A multiple equation model of demand for health care

Abstract

Planning health care facilities for the future requires a means of estimating future consumption of services. Demand for medical care is looked upon as demand for separate components (hospital, doctor, dentist, medicine, other) rather than for a single, homogeneous product. A simultaneous equation model is proposed, and measures representing the forces thought to influence consumption (need, realization, motivation, resources, and availability of service) are fitted into the five equations. An optimized analysis variance method is employed on data from a sample survey of Michigan's population in 1958 to obtain single equation estimates of the five demand functions as a preliminary test of the model. The optimizing feature, which also includes an examination of complex interactions, retains variables in the equation on the basis of their estimating ability. The results indicate that a high degree of joint dependency exists among the components and that a simultaneous equation model is warranted. The study, intended as a research design, also reveals considerable variety in component equations, certain relevant and irrelevant variables, several important interactions, and a need for refining some measures in future studies.