On the Long-Run Equilibrium Relationship among Health Care Expenditures, Public Pension and Social Insurance Burden Rate in Japan

Despite a decrease in the number of working generations supporting Japan's social security system, the relationship between public pension benefits and health care expenditures since the inception of universal health insurance system has not been explored. We obtained one stable long-run equilibrium relationship among those three variables over the period from 1966 to 2002. We employed the forecast error variance decomposition to examine the determination of social insurance burden rate. It is found that health care shock was important for the long-run determination of social insurance burden rate. Because it appears that a free health service system for the elderly (health care shock) caused the increase in the doctor's consultation, we estimated the health care function to analyze price policy in the health care sector. We finally accepted the dynamic OLS model with lead lags as an aggregated health care function. The price elasticity of health care has declined in absolute value since the universal health insurance system started, and it has been around 0.6 since the early 1980s. The policy which eliminated health care fees for the elderly in the 1970s was a mistake since the elderly increased their health care expenditures. The out-of-pocket expenses for health care of the elderly should have been raised in the 1970s.