Health Care is an Individual Necessity and a National Luxury: Applying Multilevel Decision Models to the Analysis of Health Care Expenditures

Abstract

Health care is neither "a necessity" or "a luxury" but "both" since the income elasticity varies with the level of analysis. With insurance, individual income elasticities are typically near zero, while national health expenditure elasticities are commonly greater than 1.0. The debate over whether health care is or is not a luxury good arises primarily from the failure to specify levels of analysis clearly so as to distinguish variation within groups from variation between groups. Apparently contradictory empirical results are show to be consistent with a simple nested multilevel model of healthcare spending.

Keywords: Income elasticity, multilevel analysis, health expenditures, aggregation, unit of observation

JEL Classification: I1