Income, Insurance, And Technology: Why Does Health Spending Outpace Economic Growth?

A broad consensus holds that increased medical capability—technology—is the primary driver of health spending growth. However, technology does not expand independently of historical context; it is fueled by rising incomes and more generous insurance coverage. We estimate that medical technology explains 27–48 percent of health spending growth since 1960—a smaller percentage than earlier estimates. Income (gross domestic product, or GDP) growth plays a critical role, primarily through the actions of governments and employers on behalf of pools of consumers. The contribution of insurance is likely to differ, with less of a push from increasing generosity of coverage and more of a push from changes in provider payment.