An Estimation of the Price Elasticity of Medical Care Demand
Evidence from Japanese Policy Reforms during 40 Years

Yasushi Iwamoto and Kensaku Kishida
Kyoto University

    How medical care expenditures responds to recent policy reforms raising out-of-pocket expenses has been an important policy debate. In assessing the behavioral response, researchers has faced a difficulty caused by the fact that Japan has achieved the universal health insurance since 1961, because it is difficult to get sufficient variation in medical prices under the universal health insurance.

    This paper aims to develop another way of estimating the price elasticity of medical care in Japan by gathering events of natural experiment in nearly forty years. Our empirical method utilizes some peculiar features of the Japanese health insurance market. First, the Japanese health insurance system consists of many subsystems, which are operated separately. We thus find 19 cases of health insurance reforms that changed an out-of-pocket payment rule of a subset of the population. These reforms make it possible for us to find a control group, who is not affected by the policy change. The availability of the control group gives us an opportunity of employing the difference-in-difference method. Second, since the public health insurance system is a single payer of the medical care market, comprehensive monthly data of payments to medical institutions have been compiled. Although they are aggregated, their coverage of long period helps us gather many natural experiments, which are not provided by micro data or survey data. Third, the health insurance subsystems employ the same rule of medical care coverage and of reimbursement to providers. This fact saves us controlling for these aspects, which can be a serious concern under the market with private health insurances.

    Evidence from a variety of natural experiments spanning a wide range of time horizon shows an empirical regularity. The medical care expenditure responds to how much patients pay out of their pockets. Most of our estimates of the elasticity of medical care with respect to the money price range from -0.1 to -0.3. The Japanese behavioral response is roughly comparable with other countries.