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

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.