Top-Up Design and Health Care Expenditure: Evidence from Cardiac Stents
39 Pages Posted: 12 Mar 2020
Date Written: February 19, 2020
Taiwan’s National Health Insurance (NHI) has adopted a top-up design for cardiac stents since 2007: the NHI covers the full cost of baseline treatment (bare-metal stents); but if a patient prefers more expensive treatments (drug-eluting stents), she must pay for the incremental cost out of pocket. Such a “top-up” coverage has been advocated as a good model to provide essential care for the mass population and keep the cost of health care under control. To further reduce health spending, the NHI cut the reimbursement rate of bare-metal stents (to hospitals) by 26% in January 2009. We study how hospitals responded to this price change and how such response affects the actual payment from the NHI and patients. Based on individual patient records and hospital-reported stent prices (2007-2010), we find no evidence of hospitals raising the price of drug-eluting stents. However, on average hospitals increase the number of stents per admission by 0.14 in 2009, and most of the increases are for bare metal stents. As a result, the rate cut induces about 18% more BMS usage and providers recoup up to 30% of the revenue loss in 2009 after the NHI rate cut. This suggests that the rate cut is still effective in reducing NHI expenditure on cardiac stents, despite hospital moral hazard.
Keywords: top-up design, health care cost, cardiac stent, moral hazard
JEL Classification: G22, I11, I18
Suggested Citation: Suggested Citation