Health Insurance

Can we explain the growth in health care spending with growth in pet care spending?

A blog post by Austin Frakt of the Incidental Economist says the answer is yes.

In almost every year since the 1960s, health care spending has grown at least as fast as the overall economy, and often much faster. Health economists have long debated why.

Strange as it may sound, how we care for our pets offers some answers.

The pet care markets look a little like the market for human health care. Health spending by American households has grown 50 percent between 1996 and 2012. Pet care spending has grown by a similar amount, 60 percent, though from a much smaller base. (Americans spent more than $15 billion on pet health care in 2015, but $3.2 trillion on human health care.)

An estimated 68 percent of households have pets; those families with higher incomes spend more, which is also true of human care. And they spend more toward the end of humans’ and pets’ lives alike.

The supply of both physicians and of veterinarians has grown at a more rapid rate than overall employment. Since 1996, the number of physicians has grown by about 40 percent. The number of veterinarians is up 100 percent.

Frakt cites an NBER paper by Einav, Finkelstein and Gupta (2017) and gives a few possibilities. First, doctors and veteranarians are highly credentialed individuals with high wages. Second, there is a lot of innovation in the healthcare treatment of both humans and animals. Third, the spending on healthcare for family members and pets are both emotionally charged and individuals have a hard time limiting spending when people or pets become ill. Fourth, in both markets–more so for humans, but increasingly so for pets–individuals value insurance to smooth consumption in the case that they, their family members or their pets become ill.

In the case of health care spending, it looks like a dog can teach a person new tricks.

1 Comment

  1. This story is very interesting as it relates to a few of the trends that we are seeing in the healthcare arena; there will be some major changes to the industry over the next few years.

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