What happened in 1980?

Something, for sure; this is expenditures on health as a percentage of gdp:


The link is here.  For the pointer I thank Andrew Sweeney.


I would like to see a graph of actual contribution margins for some representative procedures. I would like to know whether the change in income (alternatively, the fact the income in the US is higher than income in other countries on the chart= lead to *more consumption* or to *higher margins* for the health care provider. Or both.

My guess is the US starting spending lots of money on diagnostic scanners while the rest of the world didn't.

What's the data source?

The discontinuity in 1980 is the recession, right?
More specific issues are:
1. Is there an overall change in the slope starting in 1980? Looks to me like we've been growing fast since earlier.
2. The changes between the stability of the Clinton administration and rapid growth during Bush 2 are rarely appreciated, though also partly GDP, as this slide attests. http://www.flickr.com/photos/47179524@N02/4327568...

I want to know what happened in 1967-8. That looks like the slope change elbow to me.

Medicare prescription drug was passed in 2003 and went into effect in 2006.

It's not 1980 - the jump you see for the U.S. is between 1981 and 1982. There are multiple factors going on here, including:

1. The youngest members of the very large baby boom entered the U.S. workforce in large numbers following the 1982 recession, where they benefited from employer-provided health insurance, typically under the very expensive "traditional" plans that were common at the time.

Their large scale entry into the workforce had been delayed by a combination of the recession and a series of minimum wage increases in the late 1970s, the last of which took place in 1981. The high inflation of the early 1980s finally brought the real cost of hiring the very large pool of the most unskilled members of this generation into the realm of affordability for U.S. businesses, with the improving economy and government restraint in hiking the minimum wage above the level where it would negatively affect employers' hiring decisions during the remainder of the 1980s facilitated their increased rate of entry into the workforce.

2. Federal budget reconciliation (OBRA 81) required states to make additional Medicaid payments to hospitals who serve a disproportionate share of Medicaid and low-income patients. It also repealed the requirement that state Medicaid programs pay hospital rates equivalent to those paid by the Medicare program (increasing their costs), since the law required states to pay nursing homes at rates that are "reasonable and adequate" under the Boren Amendment, which was applied to hospitals the following year. (See this timeline of significant milestones in U.S. health reform efforts.)

Also the specialists got what they wanted out of medicare...

The real question should be: what happened to make it flat between 1992 and 2000.

My answer is: the penetration of managed care into the indemnity insurance market and the imposition of managed care protocols.

And, what explains the increase thereafter: the growth of choice plans and the public withdrawal from tighter managed care protocols.

What will limit it in the future: large pools of potential insureds with managed care plans bidding on the pool--no individual underwriting costs, large pool, no salesman costs, and if you win, you have some clout to negotiate with hospitals and providers.

Ironman, You are correct about your points. Note that in effect we have been using medicare and medicaid to cross subsidize indigent care--or care by individuals who could have purchased insurance and, because they did not, became indigent. Part of the healthcare reform is to have this free riding segment pay for insurance so that the costs of their care are not picked up by medicare or medicaid.

Slightly OT, but that has got to be one of the ugliest charts I've seen in a while.


If you want to penalize free riders, I wish you would penalize free riders. Don't penalize people like me that just don't want to participate in the broken system.

This is a deceiving graph. As b pointed out at 8:20 this morning, the real changes which prevents the U.S. flags from showing constant growth is the changes in GDP. When GDP has slowed - in 1980/1982, 1992, and 2001 - health care expenditures held to their steady growth. So healthcare as a percent of GDP did jump and then flatten as GDP growth fluctuated. But the actual health care expenditure curve would be much smoother.

So why has health care risen faster than GDP? Several reasons:

1. aging of the population;

2. growth of Medicare and Medicaid benefits;

3. increasing household income, leaving more disposable income for healthcare;

4. market interference by government (limits on hospitals, physicians, expensive equipment plus health insurance mandates);

5. medical advances which enable practitioners to treat illnesses and afflictions with technology which did not exist.

Why does the U.S. spend more moeny on healthcare than do other nations? We have more money to spend.

"When someone says: penalize free riders, and then says: we don't want compulsory insurance, you know what: they are rationally inconsistent."

No, they aren't. Do I really have to explain this to you?

As they hit their 30s starting in about 1980, Baby Boomers started to become aware of their own mortality, which is something they've never come to terms with, and started making unreasonable demands on health care (i.e., "Make me immortal!"), thus bidding up the price of health care, which they weren't paying, anyway.

Did anyone beside me notice that the trend for all the other countries is also up? Check out how much Spain's increased over the last fifty years. Mankiw suggested a couple of years ago that as real income increases, people are going to want to devote a larger share of their income to health because buying all the other stuff they want becomes easier. Maybe he was right.


If you don't pay into the system and then go to the ER when you get into an accident and don't pay your hospital bills, then you are a freerider.

The only case where there's truly not freeriding is if ER's can turn away patients and let them die on the street if they don't have the means to pay. Even if you believe in that, it will never be politically feasible to let people die in the streets. So some form of compulsive payment into the system is necessary to prevent adverse selection.

As a practicing internist, who essentially started his career right at that point in time, I have given this some thought.

I have seen this graph elsewhere:

The cost graph first moved upwards because we were able to to afford all this as were/are a rich nation. And secondly the Medicare and medical systems rewarded physicians for pursuing the more expensive health care pathways.

My impression is that at this juncture in time medicine took a turn towards specialty care and away from primary care. Medicare and medicine in general began to reward the specialties for doing more, and most medical students and doctors then moved in that direction. In so many cases in medicine, specialty care is generally more technical and thus more expensive. Especially as the biggest expenditures have been and always will be with elderly patients. i.e. Medicare. And of course the conundrum being that specialty care and more expensive medical care is not necessarily better care for the patient. Or better for society in regards to bang for the buck and all.

Now whether we are getting our money's worth today is of course the big question. And this is where we are presently, pondering how to move back more towards the simpler and cheaper primary care model.

As many people have surmised, I think that the change in graph is due more to a sudden change in the denominator (GDP) rather than the numerator (health exp).

This notion is confirmed if you follow the link and look at health exp per capita, which increases with constant (exponential) slope and does not have any hiccups around 1980-1985.

What are his sources? I did not see any citation on the page.




Prior to 1980 health care grew less than nominal GDP
after 1980 health care grew faster than nominal GDP
but it was because GDP growth slowed more than health care spending slowed. The breakout in the chart above is driven by a slowing of nominal GDP growth
not an acceleration of health care spending.

I'd like to see a graph of real health care expenditures in the US vs % of health care paid out of pocket.

Bill hit on the real takeaway from the graph: HMOs really worked in the 90s.

They worked well, which is why everyone hated them.

Anyone remember that "Star Trek: Voyager" episode where the Doctor took on an evil HMO?

It's obvious what happened. That Commie Reagan got elected and gave us socialized medicine. It was downhill all the way after that, leading to Andrew being penalized.

You don't go from in the pack to outside the pack without a change in rate. That change in rate looks to be a bit before 1980.

Something happened in the mid-1960s.

Ted Kennedy's HMO Act was passed in 1973.

I think its unintended consequences hit around 1980.

Per capita income in the US is not higher than in Norway or Switzerland, not even in PPP terms, oh well maybe by a couple of hundred dollars in the swiss case. So I don't think the luxury good argument has legs, at least it's not the whole story

Anyone have a nice inflation-adjusted graph of real health care spending over time? Would be enlightening.

"So some form of compulsive payment into the system is necessary to prevent adverse selection"

Actually not. Isn't it the wonderful law system of the USA that is bankrupting people because of health-care costs? I would guess _this_ does prevent adverse selection.

Also, why was it flat though the 1990s ? Haven;t seen a good explanation.

Also, Tyler, I'm sorry the say this, but a significant portion of your readership appears to consistent of right-wing nut jobs. Write a negative post about Glen Beck and see how many respond. Might also be selection bias, a post like this gets these types out.

More interesting would be margin rate of change of health care cost per capita.

"Also, Tyler, I'm sorry the say this, but a significant portion of your readership appears to consistent of right-wing nut jobs."

How funny. I was reading your comment and thinking to myself, "Where do all these left-wing nut jobs around here come from?"

Be interesting to see the detail.

Didn't major transplants (immunosuppressive drugs) and open heart surgery enter the mainstream in this era?

Also may be that end-of-life healthcare also moved from generally reasonable effort to extreme - where the dollars spent moved from measured to "all available, and then some."

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