download graspp user website pdf tell external home arrow_down arrow_left arrow_right arrow_up language mail map search tag train downloads

東京大学公共政策大学院 | GraSPP / Graduate School of Public Policy | The university of Tokyo

The price of “zero” in child healthcare

Is the "zero price" a special price that is inherently different from other very low prices? This is the question posed by Professors Toshiaki Iizuka and Hitoshi Shigeoka from the University of Tokyo’s Graduate School of Public Policy in our recent paper “Is Zero a Special Price? Evidence from Child Healthcare”. In many countries, zero is a common price in healthcare and many other public services. Understanding the zero-price effect is important because charging zero or non-zero prices could affect welfare. We find that zero is not just another price and discontinuously boosts healthcare demand relative to a very small price. Zero and non-zero prices should be strategically chosen to achieve specific goals.

A zero-price effect has attracted a lot of attention in behavioral economics. To date, however, no studies have credibly shown the zero-price effect using field data. This is mainly because of the difficulty in collecting data on multiple price changes near zero. Our team solved this problem by taking advantage of the variation in healthcare prices for children 7-14 years old, set by different municipalities across Japan from zero to 30% coinsurance. Our novel dataset merges these municipality-level pricing data with patient-level, item-by-item, monthly healthcare spending data from 2005 to 2015. As a result, the effects of cost sharing, including a zero price, on demand could be examined in a difference-in-differences (DID) framework to test the hypothesis that zero is a special price that discontinuously boosts demand.

Our results indicated that a zero-price effect does exist, and it discontinuously boosts demand. We estimated that adding an infinitesimally small copayment reduced overall cases of one or more visits per month by 4.8%. This discontinuous effect is significant, being around half the reduction associated with 10% coinsurance. The result indicates the potential use of the zero-price effect to boost demand for high-value, cost-effective care such as childhood immunization. On the other hand, imposing a small copayment rather than making it for free would be desirable for low-value services.

Importantly, when examining the effect of introducing a small copayment of 2 USD, we found overall demand was reduced by 29.7% for healthy children who frequently visit physicians. On the other hand, a small copayment did not deter sicker children requiring treatment from visiting at least once per month. This result implies that a small copayment is an effective screening device where moral hazard may be an issue and helps allocate resources to those in need.

In addition, the behavioral hazard problem, the consumer’s misperception of the benefit and cost of a service, was investigated by examining specific high- and low-value treatment cases. Compared to a zero price, a copayment of USD 2 decreased visits for high-value preventative care including depression, ADHD, tobacco use, and obesity by 10%. Here, the merit of a zero price to boost demand for high-value care was seen. Meanwhile, low-value care such as inappropriate use of antibiotics in cases such as bronchitis and asthma decreased by as much as 18.3%. These results indicate that small co-payments significantly reduce demand for both high- and low-value medical care, and patients do not necessarily have an accurate understanding of the value of medical care. Therefore, it is important to carefully choose between zero and non-zero prices according to policy goals, such as setting the price to zero for high-value medical care and avoiding zero prices, and opting for small co-payments in the case of low-value medical care.

Related links

Is Zero a Special Price? Evidence from Child Healthcare

飯塚 敏晃

Toshiaki Iizuka

Toshiaki Iizuka is a Professor at the Graduate School of Economics, The University of Tokyo. His research interests are in the field of health economics and industrial organization. He has written articles on incentives and information in the healthcare markets, which appeared in leading economics journals, including the American Economic Review, RAND Journal of Economics, and Journal of Health Economics. Dr. Iizuka currently serves as Associate Editor of the Journal of Health Economics and Health Economics, and a member of the Central Social Insurance Medical Council, a committee of the Japanese Ministry of Health, Labor and Welfare that decides medical fees and drug prices. He was Dean of the Graduate School of Public Policy, The University of Tokyo, between 2016 and 2018. He holds a Ph.D. in Economics from the University of California, Los Angeles, an MIA from Columbia University, and an ME and BE from the University of Tokyo.

重岡 仁

Hitoshi Shigeoka

Hitoshi Shigeoka is a Professor in the Graduate School of Public Policy (GraSPP) at the University of Tokyo and an Associate Professor in the Department of Economics at Simon Fraser University. He is also a Research Associate at the National Bureau of Economic Research and a Research Fellow at IZA. His research lies at the intersection of health economics and behavioral economics. This includes analyses of how patients respond to the price of health care, how physicians respond to the financial incentives, how the expansion of health insurance coverage affects the use and supply of health care, how adverse shocks such as earthquakes affect people’s risk preferences and risk-taking behavior, how the repeal of federal prohibition affects infant mortality and late-life mortality, and how the introduction of face-mask mandates affects the case growth of COVID-19 in Canada. He is on the Board of Editors for the American Economic Journal: Economic Policy and Associate Editor for the Journal of Health Economics and the Japanese Economic Review. He received a Ph.D. in economics from Columbia University in 2012.