed to close this gap. Introduced in 2002 and rolled out gradually across municipalities, SP provided free health coverage to individuals not enrolled in social security – primarily informal workers and the nonemployed. In practice, it acted as a transfer to households outside the formal sector while also, implicitly, reducing the relative advantage of formal jobs that came bundled with health benefits.

What the evidence shows

Evidence from the rollout of Seguro Popular shows small but measurable labour market effects. In joint work with Rita Ginja and Gabriella Conti (Conti et al. forthcoming), my co-authors and I show that among less-educated households with children, access to SP increased the likelihood that no-one in the household held a formal job by about 2.3 percentage points, roughly a 3.5% increase. This shift toward informality is driven mainly by households in good health, suggesting that healthier families are more willing to trade formal employment for access to free public insurance. Related evidence has also pointed to increased informality among specific groups, particularly women with caregiving responsibilities (Del Valle 2015).

For other groups – including less-educated households without children and more-educated households – we find no significant effects on informality, employment, or wages. Importantly, we also find no robust evidence that Seguro Popular affected wages in either the formal or informal sectors at the aggregate level.

Why are the effects so small?

The key to understanding these modest labour responses lies in how households value the programme. While free health insurance provides clear benefits, it may not be valuable enough – relative to wages and job stability – to significantly alter work decisions.

To quantify this, our analysis estimates households’ willingness to pay for Seguro Popular using a model of how couples make work decisions jointly, accounting for job search and health insurance access, following Dey and Flinn (2008). The findings are striking: across all groups, households value SP at less than its full fiscal cost to the government. For low-education households, the estimated willingness to pay ranges from about 0.5 to 1.3 pesos per one peso of government spending, depending on assumptions about savings from reduced uncompensated care. When gross costs are considered, households value SP at less than its full fiscal cost to the government. For more educated households, the gap is even larger.

This result directly explains the limited behavioural response: if households do not place a high value on a benefit, they will not dramatically change their behaviour to obtain or retain it, however important the underlying service may be.

Implications for welfare and policy

These findings point to a mixed picture of the program’s impact. On the one hand, Seguro Popular significantly expanded access to health care and improved financial protection for millions of households. On the other, its effects on labour markets were modest, suggesting that concerns about large increases in informality may be overstated. The relatively low valuation of the program implies that welfare gains may be smaller than its fiscal cost would suggest. There is also some evidence of modest productivity losses, as a limited number of workers move away from formal, higher-productivity jobs.

This pattern is not unique to Mexico. Evidence from the US shows that recipients of subsidised health insurance also tend to value it below its cost, both in the context of the Oregon Health Insurance Experiment and the Massachusetts reform (Finkelstein et al. 2019a, 2019b). The consistent finding across very different settings suggests this is a general feature of publicly provided health insurance – not a quirk of any one program or country.

Conclusion

Seguro Popular dramatically expanded health insurance coverage in Mexico, extending protection to millions who previously lacked access in a system tied to formal employment. At the same time, its broader effects were modest. Labour market responses were small, with limited increases in informality concentrated among specific groups. This reflects a central finding: households value the insurance benefit, but not enough to substantially alter their employment decisions.

More broadly, the results highlight the importance of looking beyond coverage numbers when evaluating social programs. While Seguro Popular differs from programs such as Medicaid – notably in not being means-tested and in targeting informality rather than poverty per se – the evidence points to a common challenge. Publicly provided health insurance often delivers welfare gains below its fiscal cost. Understanding how households value these benefits is therefore central to designing policies that are both effective and fiscally sustainable, particularly in economies where informal work is widespread.

Editors’ note: This column is published in collaboration with the International Economic Associations’ Women in Leadership in Economics initiative, which aims to enhance the role of women in economics through research, building partnerships, and amplifying voices.

References

Bennett, S, A Creese, and R Monasch (1998), “Health insurance schemes for people outside formal sector employment”, World Health Organization, Geneva.

Conti, G, R Ginja, and R Narita (forthcoming), “The value of health insurance: A household job search approach”, Journal of Labor Economics.

Del Valle, A (2015), “From caring to work: The labour market effects of noncontributory health insurance”, VoxEU.org.

Dey, M and C Flinn (2008), “Household search and health insurance coverage”, Journal of Econometrics 145(1–2): 43-63.

Finkelstein, A, N Hendren, and E F P Luttmer (2019a), “The Value of Medicaid: Interpreting Results from the Oregon Health Insurance Experiment”, Journal of Political Economy 127(6): 2836–2874.

Finkelstein, A, N Hendren, and M Shepard (2019b), “Subsidizing Health Insurance for Low-Income Adults: Evidence from Massachusetts”, American Economic Review 109(4): 1530–67.