Health Care Spending

I was looking at some data yesterday and encountered a big surprise. I suppose like almost everyone I was under the impression that health care spending was growing much faster then the economy and absorbing an ever growing share of resources. This theme dominates much discussion of health care issues, particularly projections of the federal budget. So I was very surprised to look at the data and find that this while this assumption was very valid from 1950 to the early 1990s, there was a very sharp break in trend in the early 1990s and health care spending relative to the rest of the economy slowed very sharply — see the chart.

UPDATE: This data is from the GDP accounts and is PCE on health care services. I went back to the data and found that drugs were not included. Drugs were reported under nondurables. So
here is what the data looks like when I add drugs into the data. It does not change my problem much.

This chart implies that despite the aging of the baby boomer generation that some of our fundamental thinking about the course of health care spending may be inaccurate. This data raises some very important questions in my mind that maybe some readers of this blog that are more knowledgeable may be able to answer. Part of the answer appears to be that the rate of price increases in health care has slowed sharply.

Bruce Webb or others that have looked at this issue, can you help me.

update: The other interesting point is that the creation of Medicare in the 1960s did not appear to impact the trend that had already been in place since 1950, long before Medicare was created.