This paper uses annual data for Taiwan from 1970 to 2003 to examine the factors affecting medical expenses. The results are as follows: (1) after the implementation of the National Health Insurance system, the average per capita health care spending increased significantly, by about 16%. (2) The income elasticity of health care spending is greater than 1, which means that it is a luxury good. This is in contrast with the findings of other Taiwanese studies, but supports the results in the foreign literature. (3) Increasing the number of physicians may cause “supply-induced demand”, but other explanatory variables may also affect this. (4) Taiwan has an aging population, and the proportion of ageing population has a positive correlation with health care expenditure. (5) Universal health insurance might lead to an ex post moral hazard.
ISSN: 1792-6599 (Online)