According to the RAND Health Insurance Experiment, which variable has the greatest power in explaining health expenditures?

The RAND Health Insurance Experiment provided significant insights into how different factors contribute to health care expenditures. Among the options listed, prior utilization is recognized as having the greatest power in explaining health expenditures.

Prior utilization reflects an individual's previous experiences with healthcare services, encapsulating patterns such as frequency of doctor visits, hospital stays, and engagement with preventative care. This pattern is critical as it tends to predict future health care usage. Individuals who have utilized health services extensively in the past are likely to continue doing so, due to either ongoing health issues or a higher propensity to seek care. This forecasting ability is crucial in understanding overall trends in health expenditures.

In contrast, welfare eligibility, physical health, and general health are important factors, but they do not encapsulate the direct behaviors and experiences that contribute to healthcare spending in the same way that prior utilization does. For instance, an individual may have access to welfare resources or may self-report good physical or general health, yet still incur high expenditures based on their past usage of health services. Thus, prior utilization serves as a more direct indicator of how much an individual is likely to spend on health care in the future, making it the strongest variable in this context.