Copayment Adjustments Under Bundled and Two-Tiered Pricing: Welfare Implications for Outpatient Care in Taiwanese Hospitals

Background and Policy Context

Taiwan’s healthcare system operates under a government-run, single-payer National Health Insurance (NHI) program, providing universal health coverage to all residents. This program categorizes healthcare providers into 4 tiers—local clinics (primary care), district hospitals (secondary care), regional hospitals (tertiary care), and medical centers (advanced care, teaching, and research), and offers low-cost outpatient care services in hospitals and allows beneficiaries to visit any physician without referral restrictions. Consequently, since its inception in 1995, a significant portion of Taiwan’s NHI expenditures has been allocated to outpatient care services.^1,2 For instance, in 2021, approximately 70% of total medical expenditures were directed toward outpatient care, with 61.8% of these costs incurred by medical centers (24.5%), regional hospitals (23.7%), and district hospitals (13.6%). ³ In addition, a recent study reported that the average number of hospital outpatient visits per resident in Taiwan is approximately 18 times per year, more than double the OECD average. ⁴ This high frequency of hospital outpatient visits reflects the prevalence of doctor and hospital shopping in Taiwan’s healthcare system as documented in the healthcare literature.^{5 -7} Consequently, the potential economic welfare loss associated with outpatient care utilization in hospitals, as measured by deadweight loss (DWL) due to moral hazard behavior, poses a significant concern regarding the sustainability of Taiwan’s NHI program.^2,8

In order to address the excessive patient volume and medical expenditure associated with outpatient care in hospitals, Taiwan’s National Health Insurance Administration (NHIA) implemented a copayment policy featuring a price-differentiating scheme. Under this policy, patients who visited hospitals without a referral from a local clinic faced a higher copayment fee, while those referred from a local clinic paid a lower copayment fee for their hospital outpatient visits. During our study period from January 2000 to December 2021, copayment adjustments made in 2005 and 2017 were part of this price-differentiating policy.^1,2 Nevertheless, previous studies found that this policy had minimal impact on altering patients’ behavior when seeking outpatient care.^1,2 In response, the NHIA introduced a new copayment policy on July 1, 2023, implementing a bundled and 2-tiered pricing scheme^9,10 aimed at reducing both healthcare expenditures and potential economic welfare losses associated with outpatient care utilization in hospitals. Specifically, outpatient care services provided by Taiwan’s hospitals typically consist of 2 components: non-prescription drug services (such as therapy or treatment) and prescription drugs. Under the new policy, patients pay a user fee for their outpatient visit before seeing a physician, followed by an additional cost-sharing rate (namely, 20% of the reimbursement amount capped at NT$300) for prescription drugs after receiving medical orders, creating a 2-tiered pricing system for the bundled outpatient care services.

It is important to note that the new copayment policy retains the fixed copayment fee for outpatient visits (eg, NT$420 for medical centers and NT$240 for regional hospitals as of April 2017) before patients consult with a physician. Nevertheless, it introduces a cost-sharing scheme for outpatient prescription drugs after medical orders are issued. Specifically, the upper limit on user fees for regular outpatient prescription drugs in both medical centers and regional hospitals has been increased from NT$200 to NT$300. For refillable prescriptions for patients with chronic illnesses, a user fee equivalent to 20% of the reimbursement amount, capped at NT$300, is charged when the prescription is filled in hospitals for the first time; subsequent refills are exempt from additional charges. It is worth noting that the user fee for outpatient prescription drugs, depending on the physician’s orders, ranges from 0 to a maximum of NT$300 in both medical centers and regional hospitals. ⁹ Patients were not informed whether an additional user fee for outpatient prescription drugs would apply until after their consultation with physicians. Consequently, the effective price per outpatient-visit for patients consisted solely of the fixed copayment for outpatient care prior to consulting with physicians. This fixed copayment is designed to constrain outpatient care utilization in hospitals. Since non-prescription services (eg, therapies or treatments) and prescription drugs are typically delivered jointly in Taiwan’s hospitals—as complementary goods—the imposition of additional cost-sharing on prescription drugs is unlikely to directly influence their utilization. Instead, it increases the overall cost of hospital outpatient care for patients and serves as a policy tool to reduce potential economic welfare losses due to moral hazard behavior. Further discussions regarding this copayment reform can be found in the NHI Important Policy Forum organized by the NHIA. ¹⁰

The research question is whether the bundled and 2-tiered pricing scheme effectively mitigates DWL in outpatient care utilization. we employed a time-series structural change model, as proposed by Bai and Perron, ¹¹ to estimate the time-varying price and income elasticities of outpatient care demand in these settings.

Following this, we evaluated the welfare effects of increased outpatient user fees by simulating WTP values for hospital outpatient care services and assessing the DWL in outpatient care utilization due to the moral hazard behavior. ⁸ The main contributions of this study are as follows:

Literature Reviews

It is essential to recognize that the effectiveness of any user fee policy in reducing both healthcare utilization and potential economic welfare losses is highly dependent on how patients’ behavior in seeking outpatient care responds to changes in copayment fees. Previous studies on the effectiveness of copayment policies in reducing healthcare expenditures indicate a significant negative relationship between copayments and healthcare utilization. For instance, Guindon et al conducted a systematic review that included 43 eligible studies investigating the impact of cost-sharing on drug and healthcare utilization. ¹² This review examined the effects of prescription drug insurance and cost-sharing schemes on drug use, healthcare utilization, and health outcomes. The evidence suggested that drug use is negatively correlated with cost-sharing and positively correlated with drug insurance, though the magnitude of these associations with healthcare utilization is relatively small. Similarly, Kiil and Houlberg conducted a systematic review on the effects of copayments on healthcare demand, identifying 47 eligible studies, most of which found that copayments reduce outpatient care utilization. ¹³

Beyond these systematic reviews, Xu and Pei used the difference-in-differences (DID) approach to explore the impact of coinsurance reduction on outpatient care utilization in China, finding no significant impact. ¹⁴ Nevertheless, applying the same DID approach in Germany, Xu and Bittschi concluded that the abolition of copayments led to a short-term increase in outpatient care utilization. ¹⁵ In addition, Kato et al found a significant influence of cost-sharing on outpatient care utilization in Japan through a regression discontinuity analysis, ¹⁶ while Park and Choi observed a similar effect in Korea using the DID approach. ¹⁷ Similarly, Jo et al used a linear probability model with a DID approach to examine the impact of differential copayments on patient healthcare choices, finding significant effects on the choice between secondary/tertiary and primary care. ¹⁸ A negative relationship between various cost-sharing schemes—such as deductibles,^19,20 capitation, ²¹ and tiered cost-sharing^22,23—and healthcare utilization has also been documented in the literature. Furthermore, the significant influence of user fees on various types of healthcare utilization has also been documented in studies focusing on dental care, ²⁴ drug use,^20,23,25,26 emergency care,^8,27,28 mental healthcare, ²⁹ prenatal care, ³⁰ primary care,^{31 -34} rehabilitation care, ³⁵ and long-term care. ³⁶ The literature review mentioned above incorporates cross-country evidence, offering a broader understanding of the impacts of cost-sharing mechanisms across different healthcare systems.

It is important to note that Taiwan’s Ministry of Health and Welfare (MOHW) has revised copayment policies for outpatient care services multiple times since the inception of Taiwan’s NHI program in 1995. The impact of these copayment changes on outpatient care utilization has been a significant focus of health policy research. For instance, Chen et al employed a segmented time-series model to assess the effect of the price-differentiated copayment policy introduced on July 15, 2005, on outpatient care utilization, ³⁷ while another study by Chen et al. utilized a sample selection model for count data to analyze the same policy. ² Both studies concluded that copayment adjustments negatively influenced outpatient care utilization. Expanding on these studies, Juan et al applied a difference-in-differences (DID) approach to examine the 2005 copayment adjustment effect on effective care for patients with persistent asthma, similarly identifying a negative relationship between copayments and healthcare utilization. ³⁸ Additionally, Lin et al. ¹ and Chen et al. ²⁷ simulated the effectiveness of copayment policies, revealing adverse effects on outpatient and emergency care utilization, respectively. Chen further conducted a welfare analysis of copayment adjustments for emergency department visits, demonstrating that while higher copayments did not produce a pricing-out effect or significant welfare gains, a negative long-term association between copayments and emergency department utilization was evident. ⁸ Moreover, Yang et al investigated the influence of persistent behavior and cost-sharing policies on outpatient care utilization among Taiwan’s elderly population using a dynamic panel count data model. ³⁹ Their findings suggest that elderly individuals exhibit greater price sensitivity over time, indicating that copayment interventions may be more effective in the long term. Furthermore, Liu et al employed a conventional time-series model to identify the determinants of medical spending, concluding that the 1999 upward copayment adjustments significantly reduced medical spending. ⁴⁰ This negative relationship was further corroborated by Huang and Tung, who confirmed the reduction in outpatient care utilization following the 1999 adjustments. ⁴¹ This body of literature underscores the consistent evidence of a negative relationship between copayment adjustments and healthcare utilization across various settings and methodologies.

Motivations and Objectives

Although previous studies have indicated that copayment policies may effectively reduce healthcare utilization, they typically do not consider outpatient care services as a bundle of non-prescription drug services (such as therapy or treatment) and prescription drugs under Taiwan’s NHI program. Moreover, these studies often overlook the reasons behind the NHIA’s transition from a price-differentiating scheme (with different copayment fees for non-referral and referral patients) to a bundled and 2-tiered pricing scheme (with a fixed copayment fee before consultation with a physician and an additional user fee for prescription drugs after receiving medical orders). To address this research gap, the objective of this study is to simulate the welfare effects of the new bundled and 2-tiered pricing cost-sharing policy on outpatient care utilization in medical centers and regional hospitals under Taiwan’s NHI program.

Research Design & Welfare Effect Analysis

This study adopts an observational time series design, employing multiple time series models to analyze secondary data and address its primary research objective. It is important to clarify that this study adopts a macroeconomic simulation of the welfare effects of the bundled and 2-tiered pricing scheme prior to the enforcement of the 2023 copayment policy reform, rather than as a microeconomic evaluation of the policy’s effectiveness after its implementation. This approach is necessary because the 2023 claims data from the NHI program may not be available for research purposes until as late as the end of 2025. Furthermore, under a new data collection regulation introduced in 2025, NHI beneficiaries now have the right to withhold their data from being used for research purposes, which may further restrict data accessibility. The empirical procedure used to investigate the welfare effect of copayment adjustment on outpatient care utilization in Taiwan’s hospitals 2 steps: First, we applied the time-series structural change model to reveal dynamic change of patient behavior when seeking outpatient care. Second, the net welfare effect due to copayment adjustment was examined. The implementation of the user fee policy with a bundled and 2-tiered pricing scheme for outpatient care utilization in hospitals by the NHIA involves 2 main stages (see Figure 1). In the first stage, patients are required to pay a fixed copayment (P₀) for their outpatient visits (Q₀) before consulting with a physician. The full price for outpatient visits (Q₀), which includes non-prescription drug services (such as treatment or therapy), is represented as P₁, where P₁ equals P₀ plus the reimbursement for these non-prescription drug services (P₁ − P₀). In the second stage, the full price for outpatient visits (Q₀), including both non-prescription and prescription drugs, is denoted as P_f, where P_f equals P₁ plus the reimbursement for prescription drugs (P_f − P₁).

OPEN IN VIEWER

Figure 1.

Illustration for welfare effects.

It is important to note that the user fee for prescription drugs is a portion of the full price of the prescription drugs (P_f − P₁) since the theoretical maximum user fee charged for prescription drugs corresponds to the full price of the prescription drugs (P_f − P₁). Nevertheless, the imposition of a user fee for prescription drugs effectively reduces the DWL associated with their outpatient care utilization, as patients are more likely to adhere to physicians’ orders and pay the associated user fee for prescription drugs. Consequently, the DWL for outpatient visits (Q₀) is less than the area Δafh, while the WTP per outpatient visit remains within the area Δacf, divided by the number of outpatient visits (Q₀). Since we specified our demand function for outpatient care as the Cobb-Douglas functional form, the change in consumer surplus(ΔCS) can be approximated using the compensating variation (CV) derived by Hausman ⁴² for a change in copayment per outpatient visit from P_i to P_j. The technical details of the empirical procedure for the welfare analyses are provided in the Supplemental Materials.

Variables Definitions & Sources of Data

The data for this research were obtained from Taiwan’s National Health Insurance Research Database (NHIRD), the Demographic Statistics Database (DSD), and the Macroeconomics Statistics Database (MSD) administered by the Taiwanese government. The data from the DSD and MSD databases are publicly available; however, access to data from the NHIRD is restricted and requires a formal application and approval. Links to these databases are provided in the Supplemental Materials. This study utilized only aggregate data from all residents in Taiwan and did not involve any individual-level data. As such, the use of de-identified data does not pose any ethical concerns for this study. The monthly outpatient care demand per patient in medical centers and regional hospitals was calculated as the average number of outpatient visits per patient in these hospitals. Copayment fee for physician consultations and user fee for both regular and refillable prescription drugs were determined based on the NHIA regulations for outpatient care visits. Note that refillable prescriptions are issued exclusively to patients with chronic illnesses under NHI regulations. Thus, monthly reimbursements for physician consultations and regular prescription drugs per outpatient visit in medical centers and regional hospitals were sourced from the entire pool of Taiwan’s NHI beneficiaries, while data on reimbursements for first-time refillable prescriptions were specifically gathered from patients with chronic illnesses.

The monthly wage income level was specified as the regular wage income in the industrial sector. To ensure consistency and comparability across time, all monetary values, including copayments, user fees, reimbursements, and income variables, were adjusted to 2021 price levels using relevant price indices, such as the medical price index and consumer price index. Control variables in our empirical analysis included the total wage income index for the healthcare industry (which reflects the income level of healthcare workers), the old-age healthcare-worker dependency ratio (measured as the number of individuals aged 65 and above per 100 healthcare workers, indicating the burden on healthcare workers due to population aging), monthly dummy variables, indicators for copayment policy changes, and the COVID-19 pandemic period. The breakpoint unit root test ⁴³ was employed to assess stationarity in the time series, while the Hodrick-Prescott filter ⁴⁴ was applied to extract the cyclical component of the old-age healthcare-worker dependency ratio, ensuring stationarity.

Data Collection

Given that the revised copayment policy applies exclusively to regional hospitals and medical centers in Taiwan, this study focuses on aggregate outpatient care utilization by all NHI beneficiaries in these 2 hospital types from January 2000 to December 2021, yielding a total of 264 monthly observations. The study adheres to the STROBE (Strengthening the Reporting of Observational Studies in Epidemiology) guidelines, ⁴⁵ and the completed EQUATOR checklist is presented in Supplemental Table A3 of the Supplemental Materials.

Policy Implications

Several policy implications can be derived from our empirical findings, which are outlined as follows: First, the design of the copayment policy for outpatient care utilization in hospitals under Taiwan’s NHI program is divided into 2 schemes: the price-differentiating scheme^1,2 (ie, varying copayments for referral vs non-referral outpatient visits) and the bundled and 2-tiered pricing scheme^9,10 (ie, a fixed copayment for non-prescription drug services and a cost-sharing rate with a cap for prescription drugs for an outpatient visit). It is important to note that non-prescription and prescription drug services are complementary and bundled in hospital outpatient visits, and patients are often unaware of the prescription drug costs until after their consultation with a physician. The fixed copayment for non-prescription drug services represents the effective price patients face, while the cost-sharing rate for prescription drugs is unlikely to influence patients’ WTP for outpatient visits, as demonstrated in Figure 1. Nevertheless, the cost-sharing rate for prescription drugs was intended as a tool to reduce DWL associated with outpatient care utilization in hospitals.

Second, prior research on copayment adjustments under the price-differentiating scheme has indicated negligible effects on medical care utilization and DWL associated with outpatient care utilization.^1,2,8,27 Evidence from Table 3 shows that the DWL per outpatient visit resulting from regular prescription drugs (with a 20% cost-sharing rate capped at NT$200) is significantly lower than that associated with refillable prescription drugs (which have no cost-sharing rate) in both medical centers and regional hospitals. These findings suggest that neglecting to account for the bundled and 2-tiered pricing scheme may lead to an underestimation of the welfare gains resulting from copayment policy changes under Taiwan’s NHI program.

Third, the results from Table 3 indicate that the share of DWL attributed to refillable prescription drugs bundled within an outpatient care visit, ranging from 17.32% in medical centers to 42.20% in regional hospitals, is substantially higher than that of regular prescription drugs, which ranges from 14.58% in medical centers to 31.15% in regional hospitals. Therefore, in order to reduce the DWL associated with outpatient care utilization, a higher cost-sharing rate should be applied to refillable prescription drugs compared to regular prescription drugs within an outpatient visit. Additionally, the higher cost-sharing rate should be more prominently applied to refillable prescription drugs obtained from outpatient care visits to regional hospitals compared to medical centers.

Fourth, the results from Table 3 indicate that the share of WTP for non-prescription drug services bundled within an outpatient care visit ranges from 47.67% to 53.61% of the total WTP for an outpatient visit in medical centers, and from 59.78% to 71.46% in regional hospitals. These findings may validate the NHIA’s practice of using copayment adjustments for non-prescription drugs services as a means to manage outpatient care utilization in hospitals, despite the documented ineffectiveness of such policies in the literature.^1,2,8,27,47 Furthermore, the WTP for prescription drugs bundled within an outpatient visit ranges from NT$939 to NT$1210 in medical centers and from NT$308 to NT$544 in regional hospitals, all of which exceed the newly implemented cost-sharing cap of NT$300, effective as of July 2023. These findings provide strong evidence in support of the new copayment policy, which advocates for an upward adjustment of the cost-sharing cap from NT$200 to NT$300 for outpatient regular prescription drugs, as well as the imposition of a 20% cost-sharing rate with a cap of NT$300 for outpatient refillable prescription drugs. Consistent results from the expanded simulation scenarios presented in the Supplemental Materials further reinforce this policy direction.

Fifth, although the effective price faced by patients is the fixed physician consultation copayment fee, the cost-sharing scheme for prescription drugs within an outpatient visit may increase the overall cost for patients seeking follow-up outpatient care in hospitals. This could potentially price out the poor and the sick, who are most likely to require hospital outpatient care, from Taiwan’s NHI program. While previous studies on the pricing-out effects due to increased user fees for healthcare services have found that such increases generally produce only slight or insignificant pricing-out effects on healthcare utilization under Taiwan’s NHI program,^8,47 evidence from Figure 3 suggests that adjustments in outpatient care copayments may have regressive income effects on outpatient care utilization in medical centers. Therefore, for low-income individuals, even modest copayment increases are perceived as losses due to limited resources, consistent with prospect theory’s emphasis on loss aversion. ⁴⁸ This perception heightens the risk of care avoidance or delay, despite positive health outcomes.

Policy Recommendations

Given the regressive effects of copayment observed in medical centers, policymakers should carefully consider the potential exclusion of vulnerable populations when implementing higher cost-sharing rates on prescription drugs bundled within outpatient care visits in these settings.

As our analysis supports the effectiveness of the 2-tiered pricing scheme in mitigating DWL in outpatient care utilization, policymakers may consider extending this approach to medical tests provided through outpatient care. Specifically, copayment adjustments for such tests in Taiwan’s hospitals could be explored under the bundled and 2-tiered pricing scheme to enhance efficiency and equity.

Research Limitations

This study has several limitations. First, we lack access to the out-of-pocket payment per outpatient visit, preventing us from accurately measuring the true user fee and full price of outpatient care utilization. Nevertheless, any simultaneous underestimation of these 2 prices is unlikely to introduce significant bias in the net welfare gain or loss, as the net effect on our welfare analysis remains minimal. Second, as Chen argues, the price elasticity of outpatient care demand driven by real copayment changes (primarily due to increases in the medical price index in this study) may differ from that driven by nominal copayment adjustments. ⁸ While nominal copayment adjustments may lead to short-term Money Illusion, Lucas’s critique suggests that rational individuals are not susceptible to such illusions. ⁴⁹ Nominal copayments are measured in monetary terms, whereas real copayments account for the value of healthcare services. Differences in real copayments reflect variations in the quantities of outpatient care services that an individual’s income can purchase. From the perspective of rational expectations in resource allocation, price elasticity based on real copayment changes is more suitable for calculating the welfare effects of copayment adjustments in the long run. Third, numerical simulations of WTP and DWL based on time-series aggregate data rest on key economic assumptions: stable preferences within a relatively homogeneous population over the study period, the absence of supply constraints—as is typical under Taiwan’s NHI program—and the use of linear approximation methods (eg, the triangle rule illustrated in Figure 2). These assumptions limit the generalizability of our findings to other healthcare systems with differing institutional or market conditions. Fourth, the implementation of a bundled and tiered pricing scheme may heighten patients’ awareness of total costs associated with follow-up outpatient visits. Nevertheless, as the empirical analysis is based on aggregate time-series data, the resulting inferences pertain only to initial outpatient visits and do not capture behavior related to subsequent follow-up care. Therefore, future research should employ individual-level data to better capture the impact of the bundled and tiered pricing scheme on care-seeking behavior across the continuum of visits—from initial to follow-up. Microeconomic evaluation methods, such as difference-in-differences methodology, should be applied to identify the causal effects of copayment changes on healthcare utilization decisions and behavioral responses.