U.S. Healthcare: A Story of Rising Market Power, Barriers to Entry, and Supply Constraints
IMF Working Papers, July 6, 2021
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- U.S. Healthcare: A Story of Rising Market Power, Barriers to Entry, and Supply Constraints
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Bibliographic details
- Authors: Li Lin, Mico Mrkaic
- Published: July 6, 2021
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513585451.001
Overview
- Healthcare in the United States is the most expensive in the world, with real per capita spending growth averaging 4 percent since 1980.
- The paper examines the role of market power of U.S. healthcare providers and pharmaceutical companies and evaluates the effects of the Affordable Care Act (ACA) and Medicaid expansion on coverage, care, and labor costs.
Key findings on market power and spending
- Markups (the ability to charge prices above marginal costs) for publicly listed firms in the U.S. healthcare sector have almost doubled since the early 1980s.
- These increased markups explain up to a quarter of average annual real per capita healthcare spending growth.
Evidence on ACA and Medicaid expansion effects
- The Affordable Care Act and Medicaid expansion were successful in raising coverage and expanding care.
- However, there is evidence of labor cost increases associated with Medicaid expansion:
- Hourly wages for healthcare practitioners are estimated to have increased by 2 to 3 percent more in Medicaid expansion states over a five-year period.
- This wage increase could indicate that the supply of medical services is relatively inelastic, even over a long time horizon, to the boost to demand created by the Medicaid expansion.
Quantitative highlights
- Real per capita healthcare spending growth: 4 percent (average since 1980).
- Contribution of markups to spending growth: up to a quarter of average annual real per capita healthcare spending growth.
- Estimated additional hourly wage growth for healthcare practitioners in Medicaid expansion states: 2 to 3 percent over a five-year period.
- Pages: 51.
- Issue/Series: Working Paper No. 2021/180.
- DOI: https://doi.org/10.5089/9781513585451.001
- Publication date: July 6, 2021.
- Authors: Li Lin, Mico Mrkaic.
Policy implications and recommendations
- Promote more competition in healthcare markets to contain costs.
- Reduce barriers to entry for healthcare providers and pharmaceutical competitors to help limit markups.
- Consider supply-side constraints in the design of coverage expansions to avoid unintended labor cost increases when demand rises.
U.S. Healthcare: A Story of Rising Market Power, Barriers to Entry, and Supply Constraints — Li Lin, Mico Mrkaic (IMF Working Paper No. 2021/180, July 6, 2021).
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- Working Paper