Insurance Coverage and the Heterogeneity of Health and Drug Spending in the United States

The rise in health expenditure in the U.S. has generated interest in the determinants of health expenditure at the micro-level; however, individuals may exhibit differential behaviour across different types of health care. In addition, public and private insurance may have an heterogeneous effect on expenditure. In this paper, we examine the determinants of health expenditure with a multivariate regression model along with controls for insurance choice and unobserved health care utilization. We find age-related effects and evidence of moral hazard related to private insurance, while the primary effect of income on expenditure appears to be through the purchase of insurance. The implications of the study are that: (i) policymakers should be less concerned about the effect of ageing on health expenditure; (ii) drug spending may not be related to the expansion of public insurance coverage; and (iii) income may have a negative impact on most elements of health spending.