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Managed care, deficit financing, and aggregate health care expenditure in the United States: A cointegration analysis

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Author Info

  • N.R. Murthy

    ()

  • Albert Okunade

    ()

Abstract

We applied a battery of cointegration tests comprising those of Johansen and Juselius [19], Phillips and Hansen [35], and Engle and Granger [6], to model aggregate health care expenditure using 1960–96 US data. The existence of a stable long-run economic relationship or cointegration is confirmed, in the United States, between aggregate health care expenditure and real GDP, population age distribution, managed care enrollment, number of practicing physicians, and government deficits. The evidence of cointegration among these variables, chosen on the theoretical basis of prior studies, implies that while they are individually non-stationary in levels, together they are highly correlated and move, in the long run to form an economic equilibrium relationship of US aggregate health care expenditure. More specifically, and for the first time in this line of inquiry, (i) managed care enrollment is found to be negatively associated with the level of health care spending, (ii) supply disinduced demand effects of physicians tend to moderate health expenditure, and (iii) government deficit financing is positively related to health care spending. The observed sign and magnitude of the income coefficient are consistent with health care being a luxury good. Copyright Kluwer Academic Publishers 2000

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File URL: http://hdl.handle.net/10.1023/A:1019066012984
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Bibliographic Info

Article provided by Springer in its journal Health Care Management Science.

Volume (Year): 3 (2000)
Issue (Month): 4 (September)
Pages: 279-285

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Handle: RePEc:kap:hcarem:v:3:y:2000:i:4:p:279-285

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Web page: http://www.springerlink.com/link.asp?id=101767

Related research

Keywords: health expenditure; cointegration; managed care; physician induced demand; deficit financing;

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Cited by:
  1. Joan Costa-Font & Marin Gemmill & Gloria Rubert, 2008. "Re-visiting the Health Care Luxury Good Hypothesis: Aggregation, Precision, and Publication Biases?," Working Papers in Economics 197, Universitat de Barcelona. Espai de Recerca en Economia.
  2. Faisal Abbas & Ulrich Hiemenz, 2013. "What determines public health expenditures in Pakistan? Role of income, urbanization and unemployment," Economic Change and Restructuring, Springer, vol. 46(4), pages 341-362, November.
  3. Fabio Pammolli & Massimo Riccaboni & Laura Magazzini, 2008. "The Sustainability of European Health Care Systems: Beyond Income and Ageing," Working Papers 52, University of Verona, Department of Economics.
  4. Nilgun Yavuz & Veli Yilanci & Zehra Ozturk, 2013. "Is health care a luxury or a necessity or both? Evidence from Turkey," The European Journal of Health Economics, Springer, vol. 14(1), pages 5-10, February.
  5. Okunade, Albert A. & Murthy, Vasudeva N. R., 2002. "Technology as a 'major driver' of health care costs: a cointegration analysis of the Newhouse conjecture," Journal of Health Economics, Elsevier, vol. 21(1), pages 147-159, January.
  6. Vasudeva Murthy, 2012. "A Time-Series Investigation of the U.S. Real Health Expenditure: Evidence from Nonlinear Unit Root Tests," International Advances in Economic Research, Springer, vol. 18(4), pages 429-438, November.
  7. Abbas, Faisal & Hiemenz, Ulrich, 2011. "Determinants of Public Health expenditures in Pakistan," Discussion Papers 118422, University of Bonn, Center for Development Research (ZEF).
  8. Narayan, Paresh Kumar & Narayan, Seema, 2008. "Does environmental quality influence health expenditures? Empirical evidence from a panel of selected OECD countries," Ecological Economics, Elsevier, vol. 65(2), pages 367-374, April.

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