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The growth in medical spending in the United States is both more important for fiscal policy and raises more potential problems than consumer spending growth in other sectors of the economy. Given the growing importance of Medicare and Medicaid, the impending expansion in Medicaid eligibility, and subsidies for health insurance exchanges under the recent health care reform – as well as high-priced technological advances in providing medical care – growth in federally-financed spending on health care poses a major challenge to present and future fiscal stability. This chapter, by Mark Pauly, examines how the United States can return to sustainable financing while doing as little harm as possible. Pauly’s proposed solution to restricting the growth in public medical spending includes a politically determined level of spending growth that corresponds to the preferred rate of taxpayers who receive fully subsidized insurance. This growth rate would reflect both the taxpayers’ preferred rate of spending growth and growth in the availability of new technology. For the population above the poverty level, the growth of public medical spending would be means tested.

US health care spending in 2012 totaled $2.8 trillion or 17.2 percent of gross domestic product. Given the magnitude of health care spending, the large public sector role in health care, and the reforms being implemented under the Patient Protection and Affordable Care Act (ACA), we believe it useful to examine several basic questions: What was the public share of national spending on the eve of reform? How has the public share evolved over time? And how are the benefits of public spending on health care distributed within the population by age, poverty level, insurance coverage, health status, and ACA-relevant subgroups? The questions we pose, while basic, cannot be answered with commonly-available statistics due to the sheer complexity of health care financing in the U.S. The objective of this paper is to provide answers by combining aggregate measures from the National Health Expenditure Accounts with micro-data from the Medical Expenditure Panel Survey.

This chapter introduces some of the challenges the NHS faced over the five years of Coalition government. ‘The Nicholson Challenge’ arose following the 2008 global economic crisis. The NHS was faced with making £20 billion of efficiency savings over the next 4 years from 2011/12 to 2014/15. The Quality, Innovation, Productivity and Prevention (QIPP) programme was created to deliver these efficiency savings. The chapter discusses the various challenges faced by the NHS during these the years of this ‘Nicholson Challenge.’ The authors point out that there were various problems with the approach to measuring savings under the QIPP programme. They also evaluate the Payment by Results tariff. The chapter concludes by making some international comparisons, looking at ways in which OECD health care spending was effected during this period.

This chapter reviews the role of cost-effective analysis (CEA) in treatment coverage determinations in the United States and discusses two important shortcomings of CEA. First, CEA can fail to allocate scarce resources in a way that is economically efficient because treatments that are equally valuable to society may have similar prices and yet cost society very different amounts to produce. Treatments of equal effectiveness and price will appear equally cost effective to insurers and government payers, even if from the perspective of society they are not. Companies therefore respond to the CEA by charging prices that maximize their profits, and health care spending rises. Second, basing coverage decisions only on a treatment's CEA can stifle innovation. Coverage policies based on cost effectiveness closely resemble price controls, which reduce incentives for innovation. Case studies from HIV/AIDS and cancer illustrate this. The chapter concludes by emphasizing the important role that the United States plays in determining global innovation incentives.

This chapter assesses economic preparation for retirement, looking at the risk of out-of-pocket spending for health care, and shows that about 70 percent of individuals aged sixty-six to sixty-nine are adequately financially prepared for retirement. However, some individuals identified by education, sex, and marital status are not financially prepared, most notably single females who lack a high school education: just 29 percent of that group is adequately prepared. A commentary is included at the end of the chapter.

Medical-care expenditures have been rising rapidly, accounting for almost one-fifth 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.