Health Care Inflation

In the decades prior to the establishment of Medicare and Medicaid, health care spending was relatively moderate, and never rose above 6 percent of GDP.  With the expansion of government insurance, however, health care has steadily claimed more and more resources – rising to more than 16 percent of GDP today.

Despite this temporal association, many economic studies suggest that technology is the cause of as much as 65 percent of the growth of medical spending.  Now a new study by Amy Finkelstein of MIT sorts through new evidence and finds that the problem is with demand, not with supply.  Third-party insurance is responsible for more than half of the growth of health care spending.

A clear implication (but not one made by Finkelstein) is that spending can potentially be slowed by shifting from third-party insurance to individual self-insurance through individually owned health accounts.

Read the full article

Comments (8)

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  1. Anonymous says:

    Thanks for the article. It does show that if it is paid for by someone else, they will use it! If you build it that way, they will come. The big disconnect between user and payor is driving unfettered utilization. Providers like it; there are more of them and more procedures to do. Insurance companies like it because they get to manage a huge amount of money for a fee. Employees/patients like it because they get what ever they want when ever they want it. The only ones squeezed are the employers or government who are paying for it. And afterall they have the “deep pockets” right!
    Health Savings Accounts will help many but it takes huge amounts of education in a medical delivery system that has not been open to explaning much to patients or the payors. Just getting patients in the driver seat does not mean they can drive or know the road! Tricia

  2. Anonymous says:

    Second this motion.
    Matter of fact I wrote a little book some years ago describing third-party health insurance as the Tragic Flaw and Medicare as the Big Bang. Title: THE GRAND DISGUISE.
    My current Blog defines health insurance as not insurance at all, and CDHC as the light in the wilderness. See:
    William C (Bill) Waters III MD

  3. Anonymous says:

    Good article. It’s a bit of a teaser though. What we need to know is if the increased spending lead to better health. I’m going to speculate that the increases in marginal spending weren’t equal to that of marginal health. Thanks! -Rob

  4. Anonymous says:

    A cost driver that I have never seen mentioned is the fear of a socialist system.

    Physicians spend 10 to 16 years post high school in preparation. Frequent loud calls for all physicians to become civil servants create panic. How will I (the new physicians) pay my education debits? How will I make an income to compensate me for those lost years when I was in training? The answer is often to get all you can while you can because the government is going to close the system down.

    Charles Akins MD

  5. BINGO. When it only costs $20-25 to see a doctor, there will be overuse of physician services and when it costs more to go to the movies than to see one’s physician, the public is unlikely to have any concept of the education, training, knowledge, experience, wisdom, commitment, sensitivity and caring necessary to make a fine physician who then is no longer honored or revered, but is looked upon merely as an easily replaceable service provider. No wonder our system is flawed.

    Dr. Bob Kramer

  6. Kenneth D. Hunt says:

    One of the best ways of making hospital care more affordable to all is through the integration of foreign hospitals in domestic U.S. medical networks, together with the implementation of an electronic health network that will enable doctors to make referrals to either local or international specialists and providing hospitals. The overall objective should be optimize the the patient procurement/referral services to ensure optimal usage of hospital theatres and facilities. Patients using this system would have personal electronic health records (HIPAA compliant) that would enable the referring physicians, providing specialists and providing hospitals to better manage the entire process and ensure the best possible health outcomes. With this reduced risk model, it will be possible to introduce special purpose insurance products that will cover such things as complications (4.1 billion annually as of 2004) and medical accident compensation insurance (reduce the cost of medical mal) These products will reduce the hospital bill and also private health insurance premiums. We have designed such a system that is already cut the cost of expatriate health care by more than 40% p.a. since 2002.

  7. […] According to Amy Finkelstein, although Medicare was financially important to the elderly, it created no discernable health benefits in terms of reduced mortality. [link] […]

  8. […] have previously reported that the federal government is the primary cause of health care inflation. And every country that has ever adopted national health insurance has experienced […]