This dissertation has been motivated by the question of how countries should optimally structure health care. Especially, there are two important economic and policy questions asked that extend beyond the area of health economics. The first is how the expansion of health insurance coverage affects the utilization and health of its beneficiaries (extensive margin); the second is how generous should health insurance be (intensive margin) to balance the provision of care and financial protection against risk while containing medical expenditures. The three chapters in this dissertation aim to make empirical contributions to these ongoing research questions. First chapter, "The Effect of Patient Cost-Sharing on Utilization, Health and Risk Protection: Evidence from Japan" addresses the second question. It investigates how cost-sharing, requiring patients to pay a share of the cost of care, affects the demand for care, health itself, and risk protection among the elderly, the largest consumers of health service. Previous studies of cost-sharing have had difficulty separating the effect of cost-sharing on patients from the influence of medical providers and insurers. This paper overcomes that limitation by examining a sharp reduction in cost-sharing at age 70 in Japan in a regression discontinuity design. I find that price elasticities of demand for both inpatient admissions and outpatient visits among the elderly are comparable to prior estimates for the non-elderly. I also find that the welfare gain from risk protection is relatively small compared to the deadweight loss of program financing, suggesting that the social cost of lower cost-sharing may outweigh social benefit. Taken together, this study shows that an increase in cost-sharing may be achieved without decreasing total welfare. Third chapter, "Effects of Universal Health Insurance on Health Care Utilization, Supply-Side Responses and Mortality Rates: Evidence from Japan" (with Ayako Kondo) address the first question. Even though most developed countries have implemented some form of universal public health insurance, most studies on the impact of the health insurance coverage have been limited to specific subpopulations, such as infants and children, the elderly or the poor. We investigate the effects of a massive expansion in health insurance coverage on utilization and health by examining the introduction of universal health insurance in Japan in 1961. We find that health care utilization increases more than would be expected from previous estimates of the elasticities of individual-level changes in health insurance status such as RAND Health Insurance Experiment in the US. The two chapters addressed above focus on consumers' incentives. Second chapter, "Supply-Induced Demand in Newborn Treatment: Evidence from Japan" (with Kiyohide Fushimi) examines the incentives faced by medical providers. Since medical providers exert a strong influence over the quantity and types of medical care demanded, measuring the size of supply-induced demand (SID) has been a long-standing controversy in health economics. However, past studies may underestimate the size of SID since it is empirically difficult to isolate SID from other confounding hospital behaviors, such as changes in the selection of patients. We overcome these empirical challenges by focusing on a specific population: at-risk newborns, and we measure the degree of SID by exploiting changes in reimbursement caused by the introduction of the partial prospective payment system (PPS) in Japan, which makes some procedures relatively more profitable than other procedures. We find that hospitals respond to PPS adoption by increasing utilization and increasing their manipulation of infant's reported birth weight, which determines infants reimbursement and maximum length of stay. We also find that this induced demand substantially increases hospital reimbursements without improving infant health, implying that the additional money spent has no commensurate health gains.
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