Does Concurrent Introduction of Small Cost-sharing and Gatekeeping Arrangements Reduce Health Care Spending?: Evidence from Medical Aid Reform in South Korea

Abstract

On July 1, 2007, South Korea’s Medical Aid program for financially needy families introduced a major reform to dampen spending growth. The reform was comprised of two elements, which were simultaneously implemented: small patient copayments for outpatient services, and a financial incentive for patients to designate a primary health care provider (a gatekeeping arrangement). We test whether this reform led to reductions in health spending. Using 32-quarter region-level panel data for the entire South Korean Medical Aid beneficiaries from 2003 to 2010, we calculate difference-in-differences estimates of per-enrollee health care costs separately for outpatient visit, hospitalization and medication. We also test mechanisms through which the reform could influence health care spending. We find that the Medical Aid reform led to approximately 15.6% reductions in spending per quarter during the 3 1/2-year follow-up period, primarily due to a reduction in outpatient visits. There is no evidence that the reform led to reductions in hospitalization and medication costs. We conclude that even a small copayment, in combination with a gatekeeping arrangement, could lead to substantial reductions in outpatient spending in a government-funded health care assistance program.