Why Health Costs Are Still Rising
November 23, 2010
Thursday, November 18, 2010
by Devon Herrick
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 two decades – despite a huge increase in demand and considerable innovation.
Health Care Costs Rise When Others Pay. A primary reason why health care costs are soaring is that most of the time when people enter the medical marketplace, they are spending someone else’s money. When patients pay their own medical bills, they are conservative consumers. Economic studies and common sense confirm that people are less likely to be prudent, careful shoppers if someone else is picking up the tab. Thus, the increase in spending has occurred because third parties – employers, insurance companies or government – pay almost all the bills.