Elsevier

Journal of Public Economics

Volume 99, March 2013, Pages 1-23
Journal of Public Economics

Effects of universal health insurance on health care utilization, and supply-side responses: Evidence from Japan

https://doi.org/10.1016/j.jpubeco.2012.12.004Get rights and content

Abstract

We investigate the effects of a massive expansion in health insurance coverage on health care utilization and supply-side responses, by focusing on universal health insurance introduced in Japan in 1961. There are two major findings. First, health care utilization (measured in terms of admissions, inpatient days, and outpatient visits to hospitals) increased significantly. Second, we also find a supply response but the size of the supply response differs across service types: while the number of beds increases, effects on the number of medical institutions, physicians, and nurses are either negligible or inconclusive. Our results suggest that countries planning a large expansion in health insurance coverage would need to generate sufficient financial resources to cover the surge in health care expenditures, both in the short and long run. Our results also indicate that any slowdown in the supply-side response may constrain the ability of the health care system to meet increased demand.

Highlights

► We examine the introduction of universal health insurance in Japan in 1961. ► Expanded insurance coverage increased healthcare utilization drastically. ► Increases in the supply of health care services were smaller than the demand. ► The size of the supply response differs across types of services. ► No evidence of reduced mortality rates, at least in the short term.

Introduction

Most developed countries have implemented some form of universal public health insurance system to ensure that their entire population has access to health care. Even the United States, a rare exception, is moving towards near-universal coverage through health care reform.2 Despite the prevalence of universal health care, most studies on the impact of health insurance coverage on utilization and health have been limited to specific sub-populations, such as infants and children, the elderly, and the poor.3

This paper studies the impact of a large expansion in health insurance coverage on utilization and health by examining the case of Japan, which achieved universal coverage for its entire population in 1961. We identify the effects of health insurance by exploiting regional variations in health insurance coverage prior to the full enforcement of universal coverage. In 1956, roughly one-third of the population was not covered by any form of health insurance, and the proportion of the uninsured population ranged from about zero to almost half across all prefectures. Our empirical strategy identifies changes in outcome variables in a prefecture in which the enforcement of universal coverage had a large impact, relative to a prefecture in which the impact was smaller.

This study has several advantages over those in existing literature. First, since universal health insurance was achieved as early as 1961 in Japan, we can examine the impact of health insurance expansion in the long term. Since the effects of such a large policy change may emerge with lags, it is important to examine the long-term impact, in order to capture the overall implication of a large policy change. Second, our study of large coverage expansion enable us to examine the case of general equilibrium effects, rather than solely partial equilibrium analysis such as the RAND Health Insurance Experiment (hereafter, RAND HIE). Finally, we provide a more detailed analysis of supply-side responses to large demand shocks by investigating several outcomes that have not been explored extensively in previous studies, such as the number of physicians.4

We obtain two key findings. First, we find that the expansion of health insurance coverage results in large increases in health care utilization, measured in terms of admissions, inpatient days, and outpatient visits to hospitals. For example, our estimates suggest that the introduction of universal health insurance increased inpatient days by 7.3% and outpatient visits by 12.6%, from 1956 to 1961. The long-term impact is even larger: the estimated increase in inpatient days and outpatient visits from 1956 to 1966 was 11.6% and 25.1%, respectively.

Second, we find that supply-side responses to demand shocks differ across the types of services supplied. While the expansion of health insurance coverage did not increase the number of clinics and nurses even in the long term, the number of beds increased in response to the expansion in health insurance coverage. Our results on the number of hospitals and physicians are mixed and sensitive to the way in which we control for regional time trends. We observe a robust positive effect only on the number of beds; probably because it is less costly for existing hospitals to add beds than for new hospitals and clinics to pay large fixed costs to enter the market. The response of the number of physicians and nurses is weaker possibly because their supply is limited by the capacity of medical and nursing schools. Furthermore, we find that even the number of beds increased at a slower rate than increases in health care utilization.

This paper is related to several strands of literature. The first relevant body of literature comprises studies on the effects of health insurance on utilization and expenditure. The pioneering works of the RAND HIE typically find modest effects of individual-level changes in health insurance on health care utilization and expenditure (Manning et al., 1987, Newhouse and the Insurance Experiment Group, 1993). In contrast, Finkelstein (2007) examines the impact of the introduction of Medicare in 1965, and finds a much larger effect on aggregate spending than that predicted by the RAND HIE, by virtue of individual-level changes in health insurance. Finkelstein (2007) attributes this larger effect to a shift in supply induced by market-wide changes in demand. Our study of large coverage expansion also examines the case of general equilibrium effects, rather than partial equilibrium analysis such as the RAND HIE.

This paper is also related to a growing body of literature that examines the effect of a large health insurance coverage expansion on various outcomes in developing countries such as Mexico, Colombia, Thailand, and Taiwan.5 Under significant credit constraints in developing countries, health care utilization without insurance can be inefficiently low (Miller et al., 2009). Japan's per-capita gross domestic product (GDP) in 1956 was about one-quarter of that of the United States at that time.6 Thus, our estimates may be more relevant to developing xcountries that are currently considering a massive expansion in health insurance coverage than to those of existing studies on developed countries such as the United States.7 Our results show that countries planning to drastically expand health insurance coverage need to set aside enough financial resources to cover the anticipated surge in health care expenditures in both the short and long run. Another implication of our results is that a slow supply-side response can constrain attempts to meet the demand increase induced by large policy changes.

The rest of the paper is organized as follows. Section 2 briefly reviews the history of Japan's universal health insurance system up to the 1960s, and describes our simple conceptual framework. Section 3 describes the data we use, and Section 4 presents the identification strategy. Section 5 shows the main results for utilization. Section 6 analyzes the supply-side responses to changes in demand. Section 7 concludes the paper.

Section snippets

History of health care system in Japan8

Japan's public health insurance system consists of two parallel subsystems: employment-based health insurance and the National Health Insurance (hereafter, NHI). Combining the two subsystems, Japan's health insurance program becomes one of the largest in the world today, covering nearly 120 million people, and making it almost three times as large as Medicare in the United States, which covers 43 million people (The Centers for Medicare and Medicaid Services, 2010).

Employment-based health

Data

Our data has been derived from various sources. Although the decision to join the NHI was made at the municipality level, municipality-level data are not available for the outcomes and explanatory variables. Thus, our unit of observation is the prefecture year. It is important to note that our analyses at the prefecture level can capture changes caused by entry and exit of medical institutions, unlike studies that rely on hospital-level data. There were 46 prefectures in Japan during our period

Identification strategy

Our identification strategy is akin to that of Finkelstein (2007). We exploit variations in health insurance coverage rates across prefectures in 1956, 1 year prior to the start of the Four-Year Plan to achieve universal coverage by 1961. The basic idea is to compare changes in outcomes in prefectures where the implementation of universal coverage led to a larger increase in health insurance coverage, to prefectures where it had a smaller effect.

As discussed earlier, health insurance coverage

Basic results

Fig. 7 plots the estimated λt′s from Eq. (3) without prefecture-specific linear trends for the following three dependent variables serving as measures of health care utilization: log of admissions, inpatient days, and outpatient visits. Because 1956 is the reference year, λ56 is set to 0 by definition. Therefore, the coefficient in each year can be interpreted as the relative change in outcomes from 1956 that would have resulted if the expansion in health insurance coverage had increased the

Results on Supply-Side Response

Given the increase in utilization in response to the expansion of health insurance coverage in Japan, the next question is whether the supply side adequately accommodated a drastic increase in the demand for health care. Understanding this supply-side response is particularly important, since one of the major concerns regarding a massive expansion in health insurance coverage is a shortage of human capital, including physicians and nurses. 37

Conclusion

We have estimated the impact of a massive expansion in Japan's health insurance program on health care utilization and health outcomes in the country. We find substantial increases in health care utilization measured in terms of admissions, inpatient days, and outpatient visits to hospitals. We then investigate corresponding supply-side responses, as argued in Finkelstein (2007). While we do not find that the expansion of health insurance induced the market entry of hospitals and clinics –

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    We are especially grateful to editor and two anonymous referees who significantly improved out paper. We also thank Douglas Almond, Kenneth Chay, Janet Currie, Amy Finkelstein, Michael Grossman, Chie Hanaoka, Hideki Hashimoto, Kazuo Hayakawa, Mariesa Herrmann, Takahiro Ito, Wojciech Kopczuk, Amanda Kowalski, Ilyana Kuziemko, Robin McKnight, Sayaka Nakamura, Yasuhide Nakamura, Haruko Noguchi, Seiritsu Ogura, Fumio Ohtake, Masaru Sasaki, Miguel Urquiola, Yoichi Sugita, Till von Wachter, Reed Walker, Hiroshi Yamabana, and the participants of Asian Conference of Applied Microeconomics, Kansai Labor Workshop, Applied Econometrics Workshop, NBER Japan project meeting, 22nd annual East Asian Seminar on Economics, and the seminars at Nagoya City University, University of Tokyo, Hosei University, Yokohama National University, Columbia University, IPSS, and Keio University for their helpful comments. Tomofumi Nakayama and Davaadorj Belgutei provided excellent research assistance. All errors are our own.

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