Association for Public Policy Analysis & Management

This paper studies the effects of universal health insurance reform on the hospital market. Specifically, we focus on the implementation of National Health Insurance (NHI) in Taiwan in 1995 that requires the entire population to be covered by health insurance. During the study period, the healthcare system introduced by the NHI eliminates price competition among hospitals. We exploit the regional differences in the proportion of uninsured elderly before the reform to identify the effects of NHI. There are two major findings. On the supply side, we find a significant number of hospital exits after the reform, where most of the exited hospitals are of a smaller size, a lower staffing level, and with less advanced medical technology. In addition, incumbent and large-sized hospitals prosper by increasing staffing levels and advanced medical technology ownership. On the demand side, our analysis of patient choice suggests that patients prefer to choose hospitals with a larger size and with advanced medical technology. The results point to the evidence that quality competition induced by the NHI drives the hospital market into two distinct trends where large hospitals prosper while small hospitals shrink.