Things People Believe That Make No Sense
You often hear people say that one of the main reasons for health care inflation is the cost of all the new technology. But can you name any other industries that compete in free markets where technology introductions have caused inflation rates to run at double the general rate of inflation? In fact, don't we generally associate the introduction of technology with reduced costs and increased productivity?
Compare a McDonald's kitchen today with one thirty years ago -- there is a ton of technology in there. Does anyone think that given the price-sensitive markets McDonald's competes in, this technology was introduced to increase prices?
Or look at medical fields like cosmetic surgery or laser eye surgery. Both these fields have seen substantial introductions of new technology, but have seen inflation rates not only below the general health care inflation rate but below the CPI, meaning they have seen declining real prices for decades.
The difference is not technology, but the pricing and incentive system. Cosmetic surgery and laser eye surgery are exceptions in the health care field -- they are generally paid out of pocket rather than by third parties (Overall, third party payers pay about 88% of all health care bills in the US).
The problem with health care is not technology -- the problem is that people don't shop for care with their own money.
Postscript: Thinking some more after I wrote this, I can think of one other industry where introduction of technology has coincided with price inflation well above the CPI -- education. It is interesting, but not surprising to me, that this is the other industry, along with health care, most dominated by third party payer systems and public subsidies of consumers.
