Despite current emphasis on health insurance expansions in developing
countries, inefficient consumer incentives for over-use of medical care are
an important counterbalancing concern. However, three factors that are
more acute in poor countries (credit constraints, principal-agent problems,
and positive externalities) result in substantial under-use and misuse as
well. This paper studies Colombia’s Régimen Subsidiado, the first major
developing country effort to expand insurance in a way that purposefully
addresses these inefficiencies. Using a regression discontinuity design, we
find that Colombia’s insurance program has provided risk protection while
substantially increasing the use of traditionally under-utilized preventive
services (with measurable health gains) through high-powered supply-side
incentives.