Last week’s GDP Estimate Included a Massive Upward Revision in Health Spending

Last week’s third estimate of 3rd quarter GDP contained a significant upward revision to the real (inflation-adjusted) increase in GDP, from a 3.9 percent in the second estimate (released in November) to 5.0 percent in the third estimate.

November’s second estimate of 3rd quarter GDP included very tempered growth in health spending. The third estimate blows that out of the water. Much of the upward revision to the GDP estimate was due to health spending.

The real dollar change in seasonally adjusted GDP (at annual rates) from the 2nd quarter to the 3rd quarter was estimated at $153.7 billion in the second estimate. The third estimate revised this up to $195.2 billion, a change of $41.5 billion (27 percent).

Health spending was revised up from $8.6 billion to $20.7 billion, an increase of $12.1 billion. That is, the upward revision of health spending accounted for almost one-third of the entire GDP revision. Health spending is a component of household consumption of services. The entire revision to that category was $21.8 billion. So, pretty much the entire net increase in the estimate for household consumption of services was accounted for by health spending.

Whether this is good or bad for Americans’ welfare cannot be determined from these figures. Especially under Obamacare, health spending is so politically driven that subsidized spending may be increasingly wasteful.

What is also concerning about these revisions is that figuring out the impact that Obamacare is having on health spending has been exceedingly difficult. Let’s hope that we are not back where we were last summer, when the Bureau of Economic Analysis was struggling to capture health spending accurately in its GDP estimates.

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For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.

John R. Graham is a Senior Fellow at the Independent Institute.
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