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The determinants of health care expenditure growth

Author

Listed:
  • Nigel Rice

    (Centre for Health Economics, University of York, York, UK)

  • Maria Jose Aragon

    (Centre for Health Economics, University of York, York, UK)

Abstract

Understanding the drivers of growth in health care expenditure is crucial for forecasting future health care requirements and to ameliorate inefficient expenditure. This paper considers the detailed breakdown of hospital inpatient expenditures across the period 2007/08 to 2014/15. Decomposition techniques are used to unpick the observed rise in expenditure into a component due to a change in the distribution of characteristics, for example, greater prevalence of morbidity, and a component due to structural changes in the impact of such characteristics on expenditures (coefficient effects, for example, due to technological change). This is undertaken at the mean using standard decomposition techniques, but also across the full distribution of expenditures to gain an understanding of where in the distribution growth and its determinants are most relevant. Decomposition at the mean indicates a larger role for a structural change in characteristics rather than a change in coefficients. A key driver is an increased prevalence of comorbidities. When considering the full distribution we observe a decrease in expenditure at the bottom of the distribution (bottom two quintiles) but increasing expenditure thereafter. The largest increases are observed at the top of the expenditure distribution. Where changes in structural characteristics dominate changes in coefficients in explaining the rise in expenditure. Increases in comorbidities (and the average number of first diagnoses) across the two periods, together with increases in non-elective long stay episodes and non-elective bed days are important drivers of expenditure increases.

Suggested Citation

  • Nigel Rice & Maria Jose Aragon, 2018. "The determinants of health care expenditure growth," Working Papers 156cherp, Centre for Health Economics, University of York.
  • Handle: RePEc:chy:respap:156cherp
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    References listed on IDEAS

    as
    1. Howdon, Daniel & Rice, Nigel, 2018. "Health care expenditures, age, proximity to death and morbidity: Implications for an ageing population," Journal of Health Economics, Elsevier, vol. 57(C), pages 60-74.
    2. Myeong-Su Yun, 2005. "A Simple Solution to the Identification Problem in Detailed Wage Decompositions," Economic Inquiry, Western Economic Association International, vol. 43(4), pages 766-772, October.
    3. Brigitte Dormont & Michel Grignon & Hélène Huber, 2006. "Health expenditure growth: reassessing the threat of ageing," Health Economics, John Wiley & Sons, Ltd., vol. 15(9), pages 947-963, September.
    4. Thomas E. Getzen, 2001. "Aging and health care expenditures: A comment on Zweifel, Felder and Meiers," Health Economics, John Wiley & Sons, Ltd., vol. 10(2), pages 175-177, March.
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    Citations

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    Cited by:

    1. Idaira Rodriguez Santana & María José Aragón & Nigel Rice & Anne Rosemary Mason, 2020. "Trends in and drivers of healthcare expenditure in the English NHS: a retrospective analysis," Health Economics Review, Springer, vol. 10(1), pages 1-11, December.
    2. Anowor Oluchukwu F.* & Nwonye Nnenna Georgina & Okorie George Chisom & Ojiogu Michael C., 2019. "Health Outcomes and Agricultural Output in Nigeria," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 5(5), pages 106-111, 05-2019.
    3. Laudicella, Mauro & Di Donni, Paolo & Rose Olsen, Kim & Gyrd-Hansen, Dorte, 2020. "Age, morbidity, or something else? A residual approach using microdata to measure the impact of technological progress on health care expenditure," DaCHE discussion papers 2020:4, University of Southern Denmark, Dache - Danish Centre for Health Economics.
    4. Anne Mason & Idaira Rodriguez Santana & María José Aragón & Nigel Rice & Martin Chalkley & Raphael Wittenberg & Jose-Luis Fernandez, 2019. "Drivers of health care expenditure: Final report," Working Papers 169cherp, Centre for Health Economics, University of York.

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    More about this item

    Keywords

    English National Health Service; Health care expenditure growth; Decomposition analysis; Drivers of expenditure;
    All these keywords.

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • I19 - Health, Education, and Welfare - - Health - - - Other

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