Forecasting Health Expenditures: Short, Medium and Long (Long) Term

Abstract

As the forecasting perspective changes from short to medium to long run, the appropriate measure of health spending and the choice of which variables to hold constant, and which to include, changes. In the short run, current dollar spending is the best unit, and the primary factors affecting spending are contracts (insurance, labor) and inflation. In the medium run, real per capita health expenditures are a better measure, and prior growth of income is the primary factor. In the long run, the percentage of GDP is the best measure, and the structure of the health system and operation of budget constraints become the most important determinants. Accuracy of ±1%-2% per year is obtainable. A major issue is whether the recent moderation in the rate of growth of spending is a pause, or a turning point.

Keywords: Forecasting, Health Expenditures, Wages, Lags

JEL Classification: I1, H51, C53