In developing countries, medical costs associated with unexpected illness are an important source of economic risk confronting households. Health insurance expansions are therefore a public policy priority, but they also produce socially undesirable consumer incentives for wasteful medical care use. This paper studies Colombia’s Régimen Subsidiado, the first major developing country effort to expand insurance without sacrificing efficiency. Using a regression discontinuity approach, we find that by improving supply-side incentives through high-powered health insurance contracting, Colombia has provided risk protection with minimal wasteful consumption – and it has also increased the use of services with positive externalities (with small associated gains in population health).