The impact of government expenditure on prepayment for health services: Evidence from cointegration analysis in heterogeneous panel data

Prepayment of health care ?financing is a crucial factor to ensure that all individuals have access to effective public and personal health care at a¤ordable prices. However, it is important to fi?nd out what the determinants of the level of prepayment are. More speci?cally, does more government expenditure mean higher prepayment rates in the health ?financing system? What are the different effects of government expenditure towards the two fi?nancing sectors, public ?financing and private prepaid plans, respectively? To answer these questions, the present paper introduces a three-sector health ?nance model and uses 34 OECD member data over the 1990-2009 period through panel cointegration analysis. Our fi?ndings show that, overall, government expenditure increases the level of prepayment in the health ?financing system, although the improvement is varied across economies. Our research also highlights that government expenditure has a signi?cant positive effect on public ?nancing in cases where the system is further divided by financing sectors. However, it does not discourage the growth of private prepaid plans.