Impact of National Health Insurance on Entry and Competition in Remote Areas, Evidence from Taiwan's Dental Market

Abstract

This paper assesses the change in the supply of dental clinics after the implementation of Taiwan's National Health Insurance (NHI). Even though the government has enforced lower prices of treatment since the implementation of NHI, the increase in use could actually result in higher revenue for dentists. The higher profit could prompt dentists to attempt to enter markets that were previously unprofitable. This paper tested if NHI increased the dental clinic supply in geographically isolated areas by investigating whether the required minimum market size was reduced. We found that following the implementation of NHI, the per-dental clinic minimum market size significantly decreased. In addition, the decreased minimum market sizes were enabled by a corresponding increase in variable profits which is equal to the difference between price and average variable costs. This implies that the NHI-enlarged health care demand compensates for the possible losses of dental clinics due to price regulation. Furthermore, the results also suggest that the post-NHI dental market becomes more competitive when there is a second entrant in the market, and the level of competition approaches perfect competition when three and more dental clinics serve one market.