The Impact of Secondary Environmental Variables on OECD Healthcare Efficiency: A Robust Conditional Approach

In this paper, I estimate country-level efficiency using a newer order-m estimator where I condition efficiency estimates on secondary environmental variables. This allows me to identify which variables influence the effectiveness of a healthcare delivery system. I find that not controlling for secondary environmental variables leads to the average OECD country being 11% inefficient; after controlling for demographics and economic (social protection) environmental variables, inefficiency reduces to 7% (5%). This provides evidence that a substantial part of the inefficiencies of a healthcare system is related to demographics, socioeconomics, and the structure of the healthcare delivery system. Using the second-stage results, I find lower healthcare spending, both as a percent of GDP and total out-of-pocket, as well as more of the population covered by public health insurance, is related to better efficiency. Lower fertility rates, lower immigration rates, higher incomes, and lower pharmaceutical doses are also consistent with better healthcare efficiency. Lastly, a healthcare system that provides a basic benefits package but allows for purchase of private health insurance, with moderate gatekeeping and flexibility to increase the budget for healthcare through public and private financing, are the most efficient healthcare systems.