Determinants of China's health expenditure growth: based on Baumol's cost disease theory

During the past four decades, China's total health expenditure and health expenditure per capita have both experienced a dramatic increase in growth rate. This study aims to explore the determinants of health expenditure growth and the influencing mechanism of these determinants, with considering the productivity efficiency represented by Baumol's cost disease.

Based on the longitudinal data of 30 provincial-level administrative regions in China, from 2010 to 2017, multi-variates regression models were constructed to assess the determinants, including demography, income, Baumol's cost disease, technology, their effects on per capital total health expenditure growth and the three financing sources: government, society and out-of-pocket health expenditure. Moreover, the Spatial Durbin Model was used to analyze the influence mechanism of determinants on the increase of health expenditure across provinces.

Among 210 province-year growth rate observations, all of the average growth rate of total health expenditure (12.78%) was much higher than the growth rate of per capita GDP (8.06%). According to the statistical analysis, we found that:(1) Income and Baumol's cost disease have a significant positive impact on health expenditure growth(P < 0.01). The impact of technical factors on government health expenditure is significantly positive. (2) The determinants affected the growth of health costs in different regions variably; the eastern region is mainly driven by Baumol's cost disease and technical factors, while the central and western regions are mainly affected by income factors and Baumol's cost disease. (3) There is a significant spatial spillover effect on the health expenditure growth between regions. The income factor and Baumol's cost disease have a positive impact on the health expenditure growth in its own region as well as in other regions.

Income and Baumol's cost disease significantly contributed to China health expenditure growth. The health expenditure determinants showed spatial varies effect and space spillover effect on the neighborhood areas. Which indicates that a reasonable salary system should be contrasted to meet the changeling from the Baumol's cost disease, and the necessity of equity in health resource allocation among provinces in China.