The OH-SO straight and narrow path: Can the health care expenditure curve be bent?



Although there is much talk about whether or not the current health care reform will ‘bend’ the health care expenditure ‘curve’, exactly which ‘curve’ is to be ‘bent’ is often ill-specified. This essay notes that the ‘curve’ defined by the log of US national health care expenditures per capita plotted against the log of the US gross domestic product per capita has been remarkably straight since 1929 despite Medicare and Medicaid and all of the more recent reform attempts. After establishing stationarity and considering cointegration and endogeneity, the slope of this log–log relationship suggests a per capita expenditure–income elasticity of 1.388.

The authors suggest two explanatory hypotheses consistent with the observed constant slope. First, many new technologies are endogenous because their introduction is determined by their expected market, which is in turn dependent on GDP per capita. Second, the authors emphasize the potential utility gained by spending disproportionately larger proportions of our growing income on hope, uncertainty-reducing information, and consumer amenities, all of which may be independent of any improved health outcome.

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Health Economics



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Copyright © 2011 John Wiley & Sons, Ltd.