It looks like insurance inflated the healthcare costs more than technology. I’ve been reading Amy Finklestein’s work, like this paper that finds that Medicare increased hospital spending 37% in just 5 years after it was introduced. Spending increased more after 5 years.

Insurance may account for almost half the increase in costs. When the burden of cost is shifted onto third parties, there’s no limit on spending increases. No individual consumer has knowledge of the costs but they know about the benefits. That’s happening across the OECD, so it’s not like US private insurance companies are to blame specifically, anymore than Medicare or the UK’s NHS.

Finklestein found two things. First, Medicare did not increase health care treatment for the elderly. The elderly and sick received necessary healthcare treatment prior to Medicare, so there was little benefit for anyone’s health. Medicare reduced the financial burden for the elderly by shifting the burden to the working class who did not use healthcare. Second, Medicare provided ‘free’ care which encouraged greater spending, similar to the findings of the RAND Healthcare Insurance study. This extra spending does not result in better health.

One result is that US doctors get paid more than they should as do hospitals. Compare this to Europe. European doctors are paid a fixed salary – American doctors are paid per service rendered. Medicare and insurance encourage people to ask for more services than necessary. Doctors in American make two or three times as much money as European doctors. (There’s an old NY Times article here, but you have to purchase it now).

Doctors are paid per service and treatment, even if most are unnecessary. Consumers want all sorts of medical treatments and preventative care that has little effect and they pressure insurance companies to give them it. Most of this extra medical spending is for “comfort” rather than healing medicine.

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