Question

New medical technology has been implicated by a number of studies as a major source of healthcare spending growth over time. In many other industries, improvements in technology have resulted in lower costs to consumers (e.g., I paid $2500 for my first computer which had a 42MB hard drive!). Briefly explain how could the growth in the share of medical expenses covered by third party payers (government or private insurance programs) could help explain why new technology has contributed to higher spending on medical care rather than following the pattern of other industries (like personal computing). (6)

Answer 1

New medical technologies has contributed to higher spending on medical care, this means that spending on medical services is increasing with improvement in medical technology. This is in opposite direction as seen in other industries where increase in technogy has resulted in lower expanses on it. We can take the example of mobiles and computers whose technology has improved and prices has gone down.

This could be explained by studying the share of medical expanses covered by third party payers like government and private insurance programmes. This has been seen in the recent times that a large share of these medical expanses has been covered by third party payers. As we can see in our everyday life that there are new machines and instruments discovered and being discovered in the medical sector for diagnosis and treatment of different diseases. There are a lots of money spent on the research and development of these machines, so these machines are very expensive. As a result of this the services provided by these machines are also very expansive which raises the overall cost of the medical services.

But this can be better explained by increase in the share of third party payers. Now a days in most countries most of the medical services are provided by government (government pays for the medical bills of individuals) and also people are buying more private health insurances which pays their medical bills. Since people don't pay their medical bills by own so they becomes negligent about their health. Also when they are sick they don't opt for the cheaper hospitals, but go to hospitals which are expensive. Insurance providers also opt for the same to show they have paid a large amount on your health. This third party paying system has increased the medical expanses for everyone, even those who don't have health insurance and pay themselves.