Health Care is Different--That's Why Expenditures Matter

Health care expenditures increase 2.8 percent every year, a rate higher than other parts of the economy. Economist Victor Fuchs, Ph.D., outlines what distinguishes health care from other goods and services and why we should be concerned about rising health care expenditures.

Great uncertainty exists about an individual’s need for care. While many people use no health care in any given year, a small proportion (1 in 20) account for half of all health care utilization. That high use, however, usually is unforeseen—due to a heart attack, diagnosis of cancer or automobile accident, for example. While health insurance buffers people from high costs, it also leads to overconsumption of services.

Some care is essential. Unlike other goods or services, health care can make the difference between life and death, full functioning and pain or disability. No developed country permits access to care solely by ability to pay.

Competition does not exist in many health care markets. Specialized services are duplicated among hospitals and practices, with little cooperation or resource sharing by providers. Consumers lack information to make treatment decisions.

These distinguishing characteristics “are a more fundamental source of concern about health care expenditures (private, as well as public) than their role in the federal budget,” concludes Fuchs.