HCP’s Joseph P. Newhouse, PhD, and colleagues Sheila Smith and Mark S. Freeland published the article, “Income, Insurance, and Technology: Why Does Health Spending Outpace Economic Growth?” in the September/October issue of Health Affairs. This article revisits Newhouse’s earlier Health Affairs papers, “Medical Care Costs: How Much Welfare Loss?” (1992) and “An Iconoclastic View of Cost Containment” (1993), which explained the primary driver of health spending as technology and its affiliation with a macroeconomic approach.  

In those earlier publications, Newhouse concluded that “if technology had been constant, demographic changes, income growth, and insurance growth would have accounted for ‘well under half—perhaps under a quarter’—of the increase in medical care spending between 1940 and 1990.” Newhouse and colleagues recently updated these conclusions, however, using a further 17 years of data to study the issue. In the current paper, the authors conclude that technology by itself does not contribute as much to health spending growth as originally projected. In their new work, the researchers determined that growth in aggregate income (GDP) is an important driver of health care cost growth and has interacted with technological change to further increase cost growth. In other words, technological change did not occur in a vacuum but was greater because of higher incomes and (probably) greater insurance coverage. Read the full article.