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Moral hazard under zero price policy: evidence from Japanese long-term care claims data

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Abstract

We evaluate the presence and magnitude of moral hazard in Japan’s public long-term care insurance (LTCI) market. Using monthly LTCI claim records from January 2006 to December 2015 linked to concurrent death records, we construct a sample by propensity score matching insured individuals who co-pay 10% of their fees to those with no required copayments, and we implement fixed-effect estimations. We find that a ten-percentage-point reduction in the copayment rate increases monthly costs by 10.2 thousand yen, corresponding to a price elasticity of about − 0.1. Insured individuals with no copayments tend to use more services and have more utilization days than those with copayments do. Furthermore, we find that insured individuals who die from cerebral (myocardial) infarction increase their service use more in response to a reduction in the copayment rate than those who die from senility do, indicating a positive association between ex-ante health risks and ex-post service use. We verify that a cost-sharing adjustment is a valid solution for soaring LTCI expenditures. These findings could provide broad implications for the rapidly aging world.

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Fig. 1

Refined by authors based on a figure from Explanation of long-term care insurance system (p. 9) by the Social Insurance Institute 2018 (in Japanese). ISBN978-4-7894-2594-0$4

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Notes

  1. For primary insured individuals, premiums are collected through pension deductions or individual collections. For secondary insured individuals, premiums are collected together with HI premiums.

  2. The care level is categorized as one of seven need levels from the mildest support required at level 1 (SL1) to the most severe care at level 5 (CL5). See Appendix A for details.

  3. The committee consists of third-party physicians, nurses, and social workers.

  4. The only information not related to health status regards living conditions (e.g., lift availability and co-residence). The investigator (a municipality official who organizes the interview) can leave comments in a column at the end of the questionnaire, labeled “Please leave a note here about applicant’s living condition if necessary.” The MHLW explicitly mentions that such information is “used for reference purposes only” and is “not used to determine/change care levels” [19, p. 18].

  5. See Appendix B for details on the eligibility process for public assistance and the contents of the assistance.

  6. The care plan consists of what and how many services to use within a month.

  7. It is important to clarify that the care managers affiliated with the care centers are independent of service suppliers, and, thus, they are unlikely to recommend that insured individuals expand their care plans for financial purposes. Instead, it is highly risky for them to do so, because municipalities will rescind their designations and make monetary dispositions if they are aware of foul play. In contrast, care managers employed by either non-profit or for-profit service providers may have incentives to induce demand for long-term care. Unfortunately, we cannot identify the type of care manager (independent versus employee) support used to construct each individual’s care plan. Alternatively, we use the propensity score matching procedure (see Table 1) to adjust for the type of care manager by balancing the type of service supplier providing care most frequently, as an insured individual is most likely to be supported by a care manager who is affiliated with service provider that he uses most frequently.

  8. For instance, people with poor SES are more likely to be unmarried [20]. Once become frail, these individuals may have to depend exclusively on formal long-term care services because they have few informal care alternatives.

  9. An insured individual moving to a new municipality loses his eligibility in his previous place of residence and obtains new eligibility in his current place of residence. However, the probability of an elderly and disabled individual moving is very low.

  10. In addition, we remove all the claims of insured individuals with incomes comparable to those of current workers, who transferred from the 10% to the 20% copayment scheme as of August 2015.

  11. In 2017, about half of the population receiving PA in Japan were over 65 [24]. The proportions of those aged 40–49 (10.1%), 30–39 (5.5%), and 20–29 (2.8%) were much lower, probably because such individuals have more opportunities to work and, thus, are more likely to alleviate their poverty.

  12. Causes of death are classified into 13 categories refined according to the international statistical classification of diseases and related health problems 10th Revision (ICD-10).

  13. The number of individuals without PA extracted for the estimations varies across matching methods.

  14. We do not use deaths from neoplasms or blood diseases for the cause-specific estimation because such diseases are likely associated with genetic rather than health risks.

  15. According to a report of a public awareness investigation of healthcare and long-term care in 2017 [34], 40% of respondents aged 65 and over think that the copayment rate is “very low” or “low,” 28.7% say “neither low or high,” and 7.9% consider the rate to be “very high.” The corresponding rates for those younger than 65 are 29.8%, 37.9%, and 9.7%, respectively. The report concludes that the higher rate of “neither low or high” among the younger cohort is attributable to the lower prevalence of long-term care use therein (so that they do not know the costs). More importantly, the higher rates of “very low” and “low” among the older cohort show that, even for those who are much more likely to use the services, the cost sharing is moderate.

  16. We observe a rather long period of service use (i.e., 120 months), during which individuals might be induced to re-construct their care plans.

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Acknowledgements

This study is financially supported by several funds: the Waseda University Research Initiative entitled “Empirical and theoretical research for social welfare in sustainable society- Inheritance of human capital beyond ‘an individual’ and ‘a generation’”—(PI: Haruko Noguchi); a Grant-in-Aid for Scientific Research Project funded by the Ministry of Health, Labour, and Welfare (MHLW): “Effects of the prevention policy of lifestyle-related disease on labor productivity and the macroeconomy from the viewpoint of cost-effective analysis” (PI: Haruko Noguchi); a Grant-in-Aid for Scientific Research(C) funded by the Japan Society for the Promotion of Science (JSPS): “Change and disparity in accessibility to long-term care services: Evidence from Japanese big data analyses” (PI: Akira Kawamura); and a Grant-in-Aid for Stat-up funded by JSPS: “The effect of the 2006 long-term care insurance amendment on cost containment: empirical evidence from nationally representative claims data.” (PI: Rong Fu). This study has received official approval for the use of secondary data from the Statistics and Information Department of the MHLW under Tohatsu-0507-3 as of May 7, 2018. We greatly appreciate Dr. Michihito Ando for his helpful comments at the Japan Economic Association 2018 Spring Meeting. Our thanks also go to participants in the European Health Economics Association at Maastricht, The Netherlands, in July 2018 for their valuable suggestions. In addition, we deeply appreciate the two anonymous reviewers for their insightful comments and suggestions on this study. The views and opinions expressed in this article by the independent authors are provided in their personal capacity and are their sole responsibility.

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  1. Faculty of Political Science and Economics, Waseda University, 1-6-1 Nishi-Waseda, Shinjuku-ku, Tokyo, 169-8050, Japan

    Rong Fu & Haruko Noguchi

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Fu, R., Noguchi, H. Moral hazard under zero price policy: evidence from Japanese long-term care claims data. Eur J Health Econ 20, 785–799 (2019). https://doi.org/10.1007/s10198-019-01041-6

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