With its transition to a market-oriented economy, China has gone through significant changes in health care delivery and financing systems in the last three decades. Since 1998, a new public health insurance program for urban employees, called Basic Medical Insurance Program (BMI), has been established. One theme of this reform was to control medical service over-consumption with new cost containment methods. This dissertation attempts to evaluate the effects of the reformed public health insurance on health care utilization, with in-depth studies.

In the analytical investigation, I formulate a health care demand model based on the structure of health care delivery and health insurance systems in China. It is assumed in the model that physicians have pure monopoly power in determining patients' health care utilization. The major inference is that the insurance co-payment mechanism can not reduce medical service over-utilization effectively without any efforts to control physicians' behavior. Meanwhile, I use the calibrated simulation to demonstrate my hypothesis in the theoretical model. The main implication is that physicians' incentive to over utilize medical services for their own benefits is significant and severe in China.

In the empirical studies, I explore the extent to which the public health insurance status affects individual's medical service utilization and medical expenditure over the period when the new urban public health insurance has been in effect. This study uses the 1997 and 2004 waves of China Health and Nutrition Surveys (CHNS) data with relevant econometric models such as the two-part model and difference-in-difference model. The empirical results provide evidences that (1) public health insurance in China has increasing effect on individual's medical service utilization and medical expenditure, i.e., there exists patients' ex post moral hazard; (2) China's public health insurance reform reduced the increasing effect of public insurance on the probability of utilizing medical services, i.e., reduced patients' ex post moral hazard; (3) China's public health insurance reform enlarged the increasing effect of public insurance on medical service expenditure, implying there exists physicians' severe incentive to over utilize medical services for their own benefits in China, which is consistent with the conclusions in my theoretical analysis.