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.
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