Three Essays on Health Care free essay sample

This dissertation has been motivated by the question of how countries should optimally structure health care. Especially, there are two important economic and policy questions asked that extend beyond the area of health economics. The †¦rst is how the expansion of health insurance coverage a ¤ects the utilization and health of its bene†¦ciaries (extensive margin); the second is how generous should health insurance be (intensive margin) to balance the provision of care and †¦nancial protection against risk while containing medical expenditures. The three chapters in this dissertation aim to make empirical contributions to these ongoing research questions. First Chapter, â€Å"The E ¤ect of Patient Cost-Sharing on Utilization, Health and Risk Protection: Evidence from Japan† addresses the second question. It investigates how cost-sharing, requiring patients to pay a share of the cost of care, a ¤ects the demand for care, health itself, and risk protection among the elderly, the largest consumers of health service. Previous studies of cost-sharing have had di? culty separating the e ¤ect of cost-sharing on patients from the in†¡ uence of medical providers and insurers. This paper overcomes that limitation by examining a sharp reduction in cost-sharing at age 70 in Japan in a regression discontinuity design. I †¦nd that price elasticities of demand for both inpatient admissions and outpatient visits among the elderly are comparable to prior estimates for the nonelderly. I also †¦nd that the welfare gain from risk protection is relatively small compared to the deadweight loss of program †¦nancing, suggesting that the social cost of lower cost-sharing may outweigh social bene†¦t. Taken together, this study shows that an increase in cost-sharing may be achieved without decreasing total welfare. Third Chapter, â€Å"E ¤ects of Universal Health Insurance on Health Care Utilization, Supply-Side Responses and Mortality Rates: Evidence from Japan† (with Ayako Kondo) address the †¦rst question. Even though most developed countries have implemented some form of universal public health insurance, most studies on the impact of the health insurance coverage have been limited to speci†¦c subpopulations, such as infants and children, the elderly or the poor. We investigate the e ¤ects of a massive expansion in health insurance coverage on utilization and health by examining the introduction of universal health insurance in Japan in 1961. We †¦nd that health care utilization increases more than would be expected from previous estimates of the elasticities of individual-level changes in health insurance status such as RAND Health Insurance Experiment in the US. The two chapters addressed above focus on consumers’ incentives. Second chapter, â€Å"Supply-Induced Demand in Newborn Treatment: Evidence from Japan† (with Kiyohide Fushimi) examines the incentives faced by medical providers. Since medical providers exert a strong in†¡ uence over the quantity and types of medical  care demanded, measuring the size of supply-induced demand (SID) has been a long-standing controversy in health economics. However, past studies may underestimate the size of SID since it is empirically di? cult to isolate SID from other confounding hospital behaviors, such as changes in the selection of patients. We overcome these empirical challenges by focusing on a speci†¦c population: at-risk newborns, and we measu re the degree of SID by exploiting changes in reimbursement caused by the introduction of the partial prospective payment system (PPS) in Japan, which makes some procedures relatively more pro†¦table than other procedures. We †¦nd that hospitals respond to PPS adoption by increasing utilization and increasing their manipulation of infant’ reported birth weight, which deters mines infants reimbursement and maximum length of stay. We also †¦nd that this induced demand substantially increases hospital reimbursements without improving infant health, implying that the additional money spent has no commensurate health gains. Contents List of Figures iv List of Tables vii Acknowledgements xi Chapter 1. The E ¤ect of Patient Cost-sharing on Utilization, Health and Risk Protection: Evidence from Japan 1 1. 1. Introduction 1 1. 2. Background 7 1. 3. Data and Identi†¦cation 15 1. 4. Utilization Results 31 1. 5. Results on Bene†¦t 45 1. 6. Cost-Bene†¦t Analysis 52 1. 7. Conclusion 61 Chapter 2. Supply Induced Demand in Newborn Treatment : Evidence from Japan 85 2. 1. Introduction 85 2. 2. Background 92 i 2. 3. Data 97 2. 4. Estimation 102 2. 5. Manipulation of Reported Birth Weight 104 2. 6. NICU utilization 109 2. 7. Health outcomes and the size of the induced demand 116 2. 8. Conclusion 119 Chapter 3. E ¤ects of Universal Health Insurance on Health Care Utilization, Supply-Side Responses, and Mortality Rates: Evidence from Japan 133 3. 1. Introduction 133 3. 2. Background 139 3. 3. Data 146 3. 4. Identi†¦cation Strategy 153 3. 5. Results Regarding Utilization 158 3. 6. Results vis-a-vis Supply-Side Response 162 3. 7. Results vis-a-vis Mortality Rates 166 3. 8. Conclusion 171 References 188 Appendix A. The E ¤ect of Patient Cost-sharing on Utilization, Health and Risk Protection: Evidence from Japan A. 1. Derivation of Out-of-Pocket Health Expenditures ii 201 201 A. 2. Data Apendix 206 Appendix B. Supply Induced Demand in Newborn Treatment : Evidence from Japan 224 Appendix C. E ¤ects of Universal Health Insurance on Health Care Utilization, Supply-Side Responses, and Mortality Rates: Evidence from Japan 228 C. 1. Evidence against the Crowding-out of Employment-based Health Insurance by the NHI 228 C. 2. Impact on Household Out-of-Pocket Health Care Expenditures iii 230 List of Figures 1. 1 Age Pro†¦le of Health Insurance Type 1. 2 64 Cost-Sharing Below 70 and Above 70: Year 2008 as an Example 65 1. 3 Seasonality in Day of Birth in the Patient Survey Data 66 1. 4 Age Pro†¦le of Employment by Gender (1987– 2007 CSLC) 67 1. 5 Age Pro†¦le of Outpatient Visits 68 1. 6 Age Pro†¦le of Outpatient Visits for Selected Diagnosis (log scale) 69 1. 7 Age Pro†¦le of Inpatient Admissions (log scale)  70 1. 8 Age Pro†¦le of Inpatient Admissions with and without Surgery (log scale) 1. 9 71 Age Pro†¦le of Inpatient Admissions for Selected Diagnosis (log scale) 72 1. 10 Age Pro†¦le of Overall Mortality 73 1. 11 Distribution of Out-of-Pocket Health Expenditure in 2007 74 1. 12 Age Pro†¦le of Out-of-Pocket Medical Expenditures in 2007 75 iv 2. 1 Length of Stay in NICU by Birth Weight Range 121 2. 2 Pre and Post PPS 122 2. 3 The Birth Distribution Pre and Post PPS 123 2. 4 McCrary’ density test (NICU hospitals post PPS) s 124 2. 5 Event-study Analysis: Change in Length of Stay in NICU 125 3. 1 National Time Series of Health Insurance Coverage Rates 173 3. 2 % of Population without Any Health Insurance as of April 1956 3. 3 174 Scatter Plots of Changes in Per Capita GNP and Health Insurance Coverage Rate 175 3. 4 Time Series of Health Care Utilization 176 3. 5 Time Series of Per Capita Supply of Health Care 177 3. 6 Time Series of Age Speci†¦c Mortality Rates 178 3. 7 E ¤ect of Health Insurance Coverage on Healthcare Utilization 179 3. 8 E ¤ect of Health Insurance Coverage on Supply of Health Care 180 3. 9 E ¤ect of Health Insurance Coverage on Age-Speci†¦c Mortality Rates 181 3. 10 Mortality Rates by Time to Full Implementation of the NHI 182 3. 11 E ¤ect of Health Insurance Coverage on Mortality Rates by Treatable Diseases 183 v A. 1 Age Pro†¦les for First Time and Repeated Outpatient Visits 212 A. 2 Robustness of Results on Inpatient Admissions 213 A. 3 Age Pro†¦le for Inpatient Admissions for Selected Surgery (log scale) 214 A. 4 Age Pro†¦le for Cause-Speci†¦c Mortality 215 A. 5 Age Pro†¦les for Fraction in Good or Very Good Health 216 B. 1 The distribution of universe of birth in 1995, 2000 and 2005 (750-1750 grams) 225 vi List of Tables vii 1. 1 Summary Statistics (Ages 65-75) 76 1. 2 Formula for Cost-Sharing Below and Above Age 70 77 1. 3 Estimated Out-of-Pocket Medical Expenditure per Month 78 1. 4 RD Estimates at Age 70 on Employment, and Family Structure 79 1. 5 RD Estimates at Age 70 on Outpatient Visits 80 1. 6 RD Estimates at Age 70 on Inpatient Admissions 81 1. 7 RD Estimates at Age 70 on Mortality 82 1. 8 RD Estimates at Age 70 on Out-of-Pocket Medical Expenditure 83 1. 9 Welfare Gain from Risk Protection 84 2. 1 Hazard analysis: Year to adoption of PPS 126 2. 2 Summary Statistics by hospital groups 127 2. 3 Density Test 128 2. 4 NICU Utilization 129 2. 5 Robustness checks for length of stay in NICU 130 viii 2. 6 Mortality 131 2. 7 Treatment Intensity 131 2. 8 The size of the inducement 132 2. 9 Medical spending on other procedures 132 3. 1 Mean of Dependent and Control Variables 184 3. 2 Robustness Checks for Utilization Outcomes 185 3. 3 Controlling for Pre-existing Trend: Utilization Outcomes 185 3. 4 Robustness Checks for Supply of Health Care 186 3. 5 Controlling for Pre-existing Trend: Supply of Health Care 186 3. 6 Robustness Checks for Age Specific Mortality 187 3. 7 Controlling for Pre-existing Trend: Age Specific Mortality 187 A. 1 Top 10 Diagnosis for Outpatient Visits, and Inpatient Admissions Robustness of RD Estimates on Outpatient Visits for Selected Outcomes 217 List of PQI (Ambulatory-Care-Sensitive Conditions) 219 A. 2 A. 3 ix 218 A. 4 Robustness of RD Estimates on Inpatient Admissions for Selected Outcomes 220 RD Estimates of Inpatient Admissions by Characteristics of Hospital 221 A. 6 RD Estimate at Age 70 on Morbidity 222 A. 7 Estimated Out-of-Pocket Medical Expenditure per Month across Survey Years 223 B. 1 Log difference in density for Figure B. 1 226 B. 2 Mother’s delivery method 227 C. 1 Variable Definitions and Data Sources 233 C. 2 The Effect of the NHI Expansion on the Changes in Selfemployment Ratio 1955-1960 234 A. 5 C. 3 The Effect of the NHI Expansion on Establishment Size C. 4 The Effect of Universal health Insurance on Households Out-ofpocket Medical Expenditure x 235 235 Acknowledgements During writing this dissertation, I bene†¦ted from a number of people. First of all, I would like to thank my main advisor, Douglas Almond, for his guidance at every stage of the my research. Without his continuous encouragement through my entire dissertation, I could not complete the dissertation. Wojciech Kopczuk and Tal Gross gave me invaluable advices and supports during job market. I am also grateful to helpful comments and suggestions from Prashant Bharadwaj, Kasey Buckles, Janet Currie, Joseph Doyle, Mark Duggan, Amy Finkelstein, Kiyohide Fushimi, Michael Grossman, Hideki Hashimoto, Masako Ii, Amanda Kowalski, Ilyana Kuziemko, Frank Lichtenberg, Jason Lindo, Bentley MacLeod, Shinya Matsuda, Robin McKnight, Matt Neidell, Cristian Pop-Eleches, Heather Royer, Bernard Salanie, Miguel Urquiola, Eric Verhoogen, Till von Wachter, Reed Walker, and the seminar participants at Bank of Japan, Columbia University, McGill University, National University of Singapore, Osaka University, Simon Frazer University, University of Michigan, Uppsala University, and NBER Japan project meeting. Special thanks go to Hideo Yasunaga and Hiromasa Horiguchi for their invaluable help in obtaining the data and for helpful discussions. xi I would also like to thank my friends and colleagues at Columbia for their helpful discussions and for making my time in graduate school memorable. At the risk of forgetting some names, I thank Bruno Giovannetti, Mariesa Herrmann, Takakazu Honryo, Ayako Kondo, Marcos Yamada Nakaguma, Yoichi Sugita, Kensuke Teshima, and Zhanna Zhanabekova. Finally, my family have supported the entire period of my graduate study in New York. I dedicate this dissertation to my family members in token of a ¤ection and gratitude. xii 1 CHAPTER 1 The E ¤ect of Patient Cost-sharing on Utilization, Health and Risk Protection: Evidence from Japan 1. 1. Introduction Governments increasingly face an acute †¦scal challenge of rising medical expenditures especially due to aging population and expansion of coverage. Spending growth for Medicare, the public health insurance program for the elderly in the United States, has continued unchecked in spite of a variety of government attempts to control costs. 1 As more than one third of current health spending is on the elderly, future cost control e ¤orts can be expected to focus on seniors. 2 One main strategy for the government to contain cost is cost-sharing, requiring patients to pay a share of the cost of care. However, cost-sharing has clear tradeo ¤s. While cost-sharing may reduce direct costs by decreasing moral hazard of health 1 Examples of supply-side attempts by the government to control cost are the introduction of prospective payment for hospitals and reductions in provider reimbursement rates (Cutler, 1998). 2 The elderly are the most intensive consumers of health care. Patient over age 65 consume 36 percent of health care in the US despite representing only 13 percent of the population (Centers for Medicaid and Medicare Services 2005). Furthermore, Medicare costs are expected to comprise over a quarter of the primary federal budget by 2035, or between †¦ve and six percent of GDP (CBO, 2011). Likewise, in Japan, the elderly consume †¦ve times as many health services as non-elderly (Okamura et al, 2005). Also Japan has the most rapidly aging population in the world (Anderson and Hussey, 2000). 2 care services, it may also reduce access to bene†¦cial and necessary health care that could mitigate future severe and costly health events. Moreover, very high levels of cost-sharing may undermine one of the primary reasons of having health insurance, which is †¦nancial protection from catastrophic health events. Thus, there is a desperate need for knowledge on how cost-sharing a ¤ects utilization, health itself and risk protection, especially among the elderly, to determine the appropriate level of cost-sharing. Credible evidence on the price sensitivity of health care consumption among the elderly is limited. For instance, individuals above age 62 were excluded from the well-known RAND Health Insurance Experiment (hereafter, RAND HIE), which randomly assigned individuals to insurance plans with di ¤erent generosities. It is not clear a priori whether the elderly are expected to have a larger or smaller price elasticity of demand for health care services than the non-elderly. On one hand, the price elasticity for the elderly may be larger if they tend to be poorer or more credit-constrained than the non-elderly. On the other hand, it can be smaller if their health problems are more severe than those of non-elderly. An exception that studied the elderly is Chandra et al. (2010) who examined the e ¤ect of a small increase in the copayments for physician o?  ce visits and prescription drugs in a supplemental Medicare insurance policy. Most U. S. studies, however, have di? culty separating the demand elasticities of patients from the responsive behavior by insurers and medical providers. This limitation arises because insurers prevent patients from freely choosing medical 3 providers through managed-care, and medical providers determine which treatments to provide based on the patients’health insurance plans. Indeed, there is substantial evidence that the medical providers are reluctant to treat patients with government-funded health insurance bene†¦ciaries due to low reimbursement rates as well as frequent delays in reimbursement. If insurers and medical providers limit the patients’demand for health care services, the elasticities of demand that are estimated in these studies could be underestimated. By contrast, the unique setting in Japan permits isolation of the demand elasticity for health care services since medical providers and insurers typically play a small, if any, role in patients’demand for health care services. Under universal health insurance coverage in Japan, there are no restrictions on patients’choices of medical providers. Also physicians’payments are based on a national fee schedule that does not depend on patients’insurance type. This institutional setting limits physicians’ incentives to in†¡uence patient demand and prevents cost-shifting, a well-known phenomenon in the U. S. where medical providers charge private insurers higher prices to o ¤set losses from the bene†¦ciaries of government-funded health insurance (Cutler, 1998). My re search design exploits a sharp reduction in patient cost-sharing at age 70 in Japan in a regression discontinuity design to compare the outcomes of those just below versus those just over age 70. Due to national policy, cost-sharing for 3 For example, see Cunningham and O’ Malley (2009) and Garthwaite (2011). 4 outpatient visits and inpatient admissions is as much as 60-80 percent lower at age 70 than at age 69 in Japan. This reduction is substantial, especially for inpatient admissions: out-of-pocket medical expenditures for inpatient admissions can reach as much as 25 percent of the average annual income of a 69-year-old patient among those admitted. Since turning 70 in Japan does not coincide with changes in any other confounding factors such as employment or pension receipt, I can plausibly isolate the e ¤ect of the cost-sharing on demand for health care services. This setting also o ¤ers additional advantages over previous empirical settings. While the change in co-payment in Chandra et al. (2010) is limited to o? ce visits and prescription drugs, in Japan cost-sharing for inpatient admissions also changes abruptly at age 70. Thus I can estimate the elasticity of inpatient admissions of the elderly as well. Also, since I have detailed information on outpatient visits, I can investigate the price sensitivity of preventive care in the outpatient setting. 4 In contrast, most existing datasets capture either outpatient visits or inpatient admissions. 5 Finally, I examine the e ¤ect of cost-sharing on exposure to out-ofpocket medical expenditure risk. While there is a large literature on the impact of cost-sharing on health care utilization and health, there is remarkably little 4 Outpatient visits are visits to a clinic or hospital without being admitted. It is common for individuals to visit hospitals for outpatient care rather than clinics (similar to physicians’o? ce visits in the U. S. ) in Japan. 5 In fact, the Agency for Healthcare Research and Quality (AHRQ) has recognized the need to develop a methodology for studying preventive care in an outpatient setting by using inpatient data to identify admissions that should not occur in the presence of su? cient preventive care (AHRQ, 2011). This issue is more discussed in section 4. 5 analysis of the impact of cost-sharing on expenditure risk, which is arguably the primary purpose of health insurance (e. g. , Zeckhauser, 1970). 6 I reach three conclusions. First, I †¦nd that reduced cost-sharing at age 70 discontinuously increases health care consumption. The corresponding elasticity is modest, around -0. 2 for both outpatient visits and inpatient admissions. As it turns out, the elasticity I estimate is similar to the estimates found in the HIE for the non-elderly, and slightly larger than that estimates for the elderly by Chandra et al. (2010). The †¦nding indicates that the price elasticity of the elderly is similar in magnitude to that of the non-elderly. Second, looking in more detail at patterns of utilization, I †¦nd that lower costsharing is associated with increase in the number of patients presenting with both serious and non-serious diagnoses. Thus, I †¦nd that demand for both more and less bene†¦cial care is price sensitive. For example, I †¦nd large increases in outpatient visits for diagnoses that are de†¦ned as Ambulatory Care Sensitive Conditions (ACSCs), for which proper and early treatment reduce subsequent avoidable admissions. Finally, on the bene†¦t side, I do not †¦nd statistically signi†¦cant improvements in health at age 70. Both mortality, and self reported physical and mental health are unchanged despite utilization changes, implying that patient cost-sharing can reduce health care utilization without adversely a ¤ecting health. But I †¦nd that 6 See Chandra et al. (2008) and Swartz (2010) for an excellent summary of the past literature on cost-sharing and utilization. 6 lower cost-sharing at age 70 yield reductions in out-of-pocket expenditures since lower cost-sharing overwhelms the increase in utilization. I then compute the gain in risk premiums through increased generosity in health insurance at age 70 by combining the expected utility framework with the quantile RD estimates. Although somewhat speculative, my estimates suggest that the welfare gain of risk protection from lower cost-sharing is small for most, suggesting that the social cost of lower cost-sharing may outweigh the social bene†¦t. Taken together, this study shows that increased cost-sharing may be achieved without decreasing the total welfare. This paper is related to an in†¡ uential literature that examines Medicare eligibility at age 65 in a similar RD framework as this paper. Card et al. (2009) and Chay et al. (2010) show that Medicare eligibility has a modest positive e ¤ect on the health of those above age 65. However, these studies cannot de†¦nitely address whether these health improvements are the result of health insurance provision per se (extensive margin) or changes in health insurance generosity (intensive margin). This issue arises because turning age 65 in the US entails a number of coincident changes: transitions from private to public health insurance, increases in multiple coverage due to supplementary coverage (e. g. , Medigap), and fewer gatekeeper restrictions due to the change from managed care to fee-for-services. Indeed, Card et al. (2009) conclude that it is not clear whether reductions in mortality are due 7 to health insurance provision or generosity. 7 In contrast, the change at age 70 only re†¡ ects increases in bene†¦t generosity in my case. The rest of the paper is organized as follows. Section 1. 2 brie†¡ describes y the institutional background. Section 1. 3 describes the data, and presents the identi†¦cation strategy. Section 1. 4 shows the main results on utilization. Section 1. 5 turns to the analysis on bene†¦t, and examines the health outcomes as well as risk reduction. Section 1. 6 carries out simple cost-bene†¦t analysis and section 1. 7 concludes. 1. 2. Background This section describes the universal health insurance system in Japan, focusing on the di ¤erences in cost-sharing between the elderly and non-elderly. 8 1. 2. 1. Institutional Setting Japan’ universal health insurance system consists of two parallel subsystems: s employment-based health insurance and National Health Insurance (hereafter, 7 In a companion paper, Card et al. (2008) also †¦nd that both supply-side incentives and shifts in insurance characteristics play an important role for the utilization of health care services. 8 Japan achieved universal health insurance coverage in 1961. See Kondo and Shigeoka (2011) for more details about the e ¤ect of the introduction of universal health insurance on utilization and health. 8 NHI). Employment-based health insurance covers the employees of †¦rms that satisfy certain requirements and employees’dependents. 9 NHI is a residential-based system that provides coverage to everyone else, including the employees of small †¦rms, self-employed workers, the unemployed, and the retired. For this study, there are two important features of Japanese medical system that arguably permits isolation of the patient demand for health care services from responsive behavior by insurers and medical providers: universal coverage and the uniform national fee schedule. First, under universal coverage, patients in Japan have unrestricted choices of medical providers unlike in the U. S where managed-care often restricts the set of the providers at which bene†¦ciaries can receive treatment. For example, it is common for individuals to visit hospitals for outpatient care rather than clinics (similar to physicians’o? ce visits in the U. S. ) in Japan. Patients have direct access to specialist care without going through a gatekeeper or referral system. There is also no limit on the number of visits a patient can have. Patients may go either hospitals or clinics for outpatient visits and go to hospitals for admissions, unlike in the U. S. , where those who lack insurance use hospitals as primary care. 9 Employment-based health insurance is further divided into two forms; employees of large †¦rms and government employees are covered by union-based health insurance, whereas employees of small †¦rms are covered by government-administered health insurance. Enrollment in the government-administered health insurance program is legally required for all employers with †¦ve or more employees unless the employer has its own union-based health insurance program. 9 Second and perhaps more importantly, all medical providers are reimbursed by the national fee schedule, which is uniformly applied to all patients regardless of patients’ insurance type and age. Since patients’ insurance type and age do not a ¤ect reimbursements, physicians have few incentives to in†¡ uence patients’ demand. 10 For example, from physicians’ perspective, there are few reasons to delay surgeries until age 70 because reimbursements do not di ¤er by age of patients. The uniform fee schedule also implies that there is little room for cost-shifting, a well-known behavior of medical providers in the U. S. where they charge private insurers higher prices to compensate for losses from bene†¦ciaries of public health insurance (Cutler, 1998). 11 As a result, while people in Japan enjoy the relatively easy access to health care services, Japan has the highest per-capita number of physician visits among all OECD countries; physician consultations (number per capita per year) is 13. 2 in Japan, which is more than three times larger than 3. 9 in the U. S. (OECD, 2011). While some blame universal coverage for high frequency of unnecessary physician visits, others claim that these medical services contribute to the longevity of the Japanese (Hashimoto et al. , 2011). 10 The national schedule is usually revised biennially by the Ministry of Health, Labor and Welfare through negotiation with the Central Social Insurance Medical Council, which includes representatives of the public, payers, and providers. See Ikegami (1991) and Ikegami and Campbell (1995) on details. 11 Japan introduced prospective payment for hospitals since 2003 for only acute diseases, but the reimbursement does not di ¤er by the insurance type or age of the patients. See Shigeoka and Fushimi (2011). 10 1. 2. 2. Changes in Cost-sharing at Age 70 Unlike a normal health insurance plan that has three basic components (a deductible, a coinsurance rate, and a stop-loss), there is no deductible in Japan. 12 A patient pays coinsurance which is the percentage of medical costs for which bene†¦ciary is responsible. 13 Since inpatient admissions are more expensive than outpatient visits, coinsurance rate of inpatient admissions tends to be set lower than that of outpatient visits in Japan. The insurer pays the remaining fraction of expenses until the bene†¦ciary meets the stop-loss (also known as the maximum out-of-pocket), and the insurer pays all expenses above the stop-loss. The Japanese government passed the Act on Assurance of Medical Care for Elderly People, which imposed cost-sharing on those over 70 starting in February 1983 after the 10 years of generous policy that provided free care for the elderly over age 70. 14 Even after its introduction, there has been still a large discrepancy in cost-sharing between those just above and below age 70 as described in detail below. 12 A deductible is lump-sum amount of spending that bene†¦ciary must pay before the insurers cover any expenses. 13 14 Typically coinsurance is applied for medical costs above the deductible in the US. Japan introduced free care for the elderly in January 1973. However, this policy substantially increased the utilization of health care services and medical expenditures. In fact, the medical expenditures rose by 55 percent in just one year, from 429 billion Yen in 1973 to 665 billion Yen in 1974. Due to data availability, this study focuses on the period after the implementation of the cost-sharing for the elderly. 11 The elderly become eligible for lower cost-sharing on the †¦rst day of the next month after they turn 70. They receive a notice from the government that indicates that they are eligible for Elderly Health Insurance and a new insurance card, which they can present at medical institutions to receive the discount. Elderly Health Insurance is also provided to bedridden people between the ages of 65 and 70. Figure 1. Shows the age pro†¦le of health insurance coverage from the pooled Patient Surveys described later in the data section. Age is aggregated into months. The percent of patients with Elderly Health Insurance abruptly rises from 20 percent to nearly 100 percent once they turn 70. I also see a small jump in Elderly Health Insurance coverage at age 65. Table 1. 2 displays the cost-sharing formulas for those below and above age 70 for outpatient visits and inpatient admissions separately for each survey year of the Patient Survey. For those below age 70, the coinsurance rate is determined by the type of health insurance (employment-based health insurance or NHI), employment status (retired or not), and whether the person is a (former) employee or is a dependent. Employment-based health insurance had a lower coinsurance rate than NHI until 2003, when both were equalized to a common coinsurance rate of 30 percent for both outpatient visits and inpatient admissions. At the age of 70, people switch to Elderly Health Insurance and in principle face the same 12 cost-sharing. 15 Note that on the other hand, physicians’reimbursements are based on a national fee schedule that does not depend on patients’insurance type or age. Figure 1. 2 illustrates the amount of out-of-pocket expenditures with respect to total monthly medical expenditures for year 2008 as an example based on the formula in Table 1. 2. Unlike in the US, in Japan, the stop-loss is set monthly rather than annually. 16 The horizontal axis is total monthly medical expenditures, and the vertical axis shows the corresponding monthly out-of-pocket medical expenditures. Since the stop-loss di ¤ers for outpatient visits and inpatient admissions for those over age 70, I show separate lines for outpatient visits and inpatient admissions. For those below 70, there is no distinction between these two services in 2008. Figure 1. 2 shows that the price schedule of out-of-pocket medical expenditures for those above 70 always lies below that of those below age 70. Unfortunately, the actual out-of-pocket expenditure information among the general population is only available for year 2007, and this data does not distinguish outpatient visits and inpatient admissions. However, I have individual level insurance claim data for outpatient visits and inpatient admissions respectively, 15 In fact, high income earners above age 70 are charged higher coinsurance rate (20 percent instead of 10 percent) since October 2002. The bar for high income level is set quite high, so that a limited number of patients is in this category (7 percent according to Ikegami et al. 2011). Since income is not collected in the Survey of Medical Care Activities in Public Health Insurance, which I use to derive the monthly out-of-pocket expenditures, I compute the monthly out-of-pocket expenditures for a normal family. See Appendix A. 1 for detai