>Here is a central economic question that I've never heard answered
>satisfactorily: *Why* have costs spiralled upward so dramatically in
>the past 20 years?
The historical perspective of high US health care growth for decades is important of course. This growth is driven almost exclusively by technological change. The medical sector continues to innovate; new procedures, drugs, therapies with smaller and smaller additional benefit. Also, there is an ever expanded notion about what is medicine (weight, happiness, lifestyle, sexual function, physical features are considered "medical" problems).
But . . .
Health care spending as a percent of GDP grew to 13.6% in 1993 and has since been fairly level. Real health care spending growth has been falling since 1993 (just over 4%) to 1.3% in 1996 but GDP growth has slowed as well. While the whole is level, some parts are still growing (like prescription drugs, government public health, and other medical nondurables) and some are shrinking (hospital and physician spending as well as public research).
There has been some leveling off of the infusion of new technology due to market based austerity forced onto the system by managed care and health care delivery contracts. It was argued by managed care critics that this change would be temporary, a one-time savings in the switch to leaner care that would not stop the technology driven cost inflation. I don't know if this is true (I think it is mostly true but we won't be able to tell on a macro scale for a few more years because there continues to be large movements of people into managed care plans).
Overuse of many marginally effective technologies still exist but at the same time others are being denied efficacious technologies by there managed care companies. This is becoming more of a distributional issue than one of overmedicalization (although, I do still think that sentiment still dominants many pockets of care). The other issue is that rationalization of care (control of costs) is a pro-market one and not a pro-patient one. The cost savings that have occurred through managed care cost money to administer. These cost savings are not generally benefiting people.
Another point from the macro accounts about paperwork. The percent going to "administration and net cost of private insurance" (category in the official HCFA accounts) exploded in the 1980's with a 15.9% average annual growth rate. The rate of growth has declined since (most notably to 3.3% in 1995 and 1.2%). This is largely due I believe to the very tight profit margins managed care and other insurers are under right now. I don't think this is all good. While these companies are competing to some extent to keep premiums down, these are likely very temporary gains as firms jostle for market share in each region. This has resulted in an explosion of mergers and acquisitions in the health care service sector.
Peace,
Jim
"In the suburbs of Babylon they don't like to wait; they'll kill the messenger because message was late"
-- Jon Langford