Health Spending an Increasing Share of GDP

Last week’s third estimate of Gross Domestic Product for the second quarter confirms that growth in health spending might be moderating somewhat from its initial Obamacare-fueled rush. Unfortunately, it is not a clear break in the trend of health spending consuming an increasing share of our national income.

Current GDP grew $264.4 billion, or 1.5 percent, from Q1 (Table I). One-tenth of this growth, $25.2 billion, was health services. At this rate, health services grow in line with their share of GDP. However, if we look over the entire year since 2014, Q1, we note a trend that seems to be persisting, despite last quarter’s moderate growth (Table II). At $110.13, health services spending accounted for 17 percent of GDP growth over the four quarters. The rate of growth was 5.69 percent, in excess of current GDP growth.

The GDP estimates corroborate other estimates discussed in this blog that indicate health spending has resumed its upward trajectory.

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 former Senior Fellow at the Independent Institute.
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