tiểu luận kinh tế lượng FACTORS AFFECTING HOUSEHOLDS’ HEALTH CARE EXPENDITURE IN COUNTRIES IN 2018

This essay aims at evaluating the impact of GDP percapita, life expectancy at birth, final consumption expenditure and out of pocketexpenditure on health care expenditure of 158 random n

FOREIGN TRADE UNIVERSITY FACULTY OF INTERNATIONAL ECONOMICS

Ms Vu Thi Phuong Mai

GROUP MEMBERS

1 Phan Thi Minh Tu - 1810450005

2 Nguyen Minh Chau - 1814450017

3 Nguyen Khanh Ly - 1814450051

4 Nguyen Do Hue Nhi - 1814450060

Hanoi, September 2019

TABLE OF CONTENTS

ABSTRACT 3

INTRODUCTION 4

SECTION 1: OVERVIEW OF THE TOPIC 6

1 Definition 6

2 Economic theories relating to health expenditure 6

3 Related published research: 9

4 Research hypotheses: 12

SECTION 2: MODEL SPECIFICATION 15

1 Methodology 15

2 Theoretical model specification 15

3 Describe the data 17

SECTION 3: ESTIMATED MODEL AND STATISTICAL INFERENCES 21

1 Estimated model 21

2 Hypothesis testing 23

3 Recommendations: 26

CONCLUSION 27

REFERENCES 28

APPENDIX 30

INDIVIDUAL ASSESSMENT 35

The purpose of this report is to understanding more about Econometrics by

health care expenditure, one of the issues that are close to our lives today We choose thehealth expenditure as a dependent variable and life expectancy, final consumptionexpenditure, out of pocket expenditure, GDP per capita as independent variables Aftercollecting data from 158 countries in the world, we run the model and come up with theresult as follows

The result indicates that apart from life expectancy, other independent variablesall have linear relationships with the dependent variable Their regression coefficientsare statistically significant in the model

However, the regression coefficient of life expectancy variable is not statisticallysignificant in our model Therefore, the relationship between health expenditure andlife expectancy is not inferred

Overall, we can conclude that our model is statistically significant at 5% level ofsignificance

From the above results, we make some recommendations in order to give readers

a closer look about this model in practice

Econometrics is the quantitative application of statistical and mathematicalmodels using data to develop theories or test existing hypotheses in economics and to

trials and then compares and contrasts the results against the theory or theories beingtested To understand more deeply about this method, we would like to deliver aeconometrics report under the guidance of Ms Nguyen Thuy Quynh and Ms Vu ThiPhuong Mai

Expenditure on health is growing faster than the rest of the global economy,accounting for 10% of global gross domestic product (GDP) World HealthOrganization (WHO) reveals a swift upward trajectory of global health spending,which is particularly noticeable in low- and middle-income countries where healthspending is growing on average 6% annually compared with 4% in high-incomecountries

Since this subject has become more and more noteworthy, as economicsstudents, we decided to review the topic : “Factors Affecting Households' Health CareExpenditure in Countries in 2018”

In the report, we used econometrics tool “STATA” to analyze the data we haveresearched on World Bank This essay aims at evaluating the impact of GDP percapita, life expectancy at birth, final consumption expenditure and out of pocketexpenditure on health care expenditure of 158 random nations all over the world Inthe end, we are bound to achieve an objective look into the issue as well as applyappropriate measures to make progress in practicing health care tasks

The report includes these contents:

Abstract

Introduction

Section 1: Overview of the topic

Section 2: Model Specification

Section 3: Estimated model and statistical inferences

Conclusion

Appendix

Individual assessment

SECTION 1: OVERVIEW OF THE TOPIC

1 Definition

Health care expenditure is the amount spent by individuals, groups, nations, or private

or public organizations for medical care, prevention, promotion, rehabilitation,community health activities, health administration and regulation and capitalformation with the predominant objective of improving health

2 Economic theories relating to health expenditure

2.1 Demand theory for health care

Preferences for Health and Health Care

In general, health care is only valued to the extent that it improves health, sohealth is primitive in the description of consumers‟ preference Changes in consumerattitudes toward health care can also change demand For example, television, movies,magazines, and advertising may be responsible for changes in people's preferences forcosmetic surgery Moreover, medical science has improved so much that we believethere must be a cure for most ailments As a result, consumers are willing to buylarger quantities of medical services at each possible price

Income and prices

Health care is a normal good Rising inflation-adjusted incomes of consumerscause demand curve for health care services to shift to the right On the other hand, ifreal median family income remains unchanged, there is no influence on the demandcurve

For an individual with a particular health status, changes in the price of medicalcare will affect his demand for consumption If the prices increase, the demand willdecrease and if the prices decrease, the demand will increase However, the demandfor it is relatively inelastic If a consumer is sick and requires medical care, theconsumer will purchase healthcare services at almost any price The consumers‟ability to purchase healthcare is ultimately limited by the customers‟ income, but

consumers are likely to trade off spending on many other products to purchase themedical care needed.

Multiple Goods

We have spoken of health care as a single good or service, but many inputs areused in the production of health from health services Doctors‟ time, hospital beds, X-rays, drugs, and information are all used in the delivery of medical care The prices ofthese inputs will not only determine the overall level of medical care sought byindividuals but also the mix of services through which it is provided This multiplicity

of inputs means that if governments or insurance companies are involved in settingprices for components of medical care, they must be aware of the potential for the mix

of inputs used to change in response to relative price changes

Number of Buyers

As the population increases, the demand for health care increases In addition

to the total number of people, the distribution of older people in the population isimportant As more people move into the 65-and-older age group, the demand forhealth care services becomes greater because older people have more frequent andprolonged spells of illness An increase in substance abuse, involving alcohol, tobacco,

or drugs, also increases the demand for health care For example, if the percentage ofbabies born into drug-prone families increases, the demand for health care will shiftrightward

2.2 Supply theory for health care

Economists often talk of output being produced using a production function

that uses labor, capital, and intermediate inputs The production function of a hospitalincluding:

● The labor in a hospital includes doctors, surgeons, orderlies, technicians,

nurses, administrative staff, janitors, and many others

● The hospital buildings are part of the hospital‟s capital stock In addition,hospitals contain an immense quantity of other capital goods, such as hospitalbeds and diagnostic tools—everything from stethoscopes to x-ray machines.

● Intermediate inputs in a hospital include dressings for wounds, and

pharmaceutical products, such as anesthetics used for operations

Furthermore, factors affecting the supply of health care include:

Number of Sellers

Sellers of health care include hospitals, nursing homes, physicians in privatepractice, HMOs, drug companies, chiropractors, psychologists, and a host of othersuppliers To ensure the quality and safety of health care, virtually every facet of theindustry is regulated and licensed by the government or controlled by the AmericanMedical Association (AMA) The AMA limits the number of persons practicingmedicine primarily through medical school accreditation and licensing requirements.The federal Food and Drug Administration (FDA) required testing that delays theintroduction of new drugs Tighter restrictions on the number of sellers shift the healthcare supply curve leftward, and reduced restrictions shift the supply curve rightward

Resource Prices

An increase in the costs of resources underlying the supply of health care shiftsthe supply curve leftward By far the single most important factor behind increasinghealth care expenditure has been technological change New diagnostic, surgical, andtherapeutic equipment is used extensively in the healthcare industry, and the result ishigher costs Wages, salaries, and other costs, such as the costs of malpractice suits,also influence the supply curve If hospitals, for example, are paying higher prices forinputs used to produce health care, the supply curve shifts to the left because the samequantities may be supplied only at higher prices

3 Related published research:

According to the report “ Determinants of Healthcare Expenditure in EconomicCooperation Organization (ECO) Countries: Evidence from Panel CointegrationTests” from The International Journal of Health Policy and Management, there are twocompletely contradictory views about the relationship between healthcare spendingand production levels First, healthy workers are more efficient than others They havemore time for working and their time is not wasted for treatment Secondly, healthexpenditures are considered as “costs” These expenditures cause resources transferfrom other sectors of economy to the health sector and are the reason why the level ofproduction has diminished in countries Therefore, health economists pay moreattention to health expenditures and study the determinants of health expenditures Aresearch in the United States has shown that the share of GDP devoted to healthcareexpenditures grew from 9% in 1980 to 16% in 2008 Meanwhile, in Iran, the healthexpenditures per capita increased from $80 in 1995 to $247 in 2005 in averageexchange rates Long-term prediction also indicates that health expenditures continue

to increase The findings of the study revealed a positive long-term relationshipbetween the percentage of urbanisation and the health expenditures This is due to thefact that the individuals in urban regions have more access to healthcare providers,such as hospitals and clinics, and use more healthcare services leading to higherhealthcare expenditures

An study of Determinants of Health Care Expenditures and the Contribution ofAssociated Factors in Korea during 2003-2010 also show that health care expenditureshave been drastically increasing every year Medical expenses covered by healthinsurance, which were about 13 trillion won in 2001, had jumped 2.6-fold by 2010,reaching around 34 trillion Korean won This was an average increase of over 11%annually in the first decade of the 21st century Such a trend raises concerns over thesustainability of health insurance finance following the increase in health careexpenditures Medical costs can be explained by determinant factors that are produced

by multiplying the volume of health services by the unit cost per service According tothe fee-for-service system used in Korea, the unit cost is determined by multiplyingrelative value units per service by a conversion factor The conversion factor is

determined through negotiation between the National Health Insurance Service andsupplier groups every year The only mechanism by which insurers can controlmedical expenditures is this conversion factor Although the Korean governmentcontrolled the conversion factor in order to keep down medical expenses in healthinsurance for over ten years beginning 2001, under the current circumstances in whichthere is no mechanism to control the frequency or intensity of health services, healthcare expenditures continue to increase.To date, studies on determinant factors ofhealth care expenditures have mostly used approaches focusing on the use of healthservices (based on the volume and price of health services) or an economic approachusing demand and supply factors of health services Factors such as gross domesticproduct (GDP), population size, composition of the elderly population, number ofphysicians, number of medical institutions, and unit costs of services have been amajor focus in such studies According to many previous studies, variables includingGDP per capita and the proportion of the population aged 65 and over had asignificant influence on national health care expenditure increases The overallMedicare Economic Index (MEI) and regional MEI were calculated using theConsumer Price Index and Producer Price Index of 16 cities and provinces The totalrates of increase in health insurance medical expenses and annual rates of change inthe number of health insurance beneficiaries and beneficiaries older than 65 years oldwere computed using National Health Insurance statistical yearbooks For example,the annual growth rate of the GDP per capita was produced by dividing the differencebetween the GDP per capita of year t and GDP per capita of year t-1 by the GDP percapita in year t-1.

In another happenings, Baltagi and Moscone (Badi H Baltagi & Moscone2010) present a negative long-term relationship was found between the healthexpenditures and ageing groups In case the proportion of the individuals below 15and over 65 years old is more in a country, the country is considered healthy and, as aresult, people consume less expensive healthcare compared to a country withunhealthy people Banins found that health expenditures increased when a countryreached higher life expectancy and started to decrease after achieving its peak

A detailed study from World Health Organization named “ The determinants ofhealth expenditure: A Country-level Panel Data Analysis” gave some key finding aswell First factor affecting on household health expenditure is income In globalliterature, Musgrove, Zeramdini and Carrin used cross section data from 191 countries

in 1997 and found that income elasticity of health expenditure was between 1.133 and1.275 depending on the data included Another study by Gaag and Stimac using crosssection data from a 175 countries in 2004 found that income elasticity for healthexpenditure was 1.09 They also presented the results by geographical region andfound that income elasticity ranged from 0.830 in the Middle East to 1.197 in OECDcountries Murthy and Okunade used cross-sectional data in 2001 from 44 Africancountries and found an income elasticity between 1.089 and 1.121, depending on thespecification used (van der Gaag & Stimac 2008) Schieber and Maeda used crosssection data in 1994 estimated global income elasticity at 1.13 and found higherincome elasticity for public spending than for private spending (Schieber & Maeda1999) Health system characteristics such as Service provision, health financing -differences in health expenditure between tax-based vs social-insurance basedsystems were examined in OECD countries and eastern European and central Asian(ECA) countries (A Wagstaff & Bank 2009; A Wagstaff & R Moreno-Serra 2009).The OECD study found that health expenditure per capita was higher in countrieswhere a social health insurance mechanism exists The ECA study suggested percapita government health expenditure was higher in countries with social healthinsurance as compared to countries that relied solely on general taxation; Externalfunds - whereas there was no significant impact of health-specific officialdevelopment aid (ODA) on total health expenditure, health specific ODA has anelasticity of 0.138 against public spending on health (van der Gaag & Stimac 2008)

Lu et al 2010 found that that health ODA channeled through the non-governmentsector had a positive relationship with general government health expenditure, while anegative correlation was found when it was channeled through government sector (Lu

et al 2010); Provider payment mechanisms shift from financing hospitals throughbudgets to fee-for-services or patient-based payment mechanisms was associated with

increases in both public and private components of health expenditure in a study fromECA countries.

Population age structure and epidemiological needs plays the role of the secondfactor Population age structure is often included as a covariate in health Commonlyused indicators are the share of young (e.g., under 15 years) and old people (e.g.,above 65 or 75 years) over the active or total population These variables are generallyinsignificant when included in regression models explaining per-capita healthspending (Leu 1986; Leu 1986; Hitiris & Posnett 1992; L Di Matteo & R Di Matteo1998) Epidemiological need is sometimes also incorporated as a covariate throughvarious proxies Lu et al used HIV seroprevalence as a proxy and found that it had nosignificant relationship with general government health expenditure as a share ofGDP Murthy and Okunade found that maternal mortality rate had no relationship withhealth expenditure in African countries

4 Research hypotheses:

After studying related theories and referring to domestic and foreign studies,our research team searched and synthesized following hypotheses to study the factorsaffecting the households‟ healthcare expenditure of countries in the world

4.1 Life expectancy:

Life expectancy has been improving for many decades, and there is evidencethat health among the elderly is also improving The aging process changes both thebody and the mind Many aging changes are physiological in nature, as the bodybegins to degenerate and break down Declining health is a common issue with aging,with many illnesses and diseases plaguing the elderly population For this reason, theconsumption for healthcare is important to the elderly Hence, when people are gettingolder, their spendings for healthcare are increasing

Figure 1 The relationship between Life Expectancy and Healthcare Expenditure

Our team hypothesized that:

Life expectancy has a positive effect on healthcare expenditure The higher life expectancy is, the more spending people spend on their healthcare.

4.2 Gross Domestic Product (GDP):

Gross domestic products (GDP) is a monetary measure of the market value ofall the final goods and services (including health care service) produced in a specifictime period, often annually The growth of a country's GDP represents not only theeconomic development but also the improvement of other aspects of that country such

as infrastructure, education, medical, etc Furthermore, the hypothesis outcome of aresearch team, whose members are Sojib Bin Zaman, Naznin Hossain, Varshil Mehta,Shuchita Sharmin and Shakeel Ahmed Ibne Mahmood, suggests that there is apositive relationship between GDP and Healthcare Expenditure Countries with highGDP are likely to spend more money on healthcare than countries with lower GDP

Therefore, our team hypothesized that:

GDP has a positive effect on healthcare expenditure The higher GDP is, the more spending people spend on their healthcare.

In the national accounts expenditure on goods and services that are used for thedirect satisfaction of individual needs (individual consumption) or collective needs of

members of the community (collective consumption) is recorded in the use of incomeaccount under the transaction final consumption expenditure (FCE) The mostimportant part of final consumption expenditure is household final consumptionexpenditure (including healthcare expense) According to WHO, Health expenditureshare, or the percentage of the household expenditure spent on health care, is anecessary spending for members of the households However, previous researches didnot clarify the relationship between Final Consumption Expenditure and HealthcareExpenditure.

We decided to examine this determinant and hypothesize that:

Final Consumption Expenditure has a positive effect on healthcare expenditure The higher Final Consumption Expenditure is, the more spending people spend on their healthcare.

4.4 Out of Pocket Expenditure:

Out-of-pocket payments (OOPs) are defined as direct payments made byindividuals to health care providers at the time of service use This excludes anyprepayment for health services, for example in the form of taxes or specific insurancepremiums or contributions and, where possible, net of any reimbursements to theindividual who made the payments

OOPs are part of the health financing landscape in all countries relying on userfees and co-payments to mobilize revenue, rationalize the use of health services,contain health system costs or improve health system efficiency and service quality

In the report of WHO, the households with high Out of Pocket Expenditurehave the higher spending on healthcare than the lower ones

Therefore, our team hypothesized that:

Out of Pocket Expenditure has a positive effect on healthcare expenditure The higher Out of Pocket Expenditure is, the more spending people spend on their healthcare.

Group‟s hypotheses are tested through estimated model and statistical

inferences in section 3

SECTION 2: MODEL SPECIFICATION

1 Methodology

1.1 Method of collecting data

The collected data is in the form of secondary information and cross - sectiondata, showing the factors which affect households‟ health care expenditure based on

158 observations in 2018 in 158 countries The data was taken from the highlyaccurate source which is World Bank

1.2 Method used to analyze the data and derive the model

The team used multiple linear regression model in combination with OLS(Ordinary Least Square) estimation method to analyze the relationship between healthexpenditure and other factors including GDP per capita, life expectancy at birth, finalconsumption expenditure and out of pocket expenditure

During the course of the project, the team used the knowledge of econometricswith the main support of STATA software, Microsoft Excel, Microsoft Word forsynthesis and completion of this project

2 Theoretical model specification

2.1 Determine the model type

From the reference of previous researches, the team decided to use populationlinear regression function to carry out the project The population regression functionconsists of 1 dependent variable and 4 independent variables

Where: : intercept term

: partial regression coefficients

u: disturbance

2.2 Explain the variables

product per capita

- That life expectancy is higher leads to the increase in the elderly population It

is well understood that ageing population require more health services whichcould result in higher health expenditure

- GDP is the most effective factor in determining the health expenditures.Countries with good economic infrastructure have more knowledge about thebenefits of healthcare and, consequently, they use healthcare more than othercountries

- As the concern of good health among people is rising, they demand for morehealth goods and services Therefore, higher consumption expenditure mayconsist of higher health expenditure

- The expenses that the patient or the family pays directly to the health care

Expenditure‟ Higher out of pocket expenses will lead to higher health

expenditure

3 Describe the data

3.1 Source of Data:

Source of data used for each variable is in this below table: