To solve the problem of 'Kan bing nan, kan bing gui' (medical treatment is difficult to access and expensive), a Harvard-led research team implemented a community-based health insurance scheme known as Rural Mutual Health Care (RMHC) in Chinese rural areas from 2004 to 2006. Two major policies adopted by RMHC included insurance coverage of outpatient services (demand-side policy) and drug policy (supply-side policy). This paper focuses on the effects of these two policies on outpatient service utilization in Chinese village clinics. The data used in this study are from 3-year household follow-up surveys. A generalized negative binomial regression model and a Heckman selection model were constructed using panel data from 2005 to 2007. The results indicate that the price elasticities of demand for outpatient visits and per-visit outpatient expenses were -1.5 and -0.553, respectively. After implementing the supply-side policy, outpatient visits and per-visit outpatient expenses decreased by 94.7 and 55.9%, respectively, controlling for insurance coverage. These findings can be used to make recommendations to the Chinese government on improving the health care system.
