A DID analysis of the impact of health insurance reform in the city of Hangzhou.

The purpose of this study is to examine the impact of the 2003 reform of the health insurance system (in particular, the reduction in the co-payment amount) on the consumption of inpatient medical services in the city of Hangzhou using a differences-in-difference (DID) empirical strategy. The results confirm that private-sector employees (PSEs) (who were much more directly affected by the 2003 reform) were much more responsive to the reform than government employees. The growth rate of overall inpatient expenditures of PSEs (including retirees) increased by 26.4 percentage points more than that of government employees, which implies a relatively high (in absolute magnitude) price elasticity of demand for inpatient care of -1.10. Moreover, the growth rate of overall inpatient expenditures of currently employed PSEs increased by 37 percentage points more than that of government employees. Thus, the reform was effective in increasing PSEs' consumption of inpatient medical services, thereby reducing inter-occupational inequities. However, a gap still exists between government employees and PSEs in their consumption of inpatient medical services, and thus further reforms of the system (for example, further reductions in inter-occupational inequities) are needed.