Modeling healthcare expenditures: overview of the literature and evidence from a panel time-series model

The rapid growth of healthcare expenditures in the past 40 years in many industrial countries has contributed to an improvement in life expectancy and the quality of life, but has also jeopardized the sustainability of public budgets. For the future, it is important to get more insight into the determinants of this growth. Factors, such as aging, income growth and technological development have been discussed extensively. In this review, we want to pay attention to a somewhat neglected factor: the increase in the relative price of healthcare. Owing to the Baumol effect, healthcare tends to become more expensive over time. How does the demand for healthcare react to this price increase?