Health-care spending: under control

Once in a while we continue to read that the U.S. economy is being strangled by costs of health care. Recently, David Leonhardt wrote an opinion in the New York Times: a different view. “We’re in the midst of…historic slowdown in the growth of medical costs,” he claimed. Unfortunately, Mr. Leonhardt devoted most of his article to a political sideshow.

The springboard for Mr. Leonhardt was this year’s edition of National Health Expenditures, a survey begun during the Eisenhower administration and published annually–now by the U.S. Centers for Medicare and Medicaid. Most people younger than around 70 won’t remember or perhaps never knew about scandalous spending increases for health care that took off in the 1950s, as the country experienced post-war prosperity.

HealthCareSpendingLinear

The chart shows national health-care spending measured in 2013 dollars per person per year, from 1960 through 2013, as adjusted by the Consumer Price Index. In its economic index, the federal government measures total spending on health care, regardless of who pays for it. As Mr. Leonhardt points out, total spending has remained at about 17-1/2 percent of all U.S. output during the last five years of reports. Health care is no longer a growing sector.

Peculiar behavior: This economic index has peculiar behavior. The long-term trend is a nearly steady climb in absolute amounts–yearly increases averaging about $152, as expressed in 2013 dollars. There are wiggles: growth flattening during the recession of 1973 and the hyperinflation of 1979, receding in the 2007 recession and surging during the early, badly managed years of the Walker Bush administration.

The previous chart has a linear scale–more useful for documenting behaviors than for understanding them. A semi-logarithmic chart provides a different view, emphasizing relative changes over a time span. These charts are often used when describing epidemics, because the slope of a semi-logarithmic trend curve measures an exponential growth.

HealthCareSpendingLogarithmicNotes

In the semi-logarithmic trend curve, one can see several distinct intervals of spending behaviors. There are four periods of fairly uniform but exponential growth and two periods of turbulence. The percentage growth rates for those fairly uniform periods fall with time. The earliest period, 1961 to 1972, shows an aggregate increase of about 6.5 percent per year in real-dollar spending on health care. The most recent period, 2009 to 2013, shows an aggregate increase of about 1.0 percent per year.

1961 to 1972      6.5%     initial spending surge, early years of Medicare
1973 to 1980      ——-     turbulence, Arab oil embargo, hyperinflation in late 1970s
1981 to 1992      4.8%     second-generation cost-control efforts
1993 to 2000     2.3%     third-generation cost-control efforts
2001 to 2008     ——-     turbulence, collapse of cost controls, 2007 great recession
2009 to 2013     1.0%     developing equilibrium, slower spending growth

Annual percentage growth, from 2009 to 2013
During the past five years, the growth rate has become comparable to growth in the national economy.

1.01%     per-capita U.S. gross domestic product, in 2013 dollars
1.02%     per-capita U.S. health-care spending, in 2013 dollars

– Craig Bolon, Brookline, MA, December 10, 2014


David Leonhardt, The battle over Douglas Elmendorf, and the inability to see good news, New York Times, December 9, 2014

National Health Expenditure Accounts, U.S. Centers for Medicare and Medicaid, December, 2014

GDP per capita, World Bank, December, 2014

Alain Moren, et al., Graphs, charts and diagrams, in Field Epidemiology Manual, European Center for Disease Prevention and Control (Stockholm, Sweden), December, 2014

One thought on “Health-care spending: under control

  1. Ulrich Mok

    Interesting article.

    There are some other aspects that are quite alarming when looking at health care costs:
    The relationship of income and health care spending.

    From 1967 to 2014 the average income (in 2013 Dollars) rose by $13,800. Half of that increase was consumed by increase in health care spending (~$7’000) as shown in your diagram.
    While this leaves at least some net income increase, the situation gets dire in the new millennium:
    From 2000 to 2014, average income (2013 adjusted numbers) has decreased by $1’400. At the same time health care costs have gone up by $2’800.
    So while health care spending might follow the US output numbers, the individual sees little benefit.

    Editor’s note — As the article says, the health-care spending index does not tell how costs are paid, but it can be used to show the overall share of the economy.

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