The Minimum Efficient Scale of the Insured in Japanese National Health Insurance

Abstract

One of the most important policy issues in the structural reform of the current Japanese National Health Insurance system is the consolidation of insurers. Several proposals for the reform have been made public so far, including one to consolidate all the programs within each prefecture, but little scientific evidence exists to support any of the proposed changes. In addition, many small municipal insurers have already been merged in recent national wave of municipality mergers (i.e., Heisei no daigappei), and some insurers particularly with large numbers of insured persons are now reluctant to merge at the prefectural level. In this paper, we estimate the minimum efficient scale (MES), the number of insured persons that minimizes the average administrative cost per insured, and provide an empirical criterion to judge the reform proposals.
Our estimation results are based on the data from the Annual Business Operation Report of the Japanese National Health Insurance, and they indicate the existence of economies of scale in the administrative cost. In order to see how much consolidation will be necessary, we make the following three observations. First, comparison of the MES and the actual number of insured at the end of 2005 shows, when the Heisei no daigappei was almost complete, approximately 67% of municipal insurers fell below the MES levels. Second, comparing the MES with the number of insured persons in the secondary medical districts within prefectures showed that the approximately 4% of insurers would be less than the MES. Third, there would be no insurer whose MES was greater than the number of the insured at prefecture level. Thus, we conclude that at least mergers of municipal programs within each secondary medical district will be required.