Health Care Spending
By Arnold Kling
Business Week’s Howard Gleckman successfully distinguishes between health care cost and health care spending.
Medical technology is no different than consumer electronics. When DVD players cost $500, few people bought them, so total spending on the devices was insignificant. Now that they cost $50, everyone is buying. As unit costs fall, total spending rises. Same thing with health-care technology. As it gets less expensive, more and more people avail themselves of it.
As cost falls, spending rises. That suggests that demand is elastic.
For Discussion. Politicians might confuse spending increases with cost increases, and therefore call for cost controls. What effect would cost controls have under the circumstances that Gleckman describes?