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CBO Chief Analyzes Health Costs

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Academic studies suggest that advances in technology, increases in the raw price of health care, and personal income growth propelled U.S. health spending increases between 1940 to 1990.

Peter Orszag, director of the Congressional Budget Officer, presented that conclusion Thursday in a lecture at the Harvard Medical School.

Orszag gave a talk about the lessons that academic economics studies can teach health finance policymakers.

The 3 major 1940-1990 health spending increase analysis studies that Orszag cited suggest the technology-related changes in medical practices are responsible for at least 38% of the growth in health spending and perhaps more than 65% of the total, Orszag said, according to a written version of his remarks posted on the CBO Web site.

Increases in health care prices may have caused 11% to 22% of the increase, and personal income growth may have accounted for 5% to 23% of the increase, Orszag said.

“Administrative costs” and “changes in third-party payment” may have caused a total of about 13% to 26% of the increase in spending, while the the aging of the population and defensive medicine were probably responsible for less than 2% of the increase, Orszag said.

Orszag also presented data from studies that quantify the effects of regional variations in health care customs on health care spending.

Regional variation in health care spending per person has been about 20% higher in the United States than in the United Kingdom, and about 50% higher in the United States than in Canada, Orszag reported.

Until recently, regional variation in Medicare spending was considerably higher in Medicare than in total U.S. health care spending, but Medicare regional variation has been lower than overall U.S. regional variation since 2004, Orszag said.

Orszag noted that the Mayo Clinic, which earns a somewhat higher federal quality score than the University of California at Los Angeles Medical Center earns, charges only about half as much for care.

HYPERLINK “”A copy of the Orszag health economics presentation is available here


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