New evidence on factors affecting the level and growth of US health care spending

The dual problems of high and rising medical care expenditures and substantial differences in spending across geographic regions have long plagued the US health care system. We provide new evidence to explain why some states and regions of the country spend much more on medical care than others, and why health care spending for the nation as a whole has been growing rapidly over the last several decades. To do this, we estimate a health care spending panel data model using annual data on all 50 states for the period 1993-2009. Our model includes a number of socio-economic, health care provider, lifestyle and environmental variables that past studies indicate may affect the level or growth of aggregate health care spending. We exploit the time effect component of our model to obtain an upper-bound estimate of the effect of advances in medical technology. Our findings indicate that the most important factors influencing the level of spending are availability of providers, income, excessive alcohol consumption, Medicaid coverage, HMO health plans and the proportion of the population elderly and African-American. The principal drivers of growth have been the continual introduction of new medical technologies, and the growth of providers and income.