Incentives vs. Controls in Health Policy: Broadening the Debate

By Jack A. Meyer; American Enterprise Institute for Public Policy Research | Go to book overview

5
The Determinants of Rising Health Care Costs: Some Empirical Assessments

John R. Virtsand George W. Wilson

Health care costs have been increasing as a percentage of gross national product (GNP) everywhere in the industrialized Western world. 1 This cost escalation has probably been progressing for centuries by fits and starts. In the United States numerous public policies and programs have contributed to the relatively high escalation experienced in the past several decades. Public and private sector concern is generating a search for diagnosis and prescription. There is no question but that some set of public policies could slow or even halt such escalation, at least for some time--but at what costs and with what other consequences?

The rhetoric concerning the financial problems of U.S. health care has concentrated on the relative rate of health care cost escalation. This concentration is understandable because total costs are among the few easily measurable aspects of health care. The more significant questions to be addressed concern the cost-effectiveness of spending. Unfortunately, cost-effectiveness cannot be readily measured. 2 Health policy analysis will always be of limited value until two fundamental analytical issues are resolved.

First, it must be possible to assess the effects of health care expenditures on the cost of illness--particularly for the nation as a whole but also for communities and individuals. (If this is not possible, we should at least note that the cost of illness has probably declined by more than the increase in expenditure on care, even if the amount of that expenditure may not be economically optimal.) 3 Second, it must be explicitly decided whether cost-effectiveness is to be assessed in relation to individuals or to society.

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