Influence of the Introduction of a Per-Visit Copayment on Health Care Use and Expenditures: The Korean Experience

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ABSTRACT

This article analyzes the effect of implementing a per-visit copayment for medical services in Korea. The introduction of the per-visit copayment was effective in changing the pattern for medical utilization and containing medical cost inflation. The most remarkable change after implementation of the copayment was a reduction in medical and dental contacts and a rise in service intensity for each visit. The increased intensity per visit might be caused by the change in physician behavior or patients' delay in initiating medical visits, or both, which in turn could increase medical expenditure.

INTRODUCTION

Governments around the world are concerned about rising health care costs. In the 1980s, the Korean government introduced cost-sharing schemes that offered financial incentives for consumers to reduce their medical care use. A notable feature was the introduction in 1986 of a "per-visit" copayment for each contact with a medical care provider (clinic or hospital). The copayment was a fixed monetary amount, independent of the volume of services rendered in connection with the visit. The introduction of the per-visit copayment resulted in an increase in the price of a visit and provides a rare natural experiment in which we can examine the relation between cost sharing and use of medical care.

Various aspects of the relation between coinsurance and use of medical care are addressed in the Rand Health Insurance Experiment. Based on a randomized controlled trial, the study reveals that the coinsurance rate affects medical care demand most at 0-25 percent coinsurance but not as much beyond that level (Manning et al., 1987). Before the per-visit copayment was introduced in Korea, the outpatient coinsurance rate was already above 25 percent. It would be interesting to examine whether a per-visit copayment was effective in reducing health care costs above the 25 percent coinsurance range, where copayment was not as effective in reducing medical use.2 The Rand studies are limited to episodes of treatment (Keeler and Rolph, 1988) and predict annual medical spending (Manning et al., 1987) because the cost-sharing schemes used in the experiment do not generate financial incentives for patients to change visit rates or contents. The per-visit copayment introduced in Korea changed the patient's cost for a visit rather than for an episode. The regulatory change provided an opportunity to develop and test hypotheses on how per-visit cost sharing affects the behavior of health care consumers and providers. An analysis of this form of patient cost sharing should complement the Rand results.

This is the first study in which use of medical care is analyzed simultaneously according to visit level, treatment episode, and year. By disaggragated medical care use to the visit level, it is possible to uncover information about the behavior of consumers and providers, which would have been suppressed in the episode or annual level analyses. Also, exploring the financial incentives of an alternative insurance system provides some implication for designing copayments for primary care visits that most best-selling HMO packages require in the United States (Group Health Association of America, 1994). Because HMOs are the most rapidly growing type of health insurance schemes in the U.S, analyzing the effect of a per-visit copayment can give some lessons to the HMO industry and provide an opportunity for future international comparisons.

This article analyzes the impact of the per-visit copayment on the Korean health insurance system. I briefly introduce the theoretical models, predict how medical use and expenditure will change, and describe the data construction and sample characteristics. Then, I examine the effect of introducing the copayment using regressions. Changes in use of medical and dental care per year, episode, and visits are analyzed. How total health care expenditures and total insurer expenses changed after the copayment act is also presented. …