Study Says Medicare, Health Insurance May Be Major Cause of Hospital Spending Growth. The Galen crowd are all over this study from an Asst Professor at MIT because it tells apparently a new tale which is that the spread of insurance, especially Medicare, has had the effect of increasing health care spending—rather than the BS foisted by the health care industry which explains that their costs have gone up because of the new medical technology that people want.
Brilliant and totally new, other than the minor fact that it is a concept called derived demand first coined by David Ricardo in the 1820s.
"It is not really true that the price of corn is high because the price of corn land is high. Actually the reverse is more nearly the truth; the price of corn land is high because the price of corn is high!"
Substitute the words health care for “corn” and medical technology for corn land and you have exactly the same thing. (If anyone’s got the brilliant poem about the corn and the hogs from the original text book, please add it to the comments)
So we added a huge amount of fuel to the fire by extending Medicare and private insurance, we left a mechanism where the providers made more money by doing more, and faced no restrictions on what they did, and we developed a medical and social culture where doing more was always regarded as better than doing less (or doing something was regarded as better than doing nothing). Exactly what did we think would happen, given those incentives? Providers would do more, get more medical technology and blame it all on patient demand for more technology. And we agreed to keep paying more. And that has never stopped in the last 75 years.
And of course the HSA crowd think that they have the solution. I’d be a damn site more impressed with this new discovery if Alain Enthoven hadn’t been ascribing the blame for increased health care expenditures to “cost unconscious” demand since the mid-1980s. He had a solution then and one that is much more comprehensive than the “let consumers spend their own money up to the deductible” mantra being quoted now. He just couldn’t get it past the health care industry…and there’s not much reason to think that the HSA backers will have much of a better experience. But at least Enthoven didn’t claim to have introduced the concept of derived demand.