The proposal sparked sharp criticism from Deber Raiser, a professor in the department of health administration at the University of Toronto. Raiser argued that small problems would be neglected if people had a financial incentive not to see a doctor. "The whole idea behind health promotion—making people healthy instead of treating them when they're sick—is that you don't want people to come in until they have a heart attack or a diabetic coma." <Jane Coutts, "Group finds support in poll for health allowances idea," The Globe and Mail, November 13, 1997.>

The criticism seems pretty effective. Creating a disincentive for health care abuse may sound like a good idea, but can it work? Does the average person really know the difference between a flu and meningitis, a mole and melanoma, heart burn and a heart attack? Encouraged not to use the system, could a patient not then under use health care, resulting in higher long term costs?

This argument is made by many other Canadian health care "experts." From University of British Columbia's health economist Bob Evans <Robert G. Evans, To Chelm and Back? Change & Resistance: Proceedings of the Sixth Canadian Conference on Health Economics, pp. 6-31.> to family physician and author Michael Rachlis, <Michael Rachlis and Carol Kushner, Strong Medicine: How to Save Canada's Health Care System, Ontario: Harper Collins, 1994, pp. 154-160.> most of the "experts" agree that health care ought to be free because ordinary citizens have no way of properly judging their own health care needs. The argument made by such "experts" is so effective that, of the major academic health policy centres in Canada, not a single one researches the concept of user fees or health allowances as a mechanism of reform. <Based upon a conversation with Professor Ake Blomqvist, University of Western Ontario.>

The argument is persuasive; its implications, profound. There's just one problem—it's wrong.

In the 1970s, the California-based RAND think tank set out to resolve this very issue. They tapped the expertise of some of the top scholars in the world to design an experiment that would measure the effects of price on consumption and health outcomes. The RAND Health Insurance Experiment is one of the largest and longest running social science research projects ever completed. Headed by Harvard Professor Joseph P. Newhouse, it involved approximately 2,000 non-elderly families in the US, and ran from 1974 to 1982. The cost was a staggering $136 million (in 1984 US dollars).

The most interesting aspect of the RAND Health Insurance Experiment for the Canadian health care debate involves the use of medical services (additional work was done on dental and mental health services). Families were assigned two fundamentally different types of health insurance plans: a free care plan and a user-fee plan. Individuals with the free care plan paid no out-of-pocket expenses while the user fee group paid a certain percentage of their health costs up to a maximum of $1,000 (depending on their family income). In other words, individuals with the free care plan never paid a penny for any of their expenses: visits to the family physician were as free as a visit to the emergency room. The user-fee program was different in that individuals did pay part of their expenses out-of-pocket.

The RAND Health Insurance Experiment serves as an excellent test of the influence of price on health care demand. If health care is not influenced by price, there should be no difference in the expenditures of the free care group and the user-fee group. However, if price does influence demand, expenditures would be lower with the user-fee group, because these people had an incentive to spend less money.

So what did RAND find out? It found that the "use of medical services responds unequivocally to changes in the amount paid out of pocket." <Joseph P. Newhouse and The Insurance Experiment Group, Free for All? Lessons from the RAND Health Insurance Experiment, Cambridge, Massachusetts: Harvard University Press, 1993, p. 40.> Individual expenses in the free care plan were significantly higher than those in the user-fee group. Expenses were 45 percent higher for the free care individuals.

Comparing the free care group with the 95 percent user-fee group (up to $1000), it was found that in any given year, the free care people were more likely to:

• use medical services (28% higher probability),

• to see a physician more regularly (67% more visits), and

• to get admitted to the hospital (30% higher probability)

Even when people paid a rather small user fee (25% of total costs), there was a noticeable drop in health expenditures—10% less than the free plan.

The conclusion? Price influences demand. <The RAND study is not alone in its sweeping conclusions on the effects of user fees on patient use of health care services. See Martin Feldstein, "Econometric Studies in Health Economics," Frontiers of Quantitative Economics, North Holland Press: the Netherlands: 1974; and R.G. Beck, "The Effect of Co-Payment on the Poor," The Journal of Human Resources, vol. IX.>

But what affect does having to pay for health care services have on individuals' health status? After all, it's all well and good that they consumed fewer medical services, but were they sicker as a result?