Shared ‘features’ in prices: Income and price elasticities for health care expenditures

The evidence found in most studies suggests a strong positive relationship between health care expenditure and gross domestic product. However, this evidence weakens with respect to the actual value of the income elasticity. There are two possible sources of these discrepancies, the use of arbitrary deflators and specification errors. We find that health PPP cannot be taken as a ‘universal’ price index. The problem is that its components do not move together. Nevertheless, we derive a ‘universal’ health price index from a dynamic system in which its components share both short and long run co-movements. The omission of relevant explanatory variables seems to be the main cause of the discrepancies. We confirm that there exists a strong positive relationship between per capita health care expenditure and per capita GDP. However we estimate a long run income elasticity at or around unity, although it is greater than unity for the countries with lower per capita income (Spain and Ireland). The results for income elasticity are the same regardless of whether health care expenditure is converted using the GDP PPP or the ‘universal’ health price index. The importance of non-income variables is also confirmed, in particular the relative price of health care. We find that relative price has a strong rationing effect on the quantity of health demanded and has no effect on the expenditures.     

Consumer price sensitivity and health plan choice in a regulated competition setting

We estimate premium elasticities in a regulated competition market based on a quasi‐exogenous premium increase for young adults in Switzerland. We exploit that individuals born before the turn of the year (“treatment group”) face a larger increase in premiums than individuals born after the turn of the year (“control group”). We find that the treatment group is 1.5 times more likely to switch their health plan than the control group. Overall, individuals respond to premium increases by choosing more frequently health plans with managed care features, increasing the deductible, and by switching the insurer. Regarding health plan choice, we find an average elasticity of ?0.56 with regard to the relative premium difference of any plan to the status quo contract. The elasticity is up to 5 times larger for the treated (?1.03) than for the controls (?0.19). Our results are not driven by health status as measured by health care expenditures and chronic conditions. Rather, our findings suggest that the difference in the premium elasticity is driven by the salience of the premium increase. We argue that this finding is of high relevance for health care policies that aim at fostering health plan competition.     

Outpatient visits after retirement in Europe and the US

I conduct an empirical analysis of the relation between retirement and outpatient care use in Europe and the US, and investigate the potential driving factors of that. I link the empirical analysis to a theoretical model of medical care demand. I document that pensioners tend to visit a doctor with higher probability and more often than the rest of the 50+ population. Ceteris paribus, being retired implies 3–10 % more outpatient visits in Europe. The estimates are of similar magnitude in the US. The paper contributes to the understanding of how population ageing plays a part in the rising health care expenditures. I find evidence that retirement related individual characteristics, increasing leisure time and stronger health preferences all contribute to the positive relation between retirement and outpatient care use, which is mainly driven by the healthier individuals. The gatekeeper role of general practitioners can mitigate the increased demand for outpatient care services after retirement.     

Subsidies to employee health insurance premiums and the health insurance market

One approach to covering the uninsured that is frequently advocated by policy-makers is subsidizing the employee portion of employer-provided health insurance premiums. But, since the vast majority of those offered employer-provided health insurance already take it up, such an approach is only appealing if there is a very high takeup elasticity among those who are offered and uninsured. Moreover, if plan choice decisions are price elastic, then such subsidies can at the same time increase health care costs by inducing selection of more expensive plans. We study an excellent example of such subsidies: the introduction of pre-tax premiums for postal employees in 1994, and then for the remaining federal employees in 2000. We do so using a census of personnel records for all federal employees from 1991 through 2002. We find that there is a very small elasticity of insurance takeup with respect to its after-tax price, and a modest elasticity of plan choice. Our results suggest that the federal government did little to improve insurance coverage, but much to increase health care expenditures, through this policy change.     

Health care expenditures and gross domestic product: the Turkish case

Our study examines the long-term relationship among per capita gross domestic product (GDP), per capita health expenditures and population growth rate in Turkey during the period 1984–2006, employing the Johansen multivariate cointegration technique. Related previous studies on OECD countries have mostly excluded Turkey—itself an OECD country. The only study on Turkey examines the period 1984–1998. However, after 1998, major events and policy changes that had a substantial impact on income and health expenditures took place in Turkey, including a series of reforms to restructure the health and social security system. In contrast to earlier findings in the literature, we find that the income elasticity of total health expenditures is less than one, which indicates that health care is a necessity in Turkey during the period of analysis. According to our results, a 10% increase in per capita GDP is associated with an 8.7% increase in total per capita health expenditures, controlling for population growth. We find that the income elasticity of public health expenditures is less than one. But, in the case of private health care expenditures, the elasticity is greater than one, meaning that private health care is a luxury good in Turkey.     

The impact of public voluntary health insurance on private health expenditures in Vietnam

As a financing mechanism with the potential to raise additional funds for health services, whilst improving access to services amongst the poor, non-profit health insurance has become increasingly attractive to health policy-makers. Using data from a household survey in Vietnam, out of pocket health expenditure are compared between members and eligible non-members of the government-implemented voluntary health insurance scheme. Expenditures are analysed for individuals who sought care during their most recent illness. Using an endogenous dummy variable model to control for bias resulting from self-selection into the scheme, we find that health insurance reduces average out-of-pocket expenditures by approximately 200%. Whilst income inelastic, health expenditures are found to be significantly influenced by an individuals level of income, irrespective of insurance status. Despite this, insurance reduces expenditures significantly more for the poor than for the rich.     

Impact of mutual health organizations: evidence from West Africa

Mutual health organizations (MHOs) are voluntary membership organizations providing health insurance services to their members. MHOs aim to increase access to health care by reducing out-of-pocket payments faced by households. We used multiple regression analysis of household survey data from Ghana, Mali and Senegal to investigate the determinants of enrollment in MHOs, and the impact of MHO membership on use of health care services and on out-of-pocket health care expenditures for outpatient care and hospitalization. We found strong evidence that households headed by women are more likely to enroll in MHOs than households headed by men. Education of the household head is positively associated with MHO enrollment. The evidence on the association between household economic status and MHO enrollment indicates that individuals from the richest quintiles are more likely to be enrolled than anyone else. We did not find evidence that individuals from the poorest quintiles tend to be excluded from MHOs. MHO members are more likely to seek formal health care in Ghana and Mali, although this result was not confirmed in Senegal. While our evidence on whether MHO membership is associated with higher probability of hospitalization is inconclusive, we find that MHO membership offers protection against the potentially catastrophic expenditures related to hospitalization. However, MHO membership does not appear to have a significant effect on out-of-pocket expenditures for curative outpatient care.     

A mixed logit model of health care provider choice: analysis of NSS data for rural India

In order to address the persistent problems of access to and delivery of health care in rural India, a better understanding of the individual provider choice decision is required. This paper is an attempt in this direction as it investigates the determinants of outpatient health care provider choice in rural India in the mixed multinomial logit (MMNL) framework. This is the first application of the mixed logit to the modeling of health care utilization. We also use the multiple imputation technique to impute the missing prices of providers that an individual did not visit when she was ill. Using data from National Sample Survey Organization of India, we find the following: price and distance to a health facility play significant roles in health care provider choice decision; when health status is poor, distance plays a less significant role in an adult's provider choice decision; price elasticity of demand for outpatient care varies with income, with low-income groups being more price-sensitive than high-income ones. Furthermore, outpatient care for children is more price-elastic than that for adults, which reflects the socio-economic structure of a typical household in rural India where an adult's health is more important than that of a child for the household's economic sustenance.     

Population aging effects on inpatient care expenditures: a disaggregated analysis for two Brazilian metropolitan areas

This paper examines the impact of changes in population age distribution on inpatient care expenditures in Brazil. The authors use data from two highly distinct metropolitan areas, Curitiba (Paraná State) and Belém (Paraná State), in order to determine to what extent current differences in expenditures are explained by differences in: (i) age distributions, (ii) age-specific expenditures (price effects), and (iii) utilization rates (rate effects). The study also looks at the consequences of future changes in age distribution by simulating each of the effects (age distribution, price, and rate) under the projected population age distribution for Brazil in 2050. The results show that only 13% of current differences in health expenditures in Curitiba and Belém are explained by differences in age distribution. Most of the difference is due to price effect (72%), probably because of large socioeconomic and epidemiological discrepancies in these two metropolitan areas. However, simulations for 2050 suggest that most future changes in inpatient care will be explained by population aging effects.     

Household income and health care expenditures in Mexico

The purpose of this paper is to examine the determinants of household health expenditures in Mexico. Our analysis involves the estimation of household monetary health care expenditures, using the economic and demographic characteristics of the household as covariates. We pay particular attention to the impact of household income on health expenditures, estimating the elasticity of health care expenditures with respect to income for different income groups and according to health insurance status. For the empirical analysis, we use the Mexican National Survey of Income and Expenditures of 1989. Our principle findings show that monetary health expenditures by Mexican households are sensitive to changes in household income levels and that the group which is most responsive to changes in income levels in the lower-income uninsured group. This suggests that in times of economic crisis, these households reduce cash expenditures on health care by proportionately more than higher-income and insured households.     

Marginal benefit incidence of public health spending: evidence from Indonesian sub-national data

We examine the marginal effects of decentralized public health spending by incorporating estimates of behavioural responses to changes in health spending in benefit incidence analysis. The analysis is based on a panel dataset of 207 Indonesian districts over the period from 2001 to 2004. We show that district public health spending is largely driven by central government transfers, with an elasticity of around 0.9. We find a positive effect of public health spending on utilization of outpatient care in the public sector for the poorest two quartiles. We find no evidence that public expenditures crowd out utilization of private services or household health spending. Our analysis suggests that increased public health spending improves targeting to the poor, as behavioural changes in public health care utilization are pro-poor. Nonetheless, most of the benefits of the additional spending accrued to existing users of services, as initial utilization shares outweigh the behavioural responses.     

Switching costs, price sensitivity and health plan choice

We investigate the extent to which sensitivity to health plan premiums differs across individuals according to characteristics related to the cost of switching plans. Our results indicate substantial variation in price sensitivity related to expected health care costs: younger, healthier employees are between two and four times more sensitive to price than employees who are older and who have been recently hospitalized or diagnosed with cancer. We also find evidence of status quo bias: estimated premium elasticities are significantly higher for new hires than for incumbent employees. Simulations combining our results with actuarial data illustrate the cost implications of risk-related differences in price elasticity.     

Why do the sick not utilise health care? The case of Zambia

When ill the individual faces the options of seeking health care, using self-medication or doing nothing. In an economic perspective, an individual's propensity to utilise health care is determined by the costs of utilisation and the perceived benefits of health care. The propensity to utilise health care may hence be expected to vary between individuals. In this paper we attempt on the one hand to determine what factors influence sick individuals' propensity to seek health care at a health facility or use self-medication (or do nothing), and on the other hand attempt to determine the factors that influence the magnitude of their expenditures for health care, in particular what other factors than just health status influence utilisation. For the empirical analysis, data, covering 9700 individuals, from the 1998 Living Conditions Monitoring Survey (LCMS) is used. We use a Multinomial Logit selection model to estimate the equation, which allows us to analyse health-care utilisation through two separate processes, the decision to seek care and the magnitude of expenditures incurred. In general, we find that the individuals are influenced by income, insurance, type of illness and access variables such as distance and owning a vehicle.     

Demand for medical care in a rural setting: racial comparisons.

Household data from a southern rural community are used to examine racial differences in the utilization of medical care services, and both monetary and nonmonetary determinants of demand are considered. Regression analysis results indicate that office waiting time (for black households) and travel time to the provider (for both black and white households) have a greater impact on demand than price. Racial differences exist in the effects of health insurance coverage and household income on household medical visit expenditures, and both need and household size are found to be consequential determinants of demand.     

Redistributional consequences of community rating.

OBJECTIVE: To predict the geographical effects of community rating of health insurance premiums on the amount individuals pay for insurance. DATA SOURCES: We estimate premiums and health expenditures for a 5 percent sample of Californians from the 1990 U.S. Census (the Public Use Microdata Sample) and use data from Blue Cross of California to adjust for regional price differences in services. STUDY DESIGN: We use an episodic health simulation model to estimate health expenditures for 975,074 Californians. Because the simulations do not reflect expenditure differences due to price variation in cost of services, we adjust these data for relative price differences by county. This leaves us with a sample of Californians for whom we have estimated health expenditures. We then compute average expenditures within areas of different sizes (all California, two regions, within counties) to estimate community-rated premiums. We then compare these premiums with actual expenditures on a county-by-county basis. PRINCIPAL FINDINGS: With a single California-wide premium, rural residents pay premiums that exceed their use of care, while urban residents pay premiums that are less than their use of care. These transfers are substantial. Dividing California into regional risk pools at the county level still results in poorer communities providing substantial subsidies to their more wealthy counterparts. CONCLUSIONS: Mandated community rating of premiums in a heterogeneous state such as California results in large unintended transfers of wealth from poorer, rural communities to urban, wealthier communities. Allowing premiums to vary with the regional cost of medical care would eliminate some of the transfers without sacrificing the benefits of community rating. Subsidies to low-income families could also effectively mitigate this redistribution. UTILITY: This article points out some potentially regressive consequences of geographic community rating and suggests ways to mitigate them.     

Measuring the relationship between income and NHEs (national health expenditures)

This article uses recently published time series data for the Organization for Economic Cooperation and Development countries to estimate income elasticities for health care expenditures. Several different models and alternative specifications are examined to determine the sensitivity and robustness of the estimated relationships. Income is the dominant-determinant of health care spending and longrun income elasticity for health care is significantly greater than unity. This implies that health care is a luxury good, and expenditures will tend to rise with the level of national income. There is little evidence that the degree of public finance reduces the level of health care expenditures.     

International health care spending

Trends in health are reviewed for the member countries of the Organization for Economic Cooperation and Development (OECD) covering the following: the basic difficulties inherent in international comparative studies; the absolute levels of health expenditures in 1984; the levels and rates of growth of the health share in the gross domestic product (GDP) and the public share of total health expenditures; the elasticities of real health expenditures to real GDP for the 1960-75, 1975-84, and 1960-84 time periods; growth in health expenditures for the largest 7 OECD countries in terms of growth in population, health prices, health care prices in excess of overall prices, and utilization/intensity of services per person. International comparisons are a problem due to differences in defining the boundaries of the health sector, the heterogeneity of data, and methodological problems arising from comparing different economic, demographic, cultural, and institutional structures. The most difficult problem in international comparisons of health expenditures is lack of appropriate measures of health outcome. Exhibit 1 contains per capita health expenditures denominated in US dollars based on GDP purchasing power parities for 21 OECD countries for 1984. Per capita health expenditures ranged from less than $500 in Greece, Portugal, and Spain to over $1400 in Sweden and the US, with an OECD average of $871. After adjusting for price level differences, there still appears to be a greater than 3-fold difference in the "volume" of services consumed across the OECD countries. To determine if per capita health expenditures are related to a country's wealth as measured by its per capita GDP, the relationship between per capita health expenditures and per capita GDP for the 21 countries were examined for 1984. The data points and the "best fitting" trend line indicate a statistically significant relationship in which each $100 difference in per capita GDP is associated with a $10.50 difference in per capita health expenditures. The calculated elasticity is 1.4 indicating that each 10% difference in per capita GDP is associated with a 14% difference in per capita health expenditures. The analysis indicates that variations in per capita GDP, alone, are associated with 7 of the variation in per capita health spending. In 1984, health spending in the 18 OECD countries (for which data were consistently available for all 6 different years) was on average 7.5% of GDP. The US had the highest GDP share (10.7%) and Greece had the lowest (4.6%). The average elasticity of 16 of the 18 countries as a group substantially exceeded 1.0 for the 1960-84 period, as well as the 1960-75 (1.6) and 1975-84 (1.3) subperiods. Thus, real health spending increased 60% faster than the real GDP between 1960-84 and between 1960-75 and 30% faster between 1975-84.