Technology’s Impact on Health Care Costs in Retirement

In the first edition of The New Rules of Retirement I noted that medical costs were rising because we had treatments that didn’t exist in the past. The treatments cost money. The New York Times backed this up recently with a piece that said technology, not longevity, is what’s causing the rise in health care spending.

Every year you age, health care technology changes — usually for the better, but always at higher cost. Technology change is responsible for at least one-third and as much as two-thirds of per capita health care spending growth. After accounting for changes in income and health care coverage, aging alone can explain only, at most, a few percentage points of spending growth — a conclusion reached by several studies.

Some health care technology helps us live longer. The vast majority of the seven years of life expectancy gains in the latter half of the 20th century were because of better — and more costly — treatments for premature infants and cardiovascular disease, according to analysis by the Harvard health economist David Cutler and his colleagues. But recent work led by the Stanford economist Raj Chetty reminds us that factors outside the health system — like smoking rates and education levels — also influence longevity.