NCPA - National Center for Policy Analysis

Why Health Costs Are Still Rising

November 18, 2010

Prices for medical services have been rising faster than prices of other goods and services for as long as anyone can remember.  But not all health care prices are rising, says Devon Herrick, a senior fellow with the National Center for Policy Analysis.

Most people pay for only a small portion of their medical care:

  • For every $1 worth of hospital care consumed, the patient pays only about three cents out of pocket, on the average; 97 cents is paid by a third party.
  • For every $1 worth of physician services consumed, the patient pays less than 10 cents out of pocket, on the average.
  • For the health care system as a whole, every time patients consume $1 in services, they pay only 12 cents out of pocket.

Thus the incentive for patients is to consume hospital services until they are worth only whatever they pay out of pocket. 

Cosmetic surgery is one of the few types of medical care for which consumers pay almost exclusively out of pocket.  Even so, the demand for cosmetic surgery has exploded in recent years.  Despite a huge increase in demand, cosmetic surgeons' fees have remained relatively stable, says Herrick. 

  • Since 1992, medical care prices have increased an average of 98 percent.
  • The price of physician services rose by 74 percent.
  • The increase in the price of all goods, as measured by the consumer price index (CPI), was 53 percent.
  • Yet, an index of cosmetic surgery prices only rose only about 21 percent.

Thus, while the price of medical care generally rose almost twice as fast as the CPI, the price of cosmetic surgery went up less than half as much.

The contrast between cosmetic surgery and other medical services is important.  One sector has a competitive marketplace and stable prices.  The other does not, says Herrick.

Source: Devon Herrick, "Why Health Costs Are Still Rising," National Center for Policy Analysis, November 18, 2010.

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