Price Indexes for US Medical Care Spending, 1980–2006

Abstract

We construct price indexes for medical care spending in the US economy for the period 1980–2006. Our indexes show slower price growth than the official deflator from 1987–2001, consistent with the fact that indexes that improve on the official statistics typically find slower price growth than the official indexes. However, the result is reversed for the 2001–2006 time period. We develop a decomposition that parses out the numerical differences in these indexes into three factors that are held constant in the official price indexes but are not in our indexes: changes in the type of provider supplying care, changes in the type of insurance plan used by the patients, and changes in the bundle of procedures used to treat patients. Our results suggest that using the official price measures may provide misleading conclusions about spending trends and productivity growth in this important sector over this time period.

Why Is Productivity Slowing Down?

“…Dunn et al (2015), discussing the introduction of the Health Care Satellite Account, report estimates showing that prices may have increased faster than the BEA published numbers, with an overall negative effect of 0.1pp for GDP estimates. Aizcorbe & Highfill (2020) find that biases can change sign over time, but their study stops in 2006, so it is not useful for our analysis.…”