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Health Insurance Reform and Economic Growth: Simulation Analysis in Japan

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Abstract

This paper evaluates the drastic reforms of Japanese public health insurance initiated in 2006. We employ a computable general equilibrium framework to numerically examine the reforms for an aging Japan in the dynamic context of overlapping generations. Our simulation produced the following results: First, an increase in the co-payment rate, a prominent feature of the 2006 reform, would promote economic growth and welfare by encouraging private saving. Second, the ex-post moral hazard behavior following the increase in co-payment rates, however, reduces economic growth. Third, Japanfs trend of increasing the future public health insurance benefits can mainly be explained by its aging population, and increasing the co-payment rate does little to reduce future payments of public health insurance benefits. Fourth, the effect on future economic burdens of reducing medical costs through efficiencies in public health insurance, emphasis on preventive medical care, or technological progress in the medical field is small. Finally, a policy of maintaining public health insurance at a fixed percentage of GDP will require reducing public health insurance benefits, perhaps up to 45% by 2050. Such a policy also reduces economic growth until approximately 2035. Our simulation indicates that the reform does not significantly reduce future public health insurance benefits, but it can enhance economic growth and welfare by encouraging private saving.

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File URL: http://www.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2011_17.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by Research Institute, International University of Japan in its series Working Papers with number EMS_2011_17.

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Length: 46 pages
Date of creation: Sep 2011
Date of revision:
Handle: RePEc:iuj:wpaper:ems_2011_17

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Keywords: public health insurance; Japan; national medical expenditure; economic growth; aging population; dynamic CGE model;

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  1. Benjamin M. Friedman & Mark Warshawsky, 1988. "Annuity Prices and Saving Behavior in the United States," NBER Chapters, in: Pensions in the U.S. Economy, pages 53-84 National Bureau of Economic Research, Inc.
  2. Benjamin M. Friedman & Mark Warshawsky, 1985. "Annuity Prices and Saving Behavior in the United States," NBER Working Papers 1683, National Bureau of Economic Research, Inc.
  3. Uwe E. Reinhardt, 2000. "Health Care for the Aging Baby Boom: Lessons from Abroad," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 71-83, Spring.
  4. Horioka, Charles Yuji & Watanabe, Wako, 1997. "Why Do People Save? A Micro-Analysis of Motives for Household Saving in Japan," Economic Journal, Royal Economic Society, vol. 107(442), pages 537-52, May.
  5. Fumio Hayashi, 1995. "Is the Japanese Extended Family Altruistically Linked? A Test based on Engel Curves," NBER Working Papers 5033, National Bureau of Economic Research, Inc.
  6. Benjamin M. Friedman & Mark Warshawsky, 1985. "The Cost of Annuities: Implications for Saving Behavior and Bequests," NBER Working Papers 1682, National Bureau of Economic Research, Inc.
  7. Johansson, Per-Olov, 2000. "Properties of actuarially fair and pay-as-you-go health insurance schemes for the elderly. An OLG model approach," Journal of Health Economics, Elsevier, vol. 19(4), pages 477-498, July.
  8. Friedman, Benjamin M & Warshawsky, Mark J, 1990. "The Cost of Annuities: Implications for Saving Behavior and Bequests," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 135-54, February.
  9. Christian Broda & David E. Weinstein, 2004. "Happy News from the Dismal Science: Reassessing the Japanese Fiscal Policy and Sustainability," NBER Working Papers 10988, National Bureau of Economic Research, Inc.
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Cited by:
  1. Akira Okamoto, 2013. "Simulating Public Pension Reforms in an Aging Japan: Welfare Analysis with LSRA Transfers," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 9(4), pages 597-632, September.
  2. Makoto Kakinaka & Ryuta Kato, 2013. "Regulated medical fee schedule of the Japanese health care system," International Journal of Health Care Finance and Economics, Springer, vol. 13(3), pages 301-317, December.
  3. Agus Budiyono & Ryuta Ray Kato, 2011. "Should Indonesia Suffer from More Reduction of the Subsidy to the Petroleum Sector?," Working Papers EMS_2011_25, Research Institute, International University of Japan.
  4. Muto, Ichiro & Oda, Takemasa & Sudo, Nao, 2012. "Macroeconomic Impact of Population Aging in Japan: A Perspective from an Overlapping Generations Model," MPRA Paper 42550, University Library of Munich, Germany.

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