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Objectives: Social security organizations play a central role in financing health care expenditure around the world. In Iran, statistics show the average yearly per capita growth of social security health care expenditure (SHE) in current and constant price is 15.6 and 2.3 percent for the period of 1961 -2003 respectively. From theoretical points these expenditure must remain or decreasing in constant price over time and only factor that cause the increase is real income. So, this article tries to give an answer to this question: what factors determine the changes of yearly per capita health care expenditure of Iran Social Security Organization over the time? Methods: The health insurance approach theory of determinants of the SHE suggest, in order to answer the above question, SHE (dependent variable) must examined against three major groups of explanatory variables (independent variables): economic, demographic, and health stock variables. The method in this paper is regression analysis with a simple Cobb-Douglass cost function. After collecting data and examining all estimating methods, the cost function estimated with ordinary lest square (OLS) method and this method fit data very well. Findings: The main findings of the model are following: 1-real health insurance premium has a positive, elastic and significant effect on SHE. 2-health price index has a positive, inelastic effect on SHE.3-cities with over than 100000 inhabitants has a positive , elastic and significant effect on SHE.4- government public health expenditure has a negative, inelastic effect on SHE.5-number of retirements has a negative and inelastic effect on SHE.6-the real per capita income has a positive and inelastic effect on SHE.7-number of physician pre adjusted population has a positive effect on SHE.8-number of unretired population has a positive effect on SHE. 9-asymmetry information and supplier induced demand have positive and significant effect on SHE. 10-real expenditure on health administration has a positive effect on SHE. When the residuals estimated from the regressions are subjected to the ADF unit root test the conclusion is that they are stationary. The results also suggest the relationship between the dependent and independent variables is not spurious, but it is a co integration relation. Based on the co integration technique, it is found that the dependent and independent variables demonstrate long run relationship. Results: This paper has shown a relatively simple model focusing on a key group of variable, namely economic, health stock and demographic can explain the raise in SHE. There are evidence of existence of supplier induced demand (SID) that makes Iran’s social security organization health expenditure increase over the time. It is necessary to control the behaviors of physicians who induced demand. There are evidence of existence of moral hazard and adverse selection makes SHE increase over time in constant price. Numbers of big cities and health price index have positive effect on SHE. Government health care expenditure has negative effect on SHE. Per capita income has positive effect on SHE. In general, what emerges from these exercises is that changes in the economic, demographic and health stock variables produce persistent changes in the SHE, and these findings don’t support the contention that the per capita real income is the only major determinate of the per capita real health care spending. In order to decrease the speed of SHE growth the main way is to control these variables and decrease their effect on SHE over time.

Keywords: Adverse selection, Health care expenditure, Moral hazard, Social security

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