Determinants of healthcare expenditures in Iran: evidence from a time series analysis

Background: A dramatic increase in healthcare expenditures is a major health policy concern worldwide. Understanding factors that underlie the growth in healthcare expenditures is essential to assist decision-makers in finding best policies to manage healthcare costs. We aimed to examine the determinants of healthcare spending in Iran over the periods of 1978-2011. Methods: A time series analysis was used to examine the effect of selected socio-economic, demographic and health service input on per capita healthcare expenditures (HCE) in Iran from 1978 to 2011.  Data were retrieved from the Central Bank of Iran, Iranian Statistical Center and World Bank. Autoregressive distributed lag approach and error correction method were employed to examine long- and short-run effects of covariates. Results: Our findings indicated that the GDP per capita, degree of urbanization and illiteracy rate increase healthcare expenditures, while physician per 10,000 populations and proportion of population aged&ge 65 years decrease healthcare expenditures. In addition, we found that healthcare spending is a “necessity good” with long- and short-run income (GDP per capita), elasticities of 0.46 (p<0.01) and 0.67 (p = 0.01), respectively. Conclusion: Our analysis identified GDP per capita, illiteracy rate, degree of urbanization and number of physicians as some of the driving forces behind the persistent increase in HCE in Iran. These findings provide important insights into the growth in HCE in Iran. In addition, since we found that health spending is a “necessity good” in Iran, healthcare services should thus be the object of public funding and government intervention.