Money, medicine and mortality an empirical investigation into the link between health status and health care expenditure.

Abstract

The purpose of this study was to investigate one possible cause for the recent rise OECD health care expenditures, namely the Sisyphus syndrome. In order for a Sisyphus syndrome to exist two dynamic relationships must hold. Firstly, health care expenditure (HCE) must be capable of increasing the life expectancy of the elderly. This is not necessarily guaranteed within developed nations because of the diminishing returns associated with HCE. To examine this, a health production function for a panel of 9 OECD nations over the period 1988 to 1998 was estimated. The first relationship was found to exist with HCE positively contributing to the life expectancies of the elderly (with a lag of five years) at the margin. Secondly, these increased life expectancies must extend the planning horizon of the elderly, encouraging the further consumption of HCE. In short, the Sisyphus syndrome predicts a cycle in which increased HCE will feed back upon itself. This was examined by estimating a HCE function. From this, no evidence was found to support the second relationship. Therefore the rising HCE in the OECD cannot be explained by a Sisyphus syndrome. Future studies should look to explore other avenues to explain rising HCEs.