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Healthcare Costs are Up. Why?

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Healthcare Costs are Going Up

Healthcare costs are rising. This is not a repeat from 1960, 1980, 1990, 2000 or just about every year in between.

The chart below is the Census Bureau’s Healthcare CPI over the last 25 years for Physicians, Hospitals and Prescription Drugs. The baseline is 1982.

CPI Medical Care Prices 1980-2007

Year Total Physicians Hospitals Prescription Drugs
1980 75 77 79 73
1985 113 113 117 120
1990 163 160 178 182
1995 221 208 258 235
2000 261 244 317 285
2005 323 288 440 349
2007 351 303 498 369

(Source: 1983 and 2008)

Before seeing this chart, I’d have thought that prescription drugs were the source of the dramatic rise in healthcare costs. I also kinda blamed doctor salaries. But clearly of the three, hospital costs have risen far more than the other two.

For nearly the last two decades, the United States has directed approximately 4.5% of all healthcare spending towards building hospitals and other “facilities.” This is a dramatic increase from earlier decades.

Medical Facility Construction Spending 1965-2005

Year Medical Facilities
Construction		 Medical Structures
and Equipment		 % of Healthcare Spending
1965 $1.3 billion — 3.1%
1970 $2.3 billion — 3.1%
1975 $3.1 billion — 2.3%
1980 $4.0 billion — 1.6%
1990 — $34.7 billion 4.9%
2000 — $63.2 billion 4.7%
2005 — $89.1 billion 4.5%

(Source: 1983 and 2008)

Of course, just because the cost of seeing a regular old doctor hasn’t risen as much as hospitals or taking drugs, I suspect this is balanced out by the fact that the per capita number of active physicians has doubled in the last forty years.

Physicians Rate per 100,000 population: 1950- 2006

Year Total Active
1950 149 —
1960 148 —
1965 153 130
1970 168 138
1975 187 156
1980 211 182
1990 — 216
2006 — 267

(Source: 1983 and 2008)

I’m just saying…..

1 Comment

  1. Brian Karpuk
    Brian Karpuk on September 3, 2009 at 4:34 pm

    The main factor is that the long-term income elasticity of the demand for healthcare is 1.6—for every 1 percent increase in a family’s income, the family wants to increase its expenditures on healthcare by 1.6 percent. This is not a new trend. Between 1875 and 1995, the share of family income spent on food, clothing, and shelter declined from 87 percent to just 30 percent, despite the fact that we eat more food, own more clothes, and have better and larger homes today than we had in 1875. All of this has been made possible by the growth in the productivity of traditional commodities. In the last quarter of the 19th century, it took 1,700 hours of labor to purchase the annual food supply for a family. Today it requires just 260 hours, and it is likely that by 2040, a family’s food supply will be purchased with about 160 hours of labor.(More…)