HEALTH CARE SPENDING
Most of us are familiar with the widely used data that shows health care spending as a share of GDP. It tells a scary store that dominates the political debates in Washington and that everyone is concerned about.
Looked at this way health care spending clearly looks like the monster that ate Tokyo.
But the lesson one learns from a ratio chart like this depends on what is happening to both the denominator and the numerator.
If you look at the growth in health care spending in isolation the data creates a very different impression.
This data shows that in recent years the growth in health care spending has actually been slowing significantly. It shows that maybe the real problem is the weak economy, not rapidly growing health care spending.
I noticed on the last trips into town that local doc practices are doing billboard advertizing. They don’t do that unless business is down.
Yes, we have solved the rising health care cost problem. It was a simple solution. Just make sure people have no money to pay for it.
Seriously, during the first year or so of the recession, I knew of nurses who were working short hours at the hospital do to down demand.
The monster IS eating Tokyo. Compound interest is a wonderful thing and even at the lowest point of your second graph its growing at 4%. The Y/Y chart is noisey as I would expect.
The real story is your first chart. And your right the denominator is everything. During the Clinton Years, post dot-com crash Bush II years, and after teh Volker fix during the Reagan years the growth flat-lined as the economy grew like gang-buster. The fact that it stayed flat during these years, when GDP growth was the fatest should warn you about just how fast medical cost were going up. And of course we see the spikes when the GDP growth was flat. You will also note that medical cost went up independant of the surronding economy (boom, bust or in-between it always went UP).
Since 1990 it looks like medical cost basically averaged a 6% (just eyeballing it here) growth every year. That means a doubling of medical costs every 12 years. So the questions is – will our medical costs be 4 times what they were in 1990 in 2014? Will our GDP have grown 4 times in the same time -frame?
Thats why Medicaid/Medicare are eating our lunch.
Islam will change
No buffpilot. The comparison is to nominal GDP and since the early 1980s the fluctuations in nominal GDP were nothing like you described. It averaged 5.5% and never rose over 8% nor fell below 2% until the recent recession. Over this period nominal GDP growth was amazing stable. You are trying to compare nominal and real numbers. I was comparing nominal to nominal.
Interesting insight, thanks. But do you think there is a meaningful propsect of returning to earlier growth rates? I for one don’t, at least until the gap between US wages and Chindia wages closes more. If you don’t, then, you’re still faced with HC cost growth exceeding nominal GDP growth. Further, you have to – I mean, have to – factor in the demographics, i.e., the bay boomers are hitting the peak HC spending phase of their lives.
You are right about the baby boomers. But the CBO and other budget projections show that the bulk of the projected increase in medicare spending will stem from higher prices rather than the larger populatin of the elderly.
I’m not sure about anything. I just wanted to point out the very striking difference in the message two different ways of looking at the data presented.
Food for thought is all.
Sorry about that. I agree about your point that we have a weak Obama economy, but we’ve been growing health care costs way past what GDP has been growing or inflation.
Medicaid and Medicare are eating are lunch nevertheless.
Islam will change
Probably has alot to do with lower increases in fees paid to doctors and hospital by Medicare. If congress had not voted for over-rides of the SGR formula then we would have seen significant “decreases.” The formula calls for a 28.5% decrease next year. Doctor won’t allow that so watch congress do another over-ride next month. The AMA is the most powerful lobby on the Hill.
I checked all my econ textbooks and was unable to find any reference to “Obama economy”. I checked the dictionary and could not find “Obama” as an adjective. It took checking the “Propagandist’s Book of Dark Spells” to find that appending a name to a thing is a way of implying causation when one has no proof. It was a lot of work, but the effort was rewarding.
Thank you for the laugh . . .
Partially correct . . . the planned lower payments are to specialties such as dermatologists, cardiologists, etc. which is offset by higher payments to primary care doctors. Medicare is bundling payments to hospitals alike and are beginning to pay for better outcomes rather than rehospitalization for hospital and doctor screwups.
Roughly 15% of all doctors belong to the AMA. They are not as powerful as you may think and the membership is dropping. Congress will over ride the SGR.