Health Care Spending is Up, Way Up

The economic data on health spending has been bouncing around like crazy in the age of Obamacare, so we must not read too much into one report. Nevertheless, the January 30 report on Gross Domestic Product (GDP) issued by the Bureau of Economic Analysis indicates that health spending has begun to race up again, despite moderate economic growth.

Last week’s report contains the final estimate of 3rd quarter GDP and the advance estimate of 4th quarter GDP for 2014. As noted in my comment on the December release, real GDP growth in the 3rd quarter was strong: 5 percent annualized, and this was confirmed in the January report. However, growth for the 4th quarter was significantly slower, just 2.6 percent annualized.

Further, the January report confirmed that the upward revision to 3rd quarter health spending in the December report had actually occurred: $20.7 billion, about 11 percent of the total GDP estimate of $195.2 billion. (Health spending in the GDP report only includes spending on services, so it is smaller than the 17 percent of GDP often bandied about, which includes goods).

January’s advanced estimate of 4th quarter GDP reported growth of just $106 billion. However, health spending remained high: $20.4 billion, about 19 percent of total GDP.

Health spending, of course, is not as volatile as total GDP, which includes housing and transportation and other, more discretionary, spending. Nevertheless, we should brace ourselves to acknowledge that Obamacare has put U.S. health spending on a permanent, higher plateau.

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