The LSE Companion to Health Policy
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The LSE Companion to Health Policy

Edited by Alistair McGuire and Joan Costa-Font

The LSE Companion to Health Policy covers a wide range of conceptual and practical issues from a number of different perspectives introducing the reader to, and summarising, the vast literature that analyses the complexities of health policy. The Companion also assesses the current state of the art.
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Chapter 8: How are Rising Health Care Expenditures Explained?

Alistair McGuire, Victoria Serra-Sastre and Maria Raikou


Alistair McGuire, Victoria Serra-Sastre and Maria Raikou 1. INTRODUCTION Health systems continue to grow in both absolute and relative terms. This holds true not only for the high-income countries but also for middle-income countries, as well as some low-income ones. This has been an historical fact and looks set to continue into the future. That this is the case is well accepted. Why this is the case is less well understood. This chapter focuses on trends in health care expenditures and the main driving forces of these trends. While a number of potential explanations can be forwarded, it is argued that the continuing impact of new health care technology is the major component of health care expenditure growth. The chapter outlines recent trends in expenditure across a number of countries, discusses the common explanatory factors associated with this increase in health care expenditure and concludes with a discussion of whether future cost containment is necessary or indeed will prove effective. 2. HEALTH CARE EXPENDITURE It is well recognised that health care expenditure growth has exceeded national income in all the high-income countries for most of the past 30 years; for some like the USA this has been the case for over 50 years. Table 8.1a shows the average annual growth rates in five-year periods for health care expenditure in a number of the wealthier  OECD countries beginning in 1970 and contrasts this with the average annual growth rates of GDP (Table 8.1b). Both health expenditure and GDP are controlled for...

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