Health‐Care Competition: Introduction

Medicare expenditures increased 497 percent, federal medicaid expenditures 484 percent, and state and local medicaid expenditures 458 percent between 1970 and 1981. Private health‐insurance premiums increased 329 percent, while patient direct payments rose 214 percent.1 Although these results include quantity and price changes, Waldo and Gibson (1982) show that “price inflation has been a major factor in the increase in health‐care spending.” Moreover, health‐care expenditures exceeded 10 percent of GNP (10.5 percent) for the first time in 1982 (Office of the Secretary 1983); the comparable figure in 1960 was 5.3 percent of GNP. This rapid growth in price and quantity (“expenditures” or “costs”in the nontechnical literature) has raised a cry across the land for cost containment or increased competition in the health‐care sector. Curiously, when one searches for a definition of “competition” in the same nontechnical literature, it is not immediately obvious what the word means.