Study On Determinants Of Growth Of Total Health Expenditure And Medical Spending

Over the past two decades, total health expenditure (THE) and gross domestic product (GDP) have been increasing in China. It has been assumed that the increase of THE is due to the increase of GDP. During this period, THE has been increasing at a rate of 10% per year on average which is greater than GDP. So, there might be other factors contributing to the increase of THE.In this study, the data of THE in China from 1978-2003 was analyzed. The method of time series to find the main factors which have led to the increase of THE was applied. Previous studies show that the main factors leading to the increase of THE include economic factors, health related factors, and demographic factors. Economic factors include GDP and recurrent expenses of health. Health related factors include health status, number of doctor, beds in the hospital, and the development of medical technology. Demographic factors include the proportion of old people and the proportion of urban population.Traditional regression analysis in ordinary least squares (OLS) estimation might result in "spurious regression". Therefore, this study use the co-integration approach and error correction model to analyze the relationship between GDP and THE. The study also use the approach to analyze the effects of economic factors, health related factors and demographic factors on the increase of THE. We also examine the differences in medical spending between areas of different economic developments.