Empirical Testing of Grossman’s the Demand for Health Model: The Case of Russia

Abstract

Healthcare services constitute one of the most important markets as they are used by all people regardless of age, wealth, and worldview. In order to effectively manage both private and public healthcare systems and to expand the scope of services provided in a timely manner, it is necessary to understand the nature of the demand for health, depending on the development of society and individuals. This paper is devoted to the empirical testing of one of the most influential models of health economics – Michael Grossman’s model of health demand – by means of econometrical modelling. We used data from RLMS HSE (Russia Longitudinal Monitoring Survey of HSE) for 2019 and 2020. The paper tested the hypotheses that educational level positively affects the demand for health, that women invest in their health more responsibly than men, that the “age”- “demand for health” link has non-linear character, and the rate of health amortization is not constant during the life of an individual. We concluded that health demonstrates the features of both consumption and investment good. It was also found that income affects the demand for health just within the consumption interpretation of this construct, not within the investment one. The study showed that people with a low income tend to consume medical services more actively by spending more time in hospitals. It can be assumed that demand for medical services will increase during the economic crisis, job cuts, inflation, and a drop in real incomes of the population. The results of the study may help to predict the demand and consumption of medical services and to facilitate decision-making in Russia's healthcare system in the future.