The Effect of Health Care Cost Growth on the U.S. Economy. Cross-Sectional Analysis Using State-Level Data

09/01/2007

We first use data on all 50 states for the year 2004 (the most recent year for which these data are available) and examine the association between health care costs and aggregate economic indicators including per capita gross state product (GSP) and unemployment rate.  Table 3 provides descriptive statistics for these variables.

Differences in aggregate economic indicators between states with high versus low health care costs are examined. A state was coded as having high health care cost if the per capita health expenditure for that state exceeded the median per capita health expenditure ($5,260) for all states in 2004. The simple comparisons presented in Table 4 suggest that states with high health cost tend to have higher per capita GSP, and lower unemployment rate.  For example, states with higher than median health care expenditures had a per capita GSP in 2004 of $40,430.  In contrast, states with lower than median expenditures had a per capita GSP in 2004 of only $36,770. This difference in per capita GSP is statistically significant at the 10% level and suggests a positive association between health care costs and per capita GSP. 

Variable Mean Std. Dev. Min Max
Table 3: Health Care Cost and Aggregate Economic Outcomes in 2004:
Across 50 States
Per capita health care expenditure
(thousands of dollars)
5.33 0.68 4.04 7.07
Per capita GSP (thousands of dollars) 38.60 6.94 26.58 63.00
Unemployment rate (percent) 5.17 0.97 3.30 7.40
Variable States with
low health
care cost
States with
high health
care cost
t-statistic
(p-value)
Table 4: Comparing Outcomes Across States with High versus Low Health Care Cost in 2004
Per capita GSP (thousands of dollars) 36.77 40.43 -1.91
(0.06)
Unemployment rate (percent) 5.37 4.96 1.48
(0.14)

Next, mean values of the indicators are plotted against the quartiles of per capita health expenditure to further investigate possible correlations between high health care costs and these outcomes. Figure 2 also suggests a positive correlation between per capita health expenditure and per capita GSP, with little or no correlation between health expenditure and the unemployment rate.

The cross-sectional analysis described above does not establish that higher health care costs lead to an increase in per capita income. It merely establishes that richer states spend more on health care. In addition, the positive correlation between GSP and health expenditure could also arise due to state-specific attributes that lead some states to have both higher levels of income as well as higher health care costs. Therefore, a longitudinal analysis with the same data follows, which accounts for state specific attributes as well as national time trends that could affect health care costs and aggregate economic indicators.

Figure 2: Average Values of Aggregate Economic Indicators in 2004:
By Quartiles of Per Capita Health Expenditure
Q1,mean values: per capita GSP--37.41, unemployment---5.01; Q2,mean value: per capita GSP--36.19, unemployment---5.70; Q3,mean values: per capita GSP--37.20, unemployment---4.89; Q4,mean values: per capita GSP--43.92, unemployment---5.04.
Note: Per capita GSP in thousands of dollars; unemployment rate in percent.

Q1,mean values: per capita GSP--37.41, unemployment---5.01; Q2,mean value: per capita GSP--36.19, unemployment---5.70; Q3,mean values: per capita GSP--37.20, unemployment---4.89; Q4,mean values: per capita GSP--43.92, unemployment---5.04.

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