The macro determinants of health expenditure in the United States and Canada: assessing the impact of income, age distribution and time

This paper examines the determinants of real per capita health expenditures in order to assess the impact of age distribution, income and time using American state-level data for the period 1980-1998 and Canadian province-level data for the period 1975-2000. Ageing population distributions and income explain a relatively small portion of health expenditures when the impact of time effects, which is a partial proxy for technological change, is controlled for. However, the impact of age is of more concern given that cost increases are concentrated in the last few years of life and there may be cohort effects as the “Baby-Boom” generation ages. There is an urgent need to better understand the exact mechanisms driving health expenditure increases given that time accounts for approximately two-thirds of health expenditure increases and that its effect is non-linear.