Technological Change and the
Growth of Health Care Spending
January 2008
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In this analysis, the Congressional Budget Office (CBO) defines technological advances broadly to include any changes in clinical practice that enhance the ability of providers to diagnose, treat, or prevent health problems.
Unless otherwise specified, historical spending data are for health care services and supplies, a subset of the national health expenditure accounts (Centers for Medicare and Medicaid Services).
Inflation adjustments are made using the gross domestic product implicit price deflator (Bureau of Economic Analysis).
Unless otherwise specified, all spending amounts are in 2005 dollars.
References to the reports that were part of the literature review conducted for this analysis are referred to in footnotes by author’s last name, a short title of the work, and the year of publication. Complete citations are given in the bibliography in the section titled "Reports Reviewed by CBO."
Preface
Health care costs in the United States have grown substantially for decades and are expected to continue to grow in the future. For the federal government, rising health care costs constitute the principal challenge of fiscal policy—no other single factor will exert more influence over the long-term balance of the federal budget. The effects of rising health care costs are not limited to public programs, however. Private payers have experienced similar growth in costs.
This Congressional Budget Office (CBO) paper—written at the request of the Chairman of the Senate Committee on the Budget—describes the historical growth in spending on health care in the United States. It examines the factors that determine health care spending and how they have contributed to spending growth over time. Special emphasis is given to the largest single factor driving spending growth—the greatly expanded capabilities of medicine brought about by technological advances in medical science over the past several decades. Finally, the paper discusses the implications of continued technological change for future growth of health care spending.
Colin Baker of CBO’s Health and Human Resources Division wrote the study under the direction of Bruce Vavrichek and James Baumgardner. Noelia Duchovny contributed to the analysis. Tom Bradley, Keith Fontenot, Douglas R. Hamilton, Noah Meyerson, William Randolph, Robert Sunshine, Chapin White, and G. Thomas Woodward of CBO provided useful comments on drafts. The paper also benefited from comments from Joseph P. Newhouse of the Harvard University School of Medicine, Mark S. Freeland and Jeffrey A. Kelman, M.D., of the Centers for Medicare and Medicaid Services, and Jack D. Summer, M.D. (The assistance of external reviewers implies no responsibility for the final product, which rests solely with CBO.)
Sherry Snyder edited the paper, and Christine Bogusz proofread it. Maureen Costantino prepared it for publication and designed the cover. Lenny Skutnik printed the initial copies, Linda Schimmel handled the print distribution, and Simone Thomas prepared the electronic version for CBO’s Web site.
Contents
Historical Growth in Health Care Spending
Growth of Various Categories of Health Care Spending
Projections of Health Care Spending
Factors Underlying Historical Growth in Health Care Spending
Challenges in Measuring the Contribution of Technological Change to Rising Costs
Empirical Estimates of the Impact of Selected Factors on Cost Growth
Contribution of Technological Change to the Growth of Health Care Spending
Expanded Capabilities of Health Care from Technological Change
Advances in Medical Technology That Increase Health Care Spending
Implications for Future Spending on Health Care
1. Expenditures on Health Care in Selected Industrialized Countries, 2005
2. Estimated Contributions of Selected Factors to Growth in Real Health Care Spending Per Capita, 1940 to 1990
1. Total and Per Capita Spending on Health Care Services and Supplies
2. Growth in Real Per Capita Spending on Health Care, 1965 to 2005
3. Total Spending on Health Care as a Percentage of Gross Domestic Product, 1965 to 2005
4. Real Spending on Health Care in Selected Categories, 1965 to 2005
5. Projected Spending on Health Care as a Percentage of Gross Domestic Product, 2007 to 2082
6. Out-of-Pocket Spending Per Capita and as a Share of All Personal Health Care Spending, 1965 to 2005
7. Use of Selected Health Care Procedures by People Aged 50 or Older, 1970 to 2004
1. Rising Prevalence of Obesity and Its Impact on Health Care Spending
2. Can New Technology Reduce Spending?
