Patient Cost-Sharing and Healthcare Utilization in Early Childhood: Evidence from a Regression Discontinuity Design

Healthcare for young children is highly subsidized in many public health insurance programs around the world. However, the existing literature lacks evidence on how the demand for young children's healthcare reacts to these medical subsidy policies. This paper exploits a sharp increase in the required level of patient cost-sharing, the share of healthcare costs the patient must pay out of their own pocket, at age 3 in Taiwan that results from young children "aging out" of the cost-sharing subsidy. This price shock on the 3rd birthday allows us to use a regression discontinuity design to examine the causal effect of cost sharing on the demand for young children's healthcare by comparing the expenditure and utilization of healthcare for young children right before and after the 3rd birthday. Our results show that the increase in the level of patient cost sharing at the 3rd birthday significantly reduces total outpatient expenditure. The implied price elasticity of outpatient expenditure is around -0.10. However, the demand for inpatient care for young children does not respond to a change in cost sharing at the 3rd birthday even though the price variation is much larger. This result implies that the full coverage of inpatient care could improve the welfare of young children.