It was asked recently on politics SE what drove healthcare (actually healthcare insurance) prices in the US to rise faster than the CPI.

Neither of the top two answers resorted any actual econometric analysis, but both illustrate some popular ideas/answers to this question namely:

  • demand for healthcare is inelastic; healthcare/insurance providers basically extract economic rent (most upvoted)
  • the market is not free due to licensing and other forms of regulatory capture (2nd most upvoted & accepted answer)

In a comment below the 2nd answer from this short list, it was pointed out that other confounding factors may exist, e.g. price increases due to technological innovations (e.g. MRI) that suddenly everybody wants once they become available.

Looking at Wikipedia's article on this [which none of the P.SE answers actually bothered with], it does say for example that:

The Congressional Budget Office analyzed the reasons for healthcare cost inflation over time, reporting in 2008 that: "Although many factors contributed to the growth, most analysts have concluded that the bulk of the long-term rise resulted from the health care system's use of new medical services that were made possible by technological advances..." In summarizing several studies, CBO reported the following drove the indicated share (shown as a range across three studies) of the increase from 1940 to 1990:

  • Technology changes: 38-65%. CBO defined this as "any changes in clinical practice that enhance the ability of providers to diagnose, treat, or prevent health problems."
  • Personal income growth: 5-23%. Persons with more income tend to spend a greater share of it on healthcare.
  • Administrative costs: 3-13%.
  • Aging of the population: 2%. As the country ages, more persons require more expensive treatments, as the aged tend to be sicker.

According to Federal Reserve data, healthcare annual inflation rates have declined in recent decades:

  • 1970-1979: 7.8%
  • 1980-1989: 8.3%
  • 1990-1999: 5.3%
  • 2000-2009: 4.1%
  • 2010-2016: 3.0%

While this inflation rate has declined, it has generally remained above the rate of economic growth, resulting in a steady increase of health expenditures relative to GDP from 6% in 1970 to nearly 18% in 2015. [CDC cited for this last sentence].

What I want to ask here: are there any (IGM-like) surveys what economists think were the main factors for the faster-than-CPI US healthcare cost inflation, particularly over longer time frames? Does a survey of economists find agreement for example with the CBO's conclusion that technological changes were the main factor over longer time frames?

If there are no such surveys, are there highly-cited economics papers that substantially disagree with the CBO on the determinants?


1 Answer 1


This was actually already indirectly answered by the IGM forum.

In this question the forum asks economists the following:

The US spends roughly 17% of GDP on healthcare, according to the OECD; most European countries spend less than 12% of GDP.

Higher quality-adjusted US healthcare prices contribute relatively more to the extra US spending than does the combination of higher quantity and quality of US care (interpreting quantity and quality to reflect both greater American healthcare needs due to underlying population health and the delivery of more or better healthcare services to Americans).

With the following answers:

From European economists:

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From US economists:

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This answer (albeit only indirectly) suggests most top policy economists think there is some factor other than technology or quantity demanded that is leading to the increased cost of American healthcare. If you skim the survey some of the alternative reasons presented include increased barriers to entry for American physicians, a dysfunctional insurance system, and market power in the American hospital system.

  • 2
    $\begingroup$ If the majority of economists agree that the shift in quality and quantity of healthcare have contributed relatively less to the increased level of spending wouldn't it actually be the exact opposite of what you're saying? And this leaves open the question of what exactly those alternative factors are. $\endgroup$
    – H Rogers
    Commented Mar 9, 2020 at 14:06

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