Is the United States in the middle of a healthcare bubble?

from Latest Results for The European Journal of Health Economics at http://bit.ly/1BvLxvl on January 30, 2015

Abstract

Objectives

This study investigates the possibility of multiple healthcare bubbles in the US healthcare market.


Methods

We first applied the newly developed Generalized Sup ADF test to locate multiple healthcare bubble episodes and then estimated the switching regression model specifying multiple healthcare bubble periods to evaluate to what extent macroeconomic variables (such as the interest rate, public debt, and fiscal deficit) and public financing healthcare programs influence the magnitude of healthcare bubbles in terms of the deviation of the medical care price inflation from either the overall price inflation or the money wage growth.


Results

Our results show that expansionary monetary and fiscal policies play important roles in determining the deviation of the medical care price inflation from the overall price inflation and that the net government debt has a positive impact on the deviation of the medical care price inflation from the money wage growth. The US healthcare market is now in the middle of a healthcare bubble, and this healthcare bubble has developed slowly and has lasted for approximately 3 decades, mirroring an increased societal preference for healthcare.


Conclusions

Policymakers in the US should cautiously consider the fact that healthcare bubbles must imply a misallocation of resources into healthcare, leading to negative consequences on the sustainability of the healthcare system.