Health Spending Unscathed in Shrinking Economy

Last Friday’s terrible revision to first quarter GDP—from an initial estimate of 0.2 percent real growth to a real loss of 0.7 percent—confirms that health spending stands over our weak economy like a colossus.

In the initial estimate, personal consumption spending on health services increased by $23 billion (chained 2009 dollars). Today’s second estimate sets that at $24.2 billion (Table 3, line 17). So, we can be pretty confident that the folks at the Bureau of Economic Analysis who do this good work have mastered how to measure spending on health services.

Significant revisions to GDP between the initial and second estimates are common. However, this emphasizes how much of our prosperity is being devoured by a health system that is still driving everyone crazy, post-Obamacare. The real drop in GDP was a loss of $30.6 billion.

Quarter-over-quarter figures are seasonally adjusted, and some economists question the accuracy of those adjustments. Nevertheless, when the media cheer that personal consumption expenditure (PCE) is holding the economy up in the face of declining exports and business inventories, they gloss over the disproportionate role of health services in PCE.

That $24.2 billion in health services is the largest component of PCE, comprising just under half of the entire $52.5 billion of PCE—even more than housing and utilities.

I recently wrote that economic growth had added many jobs since the depths of the recession, and that this explains the restoration of health benefits better than Obamacare does. Nevertheless, we are devoting a shockingly increasing amount of our prosperity to this government-dominated sector of our society.

Technical note: When I discuss health services in these quarterly GDP releases, I mean only health services. I do not include purchases of medical equipment, or facilities construction. While I include Medicare and Medicaid, I do not include Veterans Health Administration or other government benefits. So, these dollar figures undercount the amount of our economy consumed by the government-health complex. (See: Measuring the Economy: A Primer on the GDP and the National Income and Product Accounts, Bureau of Economic Analysis, October 2014, pages 5-2 and 5-3; Micah B. Hartman, et al., “A Reconciliation of Health Care Expenditures in the National Health Expenditures Accounts and in Gross Domestic Product,” Research Spotlight, Survey of Current Business, September 2010, pages 42-52.)

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For the pivotal alternative to Obamacare, please see the Independent Institute’s new book, A Better Choice: Healthcare Solutions for America, by John C. Goodman.

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