Primarily based on a research by Frankovic and Kuhn (2022), the reply is each. Nevertheless, the worth of elevated innovation–as measured by way of longevity beneficial properties–greater than offset inefficiencies from overspending. Particularly, the authors use an overlapping generations mannequin the place people should purchase medical insurance and medical progress relies on well being care sector return on funding. The authors calibrate their mannequin utilizing longevity knowledge from the Human Mortality Database from 19650 by way of 2005, earnings knowledge from the Present Inhabitants Survey (CPS) and well being care spending knowledge from the Nationwide Middle for Well being Statistics (NCHS). This timeframe is related as 1965 was the yr Medicare was applied within the US.
Utilizing this technique, the authors discover that:
…extra in depth medical insurance accounts for a big share of the rise in US well being spending but in addition boosts the speed of medical progress. A welfare evaluation exhibits that whereas the subsidization of well being care by way of medical insurance creates extreme well being care spending, the beneficial properties in life expectancy led to by induced medical progress greater than compensate for this.
General, elevated ranges of medical insurance lower consumption as extra money is spent on well being care. On the identical time, capital–notably capital invested in R&D–will increase as medical insurance will increase returns on funding as extra sick sufferers are capable of afford remedy. The authors observe that:
One clarification for why the advantages from medical progress more and more outweigh the loss from ethical hazard lies with the continuing development of earnings: So long as per capita consumption is rising over time, people are likely to assign an rising worth to life (Corridor and Jones, 2007, Chen et al., 2021). This argument extends to the evaluation of ethical hazard, the place people are keen to tolerate an rising distortion from well being insurance coverage in alternate for a rise in lifetime, so long as this solely slows down however doesn’t reverse consumption development.
The authors additionally observe that medical costs enhance over time because of the Baumol price illness; particularly the joint influence of productiveness development within the last items sectors and medical progress itself result in larger costs.
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