The Rise in Medical Expenditures (1)

Paul J. Feldstein is Professor and Robert Gumbiner Chair in Health Care Management at the Paul Merage School of Business, University of California-Irvine. Feldstein has written six books and over sixty articles about health care, including Health Policy Issues: An Economic Perspective, a standard text in Public Health and Health Care Administration programs. Over the next few months, HealthMatters will publish responses to the discussion questions in Professor Feldstein's book, starting with:

What are some of the reasons for the increase in demand for medical services since 1965?

A) Medicare lowered out-of-pocket prices for elders, leading to an increase to an increase in demand for hospital and physician services.

B) In the late 1960s and 1970s, growth in income, the high marginal tax rate, and inflation (which pushed people into higher tax brackets) stimulated growth in private insurance. Employers took advantage of a tax subsidy to provide more before-tax insurance, which in turn stimulated demand.

C) As out-of-pocket expenses declined, patient incentive to worry about price declined, thus increasing use of services.

D) Advances in medical technology not only allowed patients with previously untreatable diseases hope for recovery, it increased their use of medical services.

E) The arrival of new diseases (such as AIDS).

Next: Why has employer-paid health insurance been an important stimulant of demand for health insurance?