Economics - General

Why is healthcare so expensive?

Why is medical care so expensive? It depends on who you ask. Victor Fuchs (1996) polled 46 health economists, 44 economic theorists and 42 practicing physicians. Fuchs asked if they agreed with the following statement: “The primary reason for the increase in the health sector’s share of GDP over the past 30 years is technological change in medicine.”

  • Health Economists: 81% agree,
  • Practicing Physicians: 68% agree,
  • Economic Theorists: 37% agree.

Is technological change the force driving increased health care costs? It depends who you ask.


  1. Dear Sir,

    I follow your blog regularly and appreciate your perspective when discussing HC issues. I was curious what your thoughts are concerning the following argument for addressing HC reform:

    the key points are also listed here:
    1. Modify tax policy to eliminate the disincentives for individual purchase of health insurance and health care.
    2. Eliminate regulatory barriers that prevent small businesses from cooperatively pooling and self-insuring their health risks by liberalizing the rules that govern voluntary health care purchasing cooperatives.
    3. Eliminate laws that prevent interstate purchase of health insurance by individuals and businesses.
    4. Eliminate rules that prevent individuals and group purchasers from tailoring health insurance plans to their needs, including federal and state benefit mandates and community rating requirements.
    5. Eliminate artificial restrictions on the supply of health care services and products, such as the overregulation of drugs and medical devices, as well as state and federal restrictions on who may provide medical services and how they must be delivered.
    6. Improve the availability of provider and procedure-specific cost and quality data for use by individual health consumers.
    7. Reform the jackpot malpractice liability system that delivers windfall punitive damage awards to small numbers of injured patients while it raises malpractice insurance costs for doctors and incentivizes the practice of defensive medicine.

  2. I don’t have access to the article but what are your thoughts on why there is a huge discrepancy between econ theorists and health economists? Theorists lost in the dark?

  3. No rather the reason that healthcare is so expensive is because there are no incentives in the system to reduce costs. The providers can charge whatever they like and the customer doesn’t care since someone else (health insurance) pays for it. This has resulted in rising costs.

    See for an alternative to the administration’s health-care reform which will increase competition and drive down costs.

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