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A primary objective of the current health care reform proposals is to curb our health expenditures. In 1991 health care accounted for 13.4 percent of Gross Domestic Product (GDP), up from 9.6 percent ten years earlier. Reform packages typically include efficiency-improving measures to lower health care expenditures. However, they often fail to address the causes of rising health care outlays. We should not expect to achieve a permanent reduction in the growth rate of health care expenditures simply by reducing inefficiencies. Such reform proposals might slow the growth of expenditures in the short term, but unless the underlying causes of the increases are addressed, we should expect the basic trend of rising expenditures to dominate health spending patterns again.
Three causes of the increases in health care expenditures stand out from a list of numerous possibilities: new medical technologies, an increasingly older population, and rising incomes. New medical technologies have brought new procedures that we might have been willing to purchase years earlier had they been available; as our population continues to age, the associated medical expenditures continue to grow; and rising per capita income has occasioned even faster increases in health care expenditures. It is even possible that technological progress in other sectors of the economy leads us to devote a greater portion of our growing income to health care.
WE ARE NOT ALONE
Comparisons of health spending patterns between the United States and other member countries of the Organization for Economic Cooperation and Development (OECD) lead to the impression that there is something wrong with the cost at which markets in the United States deliver health care. However, rising health care expenditures are not limited to the United States. A brief examination of OECD experiences shows that many other countries are dealing with health care expenditures that are rising faster than GDP, and with heath care inflation that is outpacing overall inflation.
Canada has recently been trying to legislate a slowdown in the growth of health expenditures. Originally, transfers from the federal government to the provinces for maintaining the national health service had annual per capita increases that were tied to increases in GDP. In 1986 the rate of increase was cut by 2 percent, and in 1989 it was reduced by...