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Health Spending Slows to a Less Alarming Pace

Last week’s second estimate of Gross Domestic Product for the second quarter confirms that growth in health spending took a welcome break. Unfortunately, it is not a clear break in the trend of health spending consuming an increasing share of our national income.

The second estimate revised the advanced estimate, and the update was positive news on the surface: Seasonally adjusted, annual GDP in the second quarter was almost $17,902 billion. This was an upward revision of one-third of one percent from the advanced estimate. Also, spending on health services was revised down a little, to $2,045 billion. The increase in health spending from the first quarter was $21 billion, only 8 percent of the $253 billion growth in GDP in the same period.

However, when we compare 2015 Q2 to 2014 Q2 annualized spending, health care is still consuming a slightly disproportionate share of GDP. Health spending grew $106 billion, comprising 17 percent of the $632 billion change in GDP. GDP only grew 3.66 percent, while health spending grew 5.47 percent.

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.)

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