In designing Medicare and Medicaid in 1965, the government essentially adopted this comprehensive-insurance model for its own spending, and by the next year had enrolled nearly 12 percent of the population. And it is no coincidence that the great inflation in health-care costs began soon after.In light of this statement, I thought it would be interesting to find out how much health-care cost inflation has actually occurred both before and after 1965. The Bureau of Labor Statistics maintains a website with a lot of data of this kind. By clicking on the Databases and Tables section of the site, you can find inflation data in various categories. Clicking on "Top Picks" under the section "All Urban Consumers (Current Series)" you'll find a series of boxes to check. Checking the box to the left of "U.S. Medical Care, 1982-84=100 - CUUR0000SAM" and then clicking "Retrieve Data" provides a table of medical-care price index data for different years. I set the date range to 1935 through 2009 to obtain the medical-care price index for those years. Similarly, checking the box to the left of "U.S. All items, 1982-84=100 - CUUR0000SA0" and then clicking "Retrieve Data," provides a table of the consumer-price index data for all items for different years. By plotting both of these time series, I obtained the following graph:
The question is: What has caused health-care prices to increase at such an alarming rate for nearly half a century? Is Goldhill correct in his claim that Medicare and Medicaid had a lot to do with it? If so, how is it that these government programs produced such out-of-control price increases?