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.