NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Decomposing Medical Care Expenditure Growth

Abe Dunn, Eli Liebman, Adam Hale Shapiro

Chapter in NBER book Measuring and Modeling Health Care Costs (2018), Ana Aizcorbe, Colin Baker, Ernst Berndt, and David Cutler, editors (p. 81 - 111)
Conference held October 18-19, 2013
Published in February 2018 by University of Chicago Press
© 2018 by the National Bureau of Economic Research
in NBER Book Series Studies in Income and Wealth

Medical-care expenditures have been rising rapidly, accounting for over 17 percent of GDP in 2012. In this study, we assess the sources of the rising medical-care expenditures in the commercial sector. We employ a novel framework for decomposing expenditure growth into four components at the disease level: service price growth, service utilization growth, treated disease prevalence growth, and demographic shift. The decomposition shows that growth in prices and treated prevalence are the primary drivers of medical-care expenditure growth over the 2003 to 2007 period. There was no growth in service utilization at the aggregate level over this period. Price and utilization growth were especially large for the treatment of malignant neoplasms. For many conditions, treated prevalence has shifted towards preventive treatment and away from treatment for late-stage illnesses.

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This chapter first appeared as NBER working paper w23117, Decomposing Medical-Care Expenditure Growth, Abe Dunn, Eli B. Liebman, Adam Shapiro
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