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The Causal Factors Driving the Rise in U.S. Health-services Prices

Feldman, Maria and Pretnar, Nick (2023): The Causal Factors Driving the Rise in U.S. Health-services Prices.

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We explore several possible avenues which have driven the rise in aggregate U.S. health-services prices since the mid-twentieth century. Our multi-sector general equilibrium model is structural change meets health macro, featuring endogenous population aging, market concentration in the health sector, and differential rates of sectoral technological change. The rise in the relative price of health services is almost exclusively a result of increasing market concentration in the health services sector, as well as slow health-sector TFP growth. Rising health prices have had no impact on life expectancy. Further, our results partially challenge the idea that population aging is responsible for dampening GDP growth rates. While health-sector TFP grows slowly, this is offset by gains to the efficiency of converting health investment to healthy outcomes which leads to increases in expenditure and higher rates of GFP growth.

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