The effect of National Health Insurance on private health expenditure in Taiwan: crowd in or crowd out?

Abstract

Taiwan’s National Health Insurance (NHI) program was implemented in 1995. The provision of publicly financed insurance has been hypothesized to 'crowd-out' private healthcare expenditure. However, the nature of the third party payment structure of insurance can cause national health expenditure to increase at a faster rate than before. Increased access to health care increases people's standards for what illnesses merit medical intervention; this increase then leads to further increases in demand for healthcare. As a result, it is hard to predict the extent to which private healthcare consumption is actually crowded out, without careful analysis. It is therefore of interest to investigate the relationship between private and public health expenditure, controlling for economic factors. Panel vector autoregression (VAR) and generalized method of moment (GMM) models are used to look at the dynamic interactions between public and private healthcare expenditure, controlling for district-specific fixed effects as well as year-specific effects. Panel unit root tests and panel cointegration are also examined in line with the general procedures for panel studies. Health expenditures in Taiwan's 23 districts from 1983 to 2016 serve as our unit of analysis; this span of years includes the implementation of single-payer National Health Insurance in Taiwan. Our empirical results reveal that (i) national health insurance spending crowded out private health spending, suggesting that an alleviation of individuals’ financial burden took place; and (ii) individuals’ out-of-pocket spending on healthcare had a positive impact on public expenditure pre-NHI, and in poor districts, a positive impact post-NHI as well. These results have two implications: (i) poor districts were under-served in terms of healthcare; (ii) wealthy districts experienced a shift in financial burden from providers to patients, perhaps fueled by supplier-induced demand in response to the stringent NHI-reimbursement scheme.

Keywords:

• Panel VAR
• crowding-in
• National Health Insurance
• supplier-induced demand

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 The vast majority of these categories were established post-NHI.

2 More formally, if a variable x appears earlier in the system than a variable y, then x is weakly exogenous with respect to y in the short run. The number of lags, p, need not be the same for all variables.

3 Data prior to 1983 are mostly missing.

4 Lag lengths from one to five were tested and while results were not entirely conclusive, most suggested that 1 lag fit the model better. We therefore estimated our models based on the 1 lag specification.

Additional information

Funding

This study was funded by Ministry of Science and Technology, Taiwan.

Notes on contributors

Yung-hsiang Ying

Professor Yung-hsiang (Frank) Ying is a Ph.D. in Economics with research interests including International Finance, Macroeconomics, Political Economics, and health economics. His recent publications have appeared in the journals including Journal of International Money and Finance, Journal of Comparative Economics, Southern Economic Journal, Japanese Economic Review, Health Economics, Accident Analysis and Prevention, Journal of Economic Policy Reform, China Economic Review, and Drug and Alcohol Dependence. After teaching a year at Colgate University in the United States, he came to Kaohsiung, Taiwan to join the faculty in National Sun Yat-sen University, where he served as Dean of International Affairs for many years. Now he is Executive Vice President at National Taiwan Normal University. He also served as Dean of International affairs from 2013 to 2016, and Dean of College of Management from 2016 to 2018 at NTNU. During the past years, he has traveled around the world and been a visiting scholar in different universities including Harvard University, Institut d'Études Politiques, Sciences Po Lyon, Xiamen University, Akita International University, University of Lodz, and Tongji University.

Koyin Chang

Dr. Koyin Chang is Professor in Economics in the Department of Healthcare Information and Management at Ming Chuan University, Taoyuan, Taiwan. She received her Ph.D. in Economics from the University of Kentucky. Her main research interests include issues related to Organization Management, Health Economics, and Healthcare Policies. She has published many articles in renowned academic journals including Health Economics, Accident Analysis and Prevention, Journal of Comparative Economics, Japanese Economic Review, Drug and Alcohol Dependence, Medical & Biological Engineering and Computing, Managerial and Decisional Economics, and China Economic Review.