Technology and health care costs

Friday’s reading list included Health Care Spending Growth: Can We Avoid Fiscal Armageddon? by Michael Chernew. It’s well worth a full read and it is ungated. To those keeping up with issues pertaining to health spending levels and increases, their relations across sectors (public/private), their causes, what’s known about the value obtained for the spending, and implications of the new law, there may not be much new in it. But it is a very handy review article nonetheless.

One passage is particularly insightful:

Confusion over the distinction between price and quantity is illustrated by comments such as: ‘‘Technology lowers costs in all industries except health care.’’ The statement is most relevant if ‘‘costs’’ are defined as ‘‘prices.’’ It is certainly the case that prices in high-technology industries have fallen dramatically as technology advances. Yet spending in those industries has risen. For example, as technology reduced unit costs in the information technology sector, spending growth in the overall sector increased 26% annually from 1982 to 1996.

It’s a great point. Technology may or may not be lowering prices in health care, and it is certainly not lowering overall spending. But the claim that technology plays a role in keeping spending in check in other industries is shaky. It’s not doing so in the IT sector, where technology is everything. Even controlling for inflation and population growth, IT spending has grown.

However, there are areas where technology has reduced prices and real per capita spending. One example is food (see also this). Put it all together and it is not clear we should expect technology to reduce health care spending.

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