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

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.