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

09/01/2007

First, a cross-sectional analysis is carried out using data from all 50 states for the year 2004 – the most recent year for which data are available on the variables in the analysis. Table 12 provides descriptive statistics for these variables.

As before, the analysis differentiates between states with high versus low health care costs. A state was defined 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. This analysis therefore examine whether states with high health care expenditures fare worse than others in terms of various indicators. The simple comparisons presented in Table 13 suggest that states with high health cost tend to have significantly higher per capita state government health expenditure and debt.

Variable Obs. Mean Std. Dev. Min Max
Table 12: Health Care Cost and State Government Finances in 2004: Across 50 States
Per capita health care expenditure 50 5.33 0.68 4.04 7.07
Per capita state government
health expenditure
50 0.74 0.20 0.36 1.52
Per capita state government
all other expenditures
50 4.26 1.30 2.91 11.43
Per capita state government
total expenditure
50 5.00 1.38 3.44 12.30
Per capita state government
debt
50 2.81 1.73 0.61 8.71
Note: All variables are in thousands of dollars.
Variable States with
low health
care cost
States with
high health
care cost
t-statistic
(p-value)
Table 13: Comparing Outcomes Across States with High Versus Low
Health Care Cost in 2004
Per capita state government
health expenditure
0.68 0.79 -2.03
(0.05)
Per capita state government
all other expenditures
4.01 4.52 -1.39
(0.17)
Per capita state government
total expenditure
4.69 5.31 -1.61
(0.11)
Per capita state government
debt
2.13 3.49 -3.01
(0.00)
Note: All variables are in thousands of dollars

Next, the means of various outcomes are plotted against quartiles of per capita health expenditure to further investigate possible correlations between high health care costs and the outcomes. These relationships, shown in Figure 9, once again seem to suggest a positive correlation between per capita health expenditure and per capita state government expenditures on health, on other sectors, and per capita state government debt.

The cross-sectional analysis is helpful in uncovering the correlation between health care costs and state government finances.  However, the analysis is limited by the fact that such correlations could arise due to state-specific attributes that lead to some states having both higher government expenditures and higher health care costs.

Therefore, the same data is now utilized for a longitudinal analysis that allows better controls for state-specific attributes as well as for periodic shocks to health care costs and outcomes.

Figure 9: Average Per Capita State Government Expenditure & Debt in 2004:
By Quartiles of Per Capita Health Expenditure
Q1,mean values: health--.63, debt--1.78, all other--3.94, total--4.57; Q2,mean values: health--.73, debt--2.45, all other--4.07, total--4.80; Q3,mean values: health--.69, debt--2.51, all other--3.72, total--4.41; Q4,mean values: health--.91, debt--4.56, all other--5.38, total--6.29.

Note: All variables are in thousands of dollars

Q1,mean values: health--.63, debt--1.78, all other--3.94, total--4.57; Q2,mean values: health--.73, debt--2.45, all other--4.07, total--4.80; Q3,mean values: health--.69, debt--2.51, all other--3.72, total--4.41; Q4,mean values: health--.91, debt--4.56, all other--5.38, total--6.29.

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