1 Caveats

Although the HIE is the most important RCT on health insurance conducted to date, we must be
careful about its implications for today heath reform in Quebec. First, the study was completed more
than three decades ago so the health care system, both in the US and in Canada, has signicantly
changed since then. Second, the experiment only studied the impact of cost-sharing on the demand
of health care. Price and quantity also depend on how the supply of heath care changes with the ban
of medical user fees. If physicians reduce the quantity of services oered because they can't aord the
higher costs this will negatively impact the use of health care services. Third, the principal form of
insurance studied in the HIE, that is coinsurance, diers fundamentally from a co-pay. Coinsurance
makes the entire demand curve more inelastic whereas co-pay only shift demand when the price
is above the user-fee. This means that the Quebec policy will not have any impact on the heath
care use of people that didn't value this services in the rst place, thereby reducing the impact of
the ban. Fourth, in the HIE people were randomly assigned to dierent health insurance plans. In
reality of course the choice of a health insurance plan is a personal, i.e. endogenous, choice. People
consuming user-fee intensive services in Quebec might be more or less responsive to price change
than the general population due to many dierent factors.

2 Estimating the elasticity of demand for health care in Quebec

The idea is to compare changes in health expenditures following the change in eective price for
dierent health services. If the policy change was a pure exogenous shock, we could estimate the
elasticity of demand for health care using the following regression :
Qjt = α + λt + βcjt + jt j = 1, . . . , m t = before, after

where Qjt is a proxy for the overall consumption of health service j in Quebec at time t, cjt is
the co-payment for this service and λt is a xed eect for time. With perfect policy compliance cjt
should be zero for every health service j after the change. Once estimated by OLS, the estimated
coecient β̂ can be multiplied by the ratio of average co-payment c̄ to average health expenditures
Q̄ to obtain an estimated acrelasticity.
That said, since we suspect endogeneity due to possible supply shifts and self-selection it would
be a good idea to instrument cjt . The goal is to nd a variable that is correlated with co-payments
but uncorrelated with any other factors aecting health expenditures. Easier said than done.

3 Conclusion
In the end, assessing whether this policy change will have positive impact on welfare comes down
to comparing the benets and the costs. As highlighted by the HIE, reducing the price of heath
care, via a ban on medical user-fees, creates a moral hazard loss, i.e. an increase of the use health
care services above what is ecient. However, this is only half of the story since price reductions
also create gains by reducing expenditure risk. As long as people willingness to pay for insurance is
downward sloping there is a gain from reducing insurance price. If the gains more than oset the
losses this policy change creates welfare. Otherwise it destroys welfare. Ideally, we like to perfectly
forecast this ex-ante but the realized impacts can only be measured ex-post.