Real Health Spending Remains Moderate; Inflation Increasing

For a while now, I’ve been surprised at how optimistic investors are about healthcare companies. Obamacare, the stock market tells us, is good for business. However, data on health spending does not support that story without qualification.

It looks like the discrepancy is between real versus nominal data. A survey reported in nominal dollars indicated a big hospital spending boom. On the other hand, the Gross Domestic Product (GDP) estimates indicate that real spending growth on health care is moderate.

This blog did not discuss September’s 3rd estimate of 2nd quarter GDP, which contained a significant upward revision to health spending. The Altarum Institute’s October briefing clarified that real health spending has been growing significantly faster than real GDP since the December 2007 recession. However, this is mostly because GDP dropped dramatically through the first half of 2009, while health spending did not. In absolute terms, health spending remained moderate.

Last week’s release of the advanced estimate of 3rd quarter GDP indicates that health spending remains slow under Obamacare. In 2009 dollars, seasonally adjusted health spending was 1.80 trillion dollars in the last quarter of 2013 and 1.82 trillion in the third quarter of 2014: A non-annualized increase of 1.06 percent.

Non-health GDP spending was $14.11 trillion in 2013 Q4 and $14.33 trillion in 2014 Q3: An increase of 1.53 percent. The preliminary conclusion is that increased health spending under Obamacare is mostly price increases, not increases in quantities of health care consumed.

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