Health Care Demand and Impact of Policies in a Congested Public System

Abstract

Increasing health care costs and long waiting times for public care are growing sources of concern for governments in industrialized countries. In this paper, we investigate the impact of waiting times on the demand for care, ask whether allowing congestion to increase in order to contain ever growing health care costs is socially desirable, and predict the expected outcome of policies aiming at the reduction of congestion and costs of care. We develop a macroeconomic model in which agents who differ in terms of age, health capital and wealth choose whether or not to use a public health care system funded through income taxes. Calibrating our model with Quebec data, we find that the aggregate demand for care is quite inelastic with respect to health care congestion. Waiting times for care thus constitute a weak rationing device and should not be used by welfare-maximizing governments to contain costs. On the brighter side, policy simulations reveal that a 50% permanent reduction in Quebec waiting times can be achieved through a variety of fiscal measures that only moderately increase health care costs. While the choice of reform has important repercussions on the equilibrium, all such policies result in major welfare gains, with agents willing to sacrifice over 5% of their post-policy consumption to leave the existing status quo.