Decomposing Medical-Care Expenditure Growth

Abstract

Medical-care expenditures have been rising rapidly, accounting for almost one-…fth of GDP in 2009. 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.

Decomposing changes in the growth of U.S. prescription drug use and expenditures, 1999‐2016

“…Much of the expenditure decomposition literature avoids parametric modeling by implementing simplified cell‐by‐cell or arithmetic decompositions . For example, to identify the effect of changes in the age distribution on spending, each age group's average expenditures in the base year are multiplied by the group's change in frequency and then summed across groups.…”

“…Health care spending already places considerable strain on the budgets of governments, employers, and households, and growth is predicted to continue due to changing demographics, technological innovation, and rising health care prices . For these reasons, health services researchers have shown considerable interest in whether the recent slowing of health care spending was a temporary by‐product of recession or the result of more sustainable trends …”

Trends Underlying Employer-Sponsored Health Insurance Growth For Americans Younger Than Age Sixty-Five

“…We also decomposed per capita spending by service price and service quantity (utilization). 9 Service Use To calculate total utilization, we summed admissions, procedures, visits, or filled days (for prescriptions) and divided the counts by coverage years. For prescriptions, we used filled days rather than scripts to avoid differences in script lengths (which are often seven, thirty, or ninety days).…”

The Evolution of Health Insurer Costs in Massachusetts, 2010–2012

“…There is also widespread awareness that population aging will lead to health care cost growth. The most sophisticated methodologies allow a portion of cost changes to arise from changes in observable severity measures, notably age and disease prevalence (e.g., Dunn, Liebman, and Shapiro (2014)). There is another literature focusing on decomposing cost growth into changes in the prices versus quantities of medical services.…”

“… 1 See, e.g., Bundorf, Royalty, and Baker (2009); Aizcorbe and Nestoriak (2011); Herrera et al (2013); Dunn, Liebman, and Shapiro (2014). There is also significant attention in this literature to whether improvements in health care quality might bias measures of prices: see e.g., Cutler et al (1998, 2001).…”