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Value of Medical Innovation in the United States: 1960-2000

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  • Rosen, Allison B.
  • Cutler, David
  • Vijan, Sandeep

Abstract

Background: The increased use of medical therapies has led to increased medical costs. To provide insight into the value of this increased spending, we compared gains in life expectancy with the increased costs of care from 1960 through 2000. Methods: We estimated life expectancy in 1960, 1970, 1980, 1990, and 2000 for four age groups. To control for the influence of nonmedical factors on survival, we assumed in our base-case analysis that 50 percent of the gains were due to medical care. We compared the adjusted increases in life expectancy with the lifetime cost of medical care in the same years. Results: From 1960 through 2000, the life expectancy for newborns increased by 6.97 years, lifetime medical spending adjusted for inflation increased by approximately $69,000, and the cost per year of life gained was $19,900. The cost increased from $7,400 per year of life gained in the 1970s to $36,300 in the 1990s. The average cost per year of life gained in 1960–2000 was approximately $31,600 at 15 years of age, $53,700 at 45 years of age, and $84,700 at 65 years of age. At 65 years of age, costs rose more rapidly than did life expectancy: the cost per year of life gained was $121,000 between 1980 and 1990 and $145,000 between 1990 and 2000. Conclusions: On average, the increases in medical spending since 1960 have provided reasonable value. However, the spending increases in medical care for the elderly since 1980 are associated with a high cost per year of life gained. The national focus on the rise in medical spending should be balanced by attention to the health benefits of this increased spending.

Suggested Citation

  • Rosen, Allison B. & Cutler, David & Vijan, Sandeep, 2006. "Value of Medical Innovation in the United States: 1960-2000," Scholarly Articles 2674791, Harvard University Department of Economics.
  • Handle: RePEc:hrv:faseco:2674791
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