Why Are Health Costs Rising?
by Devon Herrick

Excerpt:

"Prices for medical services have been rising faster than prices of other goods
and services for as long as anyone can remember. But not all health care prices
are rising.

Although health care inflation is robust for those services paid by third-party
insurance, prices are rising only moderately for services patients buy directly.

For example, the real (inflation-adjusted) price of cosmetic surgery fell over
the past decade despite a huge increase in demand and considerable innovation.

Lesson: Health Care Costs Rise When Others Pay.

A primary reason why health care costs are soaring is that most of the time
when we enter the medical marketplace as patients, we are spending someone
else's money.

Economic studies and common sense confirm that we are less likely to be prudent,
careful shoppers if someone else is paying the bill.

When we are paying our own medical bills, we are conservative consumers. The
increase in spending has occurred because someone else is paying the bill.

Thus we have an incentive to consume hospital services until they are worth to
us, on the average, only three cents on the dollar. We have an incentive to
consume physician's services until they are worth only 15 cents on the dollar.
And for the health care system as a whole, our incentive is to utilize
everything modern medicine offers until the value to us is only 18 cents out of
the last dollar spent.

Medical Inflation.

Prior to the advent of Medicare and Medicaid in 1965, health care spending
neverexceeded 6 percent of gross domestic product. Today it is 14 percent. These
two government programs unleashed a torrent of new spending and led to rising
health care prices."

Full article:

www.ncpa.org
NCPA Brief Analysis No. 437

The National Center of Policy Analysis (NCPA) is a nonprofit, nonpartisan public
policy research organization, established in 1983. The NCPA's goal is to develop
and promote private alternatives to government regulation and control, solving
problems by relying on the strength of the competitive, entrepreneurial private
sector