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Health care policy uncertainty, real health expenditures and health care inflation in the USA

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Abstract

Based on a structural VAR model estimated with Bayesian methods over the period of 1985Q1–2017Q1, we investigate the effects of health care policy uncertainty (HCPU) on the US health sector. We find that HCPU exerts a negative and significant impact on the growth rate of real health expenditures and health care inflation. It has an especially persistent effect on health care inflation and explains a generous portion of the post-2007 decline in the growth rate of health care services prices in the USA. HCPU also dampens the growth rate of GDP and general inflation, eliciting cautiousness from economic agents and acting as a negative aggregate demand shock.

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Notes

  1. We implement the Bayesian VAR estimation with the MATLAB codes of Koop and Korobilis (2010).

  2. Examples of other key terms used by Baker et al. (2016) include health care, Medicaid, malpractice tort reform, malpractice reform, prescription drugs, drug policy, food and drug administration, FDA, prescription drug act, medical insurance reform, medical liability, part D, affordable care act, and Obamacare.

  3. In a separate exercise, we place the Canada variable last in the Cholesky decomposition and assume that shocks to the health sector in Canada have a lag effect on the USA. This is consistent with the fact that Canada is a small open economy and it is more likely that the USA, which is a larger economy, imposes contemporaneous effects on Canada than the other way round. The responses of the US variables based on this exercise are similar to what is shown above and are consistent with our baseline model.

  4. JMulTi software by Lütkepohl and Krätzig (2004) is used for the estimation.

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Acknowledgements

The authors would like to thank Somtip Watanapongvanich for her excellent research assistance, and we would like to thank the anonymous reviewers for their useful suggestions.

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  1. George Dean Johnson, Jr. College of Business and Economics, University of South Carolina Upstate, 160 East St. John Street, Spartanburg, SC, 29306, USA

    Chak Hung Jack Cheng

  2. Faculty of Economics, Chulalongkorn University, Phayathai Road, Bangkok, 10330, Thailand

    Nopphol Witvorapong

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  1. Chak Hung Jack Cheng
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Correspondence to Nopphol Witvorapong.

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Cheng, C.H.J., Witvorapong, N. Health care policy uncertainty, real health expenditures and health care inflation in the USA. Empir Econ 60, 2083–2103 (2021). https://doi.org/10.1007/s00181-019-01818-x

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