This paper examines the effects of regulation on the health insurer in Japan. In Japan, the Health Insurance Act allows the insured to choose freely health care providers. This regulation keeps the patients' freedom of access. But it implies that the insurers cannot but reimburse the providers which patients choose, even if they know the providers have less quality. Hence it can be thought to be a regulation to the insurer. This regulation may reduce the social welfare when the patients have little information on the providers.
This paper shows there is a theoretical possibility that the social welfare can be improved by allowing the insurers to contract the providers. The social welfare can be improved if the insurers observe the providers' quality and they contract with ‘high quality’ providers. If it takes the insured significant cost to switch the health care providers, then there is a exceptional case that social welfare cannot be necessarily improved.