More Life vs. More Goods: Explaining Rising Health Expenditures

ture of U.S. public policy discussions for at least the last 20 years. One trigger of these debates is the statistical evidence on the rising cost of health care. For example, according to a survey conducted by the Kaiser Family Foundation (2004), health insurance premiums for employer-sponsored plans increased by 11.2% between the spring of 2003 and the spring of 2004, the fourth consecutive year of double-digit increases.A related set of statistics is just as striking: In 1960, the share of U.S. GDP spent on health care costs was only 5%, but by 2002, it had climbed to more than 14% (see Figure 1). In the public policy discussion, much attention has focused on waste and fraud in the health care system, which clearly are harmful to the economy.