An Econometric Analysis of the US Health Care Expenditure

Abstract

This paper estimates the determinants of aggregate health care expenditure function for the U.S. by applying a co integration test on a time series data. The evidence presented in the paper supports co integration. The paper lends support to the view that per capita income is the major determinant of aggregate health care expenditure in the U. S. Age of the population, the number of practicing doctors and the share of public finance do not contribute significantly to the explanation of the health care spending. The main policy recommendation that can be drawn from the results is that the health expenditure policy should be coupled not necessarily with the increase in the supply of physicians or policies that promote competition but, with long-run policies that promote human capital. We also find that the mixture of public-private funding does not contribute significantly to the explanation of the health care expenditure in the U.S.