Costs of Medical Treatment: Comment
Posted: 30 Aug 2012
Date Written: September 1, 1968
The Consumer Price Index (CPI) provides an approximation to the money income adjustment necessary to maintain an individual at a constant level of utility. Anne Scitovsky, in comparing the costs of treating certain medical problems in 1964-65 with those in 1951-52, arrives at results conceptually superior to those currently employed for the CPI, since the latter are based on prices of medical inputs such as hospital care and physicians' rates while Scitovsky concentrates on the price of medical output. She argues that, for purposes of the cost of living index, quality changes in treatment should be ignored on the ground that while "the fact that the present treatment is better will increase his welfare, it still leaves him with the problem of how to pay for it." In summary, it is the contention of this comment that in constructing the price index of medical services, an approach more comprehensive than Scitovsky's has to be adopted. The cost of an illness will fall drastically if the illness is not allowed to develop and this genuine fall in medical cost should be included in constructing the index.
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