Abstract
This paper estimates the determinants of aggregate health care expenditure function for the U.S. by applying a cointegration test on a time series data. The evidence presented in the paper supports co integration. The paperlends support to the view that per capita income is the major determinant of aggregate health care expenditure inthe U. S. Age of the population, the number of practicing doctors and the share of public finance do notcontribute significantly to the explanation of the health care spending. The main policy recommendation that canbe drawn from the results is that the health expenditure policy should be coupled not necessarily with theincrease in the supply of physicians or policies that promote competition but, with long-run policies that promotehuman capital. We also find that the mixture of public-private funding does not contribute significantly to theexplanation of the health care expenditure in the U.S.
Highlights
Health spending in the U.S at about 16.5% of Gross Domestic Product (GDP) in 2008, will grow to about 19.6% by 2016 unless drastic reforms take place
The purpose of the paper is to assess the relative importance of the factors determining health expenditure function in the U.S The purpose is not to build any theory underlying the function or to deal with the dynamics of the health care spending dealing data heterogeneity across countries
Our first step is to find if all the variables entering the health expenditure function are integrated of order one or if they have ‘unit roots’
Summary
Health spending in the U.S at about 16.5% of Gross Domestic Product (GDP) in 2008, will grow to about 19.6% by 2016 unless drastic reforms take place. Health care spending in America accounts for a larger share of GDP than in any other major industrialized country. The importance of quantitative studies on health care can hardly be over exaggerated. Hartwig (2008) has recently argued that it is a reflection of the Baumol’s model of unbalanced growth where any wage increase in excess of productivity growth will drive health care expenditure. The purpose of the paper is to assess the relative importance of the factors determining health expenditure function in the U.S The purpose is not to build any theory underlying the function or to deal with the dynamics of the health care spending dealing data heterogeneity across countries. Our interest is to understand why the US health expenditure as a percentage of its GDP is so high
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