It’s NOT the prices, stupid?

A famous paper by Anderson et al. (2003) attempted to explain why health care in the U.S. is so expensive. The answer: “It’s the prices, stupid.” However, is that really the case?

A fascinating blog post on Random Critical Analysis disputes this piece of conventional wisdom. In the U.S., prices certainly have risen. However, they have largely risen in parallel with average incomes. Since healthcare is very labor dependent, it should not be a surprise that changes in health care prices are largely proportional to changes in disposable income (or GDP). What is driving rising health care spending is increased utilization of health care per person.

More health care per person is not only about the number of hospitalizations or number of office visits. Rather, the intensity of services provided during a hospitalization or office visit is much higher, likely due to improvements in health technology. For instance, we see that cost per inpatient admission rose faster than income, which likely suggests (but does not prove) that there was an increase in intensity of services provided.

The U.S. also has worse health outcomes than many developed countries. Is it a problematic health system? In fact, lifestyle factors such as obesity, smoking, traffic accidents, homicides and drug overdoses explain much of this difference.

As the Random Critical Analysis piece states, conventional wisdom on why US health care costs are so high may not always turn out to be correct.

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