What significant development in health care from 1975-1982 caused health care to start getting more expensive relative to inflation?

The answer is most likely to be excessive greed and desire for profit. Neoliberalism and the “Managed Care Revolution” of the 1980s and 1990s   Shortly after Ronald Reagan was elected president in 1980 he declared that the nation’s health care system had become too reliant on federal funding.  Consistent with the neoliberal philosophy that characterized his presidency, Reagan sought to shift responsibility away from the federal government and onto the market.  Deregulation and an unwavering faith in the efficacy of unfettered markets epitomized the ideological tenor of his administration  The nation’s health care system soon underwent a major reconstruction.               In the early 1980s, Washington eliminated the federal aid that helped to support the nonprofit operations of nearly all of the nation’s HMOs.http://www.cfeps.org/health/chapters/html/ch1.htm#_ftn22  In response, many of these organizations converted themselves into for-profit enterprises.http://www.cfeps.org/health/chapters/html/ch1.htm#_ftn23  At the same time, HMOs grew in popularity as employers began switching to managed care in massive numbers.  The managed care model reorganized fee-for-service methods by limiting a patient’s choice of provider and reimbursing providers according to prospective fee schedules rather than costs incurred.  In 1993, 67% of those with employer-provided coverage were enrolled in managed care plans (Gruber, 2000).             But market-based care governed by the restrictive features of the HMOs was not the panacea that many hoped for.  While managed care did succeed in reigning in costs for a period of time – 1982 to 1986http://www.cfeps.org/health/chapters/html/ch1.htm#_ftn24 – medical costs later escalated and health care inflation stood at 15 percent by 1990.  This is because the HMO, which serves as a middleman between the doctor and the patient, carries an additional level of management and profit.  As Keyser explained, the middleman takes a cut, and that cut “consumed much of the economic advantage that might have been expected in comparison to traditional fee-for-service” (1993, p. 90).  Mahar agrees, noting that “the very entrepreneurs who promised to reign in health care costs were in fact attracted by the sea of green – the seemingly unlimited flow of health care dollars” (2006, p. 25). http://www.cfeps.org/health/chapters/html/ch1.htm   bold mine   The 80s was known as "The Me Decade" because making money and having things- being cool- was very important.  Profit-motives in nearly all businesses became the subject of increased scrutiny and intensive marketing.  It was also during this period that doctors and lawyers were encouraged to advertise their services in more venues than had been allowed earlier; this led to an even greater demand for services which had not been part of the US health scene before.  "Acid reflux" anyone?

Taking a closer look at that first chart, it appears to me to be more of the latter theory -- that 1980-1982 saw a decrease in the rate of inflation, but health care costs did not see that decrease because some kind of regulation made it immune to the competitive market. Health insurance was already a side benefit offered to employees since WWII, when along with rationing materials for the war, wages were controlled in order to make sure there would be enough supplies for the war effort (see http://en.wikipedia.org/wiki/Health_insurance_in_the_United_States#The_rise_of_employer-sponsored_coverage, section "the rise of employer-sponsored coverage").  Offering health insurance as a benefit allowed companies to offer additional compensation without breaking the wage limits in order to attract and retain workers. Richard Nixon attempted another wage freeze in 1971 in order to slow down inflation (see:  http://www.econreview.com/events/wageprice1971b.htm, credit to for finding that one), which further tied health insurance to employment but failed to curb inflation.  President Obama has stated that http://www.examiner.com/article/obama-talks-about-obamacare-with-bill-clinton-at-clinton-global-initiative, and if you're looking for what that accident was, it was the pay freezes in WWII and 1971. This had the effect of disconnecting the price from the service -- after all, if you don't see the price before buying a TV, for example, and it's not being bought with the money you fork out right now, then you're likely going to buy the TV that makes the salesman the most money. But that's still not the entirety of the problem, as if insurance companies had to pay the full bill from care providers, they would have an incentive to keep prices down, and employers would have a much better incentive to shop for cheaper plans that offer desirable coverage.  There's still something resembling a market in this scenario. There is some legislation, again under President Nixon, that pulls "competitive market" out of the picture.  I present to you http://en.wikipedia.org/wiki/Certificate_of_need: A Certificate of Need (CON), in the http://en.wikipedia.org/wiki/United_States, is a http://en.wikipedia.org/wiki/Legal_document required in many states and some federal jurisdictions before proposed acquisitions, expansions, or creations of facilities are allowed. CONs are issued by a federal or state regulatory agency with authority over an area to affirm that the plan is required to fulfill the needs of a community. The concept of the Certificate of Need first arose in the field of http://en.wikipedia.org/wiki/Health_care and was passed first in New York in 1964 and then into federal law by the http://en.wikipedia.org/wiki/Richard_Nixon administration in 1972. (emphasis mine). Certificate of Need laws are a government mandate that the largest health care facilities almost certainly must have a monopoly. So then, what we are seeing is 70's era inflation from a market disconnected from the rest of the market, when the inflation in every other market slowed down thanks to a Reagan-engineered recession.  1982 is a turning point in the rate of inflation, not in the rate of cost increases in health care. Since then, a number of other regulations further disconnected the concepts of a competitive market from the health care industry.  One of them is the http://en.wikipedia.org/wiki/McCarran-Ferguson_Act: As a result, on March 9, 1945, the McCarran–Ferguson Act was passed by Congress. Among other things, it: partially exempts insurance companies from the federal anti-trust legislation that applies to most businesseshttp://en.wikipedia.org/wiki/McCarran-Ferguson_Act#cite_note-buckley-5 allows states to regulate insurance allows states to establish mandatory licensing requirements preserves certain state laws of insurance. So now not only are hospitals guaranteed to have monopolies, but insurance companies are allowed to (but not guaranteed to) have monopolies. Another one of them is the http://en.wikipedia.org/wiki/EMTALA, or EMTALA.  Its passage is too late to be considered a cause of the split between health care costs and The Emergency Medical Treatment and Active Labor Act (EMTALA)http://en.wikipedia.org/wiki/EMTALA#cite_note-usc.7C42.7C1395dd-1 is an http://en.wikipedia.org/wiki/Act_of_Congress of the http://en.wikipedia.org/wiki/United_States_Congress, passed in 1986 as part of the http://en.wikipedia.org/wiki/Consolidated_Omnibus_Budget_Reconciliation_Act (COBRA). It requires hospitals to provide http://en.wikipedia.org/wiki/Emergency_department to anyone needing it regardless of http://en.wikipedia.org/wiki/Citizenship_in_the_United_States, http://en.wikipedia.org/wiki/U.S._immigration_law, or ability to pay. There are no reimbursement provisions. Participating hospitals may only transfer or discharge patients needing emergency treatment with the http://en.wikipedia.org/wiki/Informed_consent of the patient, after stabilization, or when their condition requires transfer to a hospital better equipped to administer the treatment.http://en.wikipedia.org/wiki/EMTALA#cite_note-usc.7C42.7C1395dd-1 It sounds like a good idea until you realize that prior to this time, charity hospitals were abundant and doctors were free to provide as much care with expectation of receiving no compensation as they freely chose to do.  They are still free to do so, but the opportunities to do so are much more limited since such charity-giving facilities have been displaced by for-profit hospitals, which must abide by the law but still have the power to charge patients, a significant amount of which charging is in hope of recouping losses from patients who do not pay. I could go on with policies that have adverse effects that take away anything resembling market forces in this industry, but I think those three policies are enough to give a basic picture.  Altogether the industry changed from one that makes money by caring for patients into one that makes money by extorting people who are ill, which would be punishable under the http://en.wikipedia.org/wiki/Racketeer_Influenced_and_Corrupt_Organizations_Act, but which the industry is immune to.

I can think of another factor that has contributed to rising health costs, in addition to those that have been mentioned so far.  When I went to work for du Pont in 1978, employee health insurance was catastrophe insurance, also called Major Medical.  It covered hospitalizations and operations and cancer.  It didn't cover routine stuff and I don't think it covered prescriptions.  I don't know if the change to covering some or most of every medical expense started as early as 1982.  Maybe it was more like 1985 or 1990.  But I think the change has been one contributor to increasing medical costs since 1982.

If you're looking for what happened in 1982, I can tell you. It's called Diagnosis Related Groups or DRGs. It hit Medicare that year and went on to insurance companies and Medicaid. In the late 70's medicine was a gravy train, running on "cost plus" economics. Whatever the doctor billed for, third parties paid. I saw this as an medical student and intern in 1982-3. One pulmonologist had so many COPD patients in the hospital he saw them wheeling a shopping cart of charts down the hall, with assistant to keep notes. And treated them all with more or less the same cocktail, printed out on forms, dispensed without regard to cost (all IV steroids for four days, for example). The chief cardiologist drove a red Ferrari Testarossa. The gastroenterologist had a very nice Mercedes with a custom license plate that said: EGD PRN. This is amusing if you know some medical-ese, so I won't spoil it by translation. In 1983-1984 this gravy train ran off the tracks because DRGs paid by diagnosis, as a lump sum. The LESS the hospital did, now the more they made. So now patients were discharged early, and we saw them in extremis in the ER. Incentives can work both ways. That problem ran until hospitals started getting fined for early re-admits, but lots of people died in the meantime.

In my opinion, the key was the pay freeze from the Nixon administration, so that companies used health insurance as one of the differenciators.  This broke the connection between healthcare costs and fees from the providers to the users of these services.  The healthcare user had no connection to the cost, so as the costs for service (fee for service model) went up, the users were largely insulated from those costs.