Understanding Growth Patterns in US Health Care Expenditures

This paper explores main macroeconomic determinants of US medical expenditures. We perform a growth accounting exercise in which we assess the annual growth of capital and labor for a sample of OECD countries over the 1970-2007 period. This growth accounting is motivated by measurement issues at the aggregate level regarding medical prices and quality, technology, monopolistic behavior, and government intervention. We find minor differences in the evolution of value added for the health care sector across all these countries. We further document that the sizable US wedge between value added and medical expenditures can be accounted for by the evolution of price markups and various health care price measures -- leaving a small differential role for other economic forces such as technological change and product quality after controlling for those trends within our sample of countries.