The demand for physician services. Evidence from a natural experiment

Abstract

This study exploits a natural experiment in Belgium to estimate the effect of copayment increases on the demand for physician services. It shows how a differences-in-differences (DD) estimator of the price effects can be decomposed into effects induced by the common average proportional price increase (income effects) and by the change in relative prices (substitution effects). The price elasticity of a uniform proportional price increase is relatively small (-0.13 for men and -0.03 for women). Substitution effects are large, especially for women, but imprecisely estimated. Despite the substantial price increases, the efficiency gain of the reform, if any, is modest.