Health Care’s Ever-Expanding Share of the Pie

The best measure for understanding what Americans spend on health care is the health care share of GDP (Gross Domestic Production). When that share crossed the 10 percent thershold in the early 1980s, plenty of economists sounded the alarm that ruin was ahead if we couldn’t somehow make that share stable, so the rise in health care spending kept pace with the economy but didn’t take a bigger and bigger piece of the pie.

So how are we doing? Health care’s share of the economic pie went up to 17.3 percent of GDP in 2009, according to a new report in the respected journal Health Affairs. It’s the biggest single-year increase since 1960.

The Wall Street Journal’s Health Blog crunched some numbers and reported:

The U.S. spent $2.472 trillion on health care last year, according to a paper out today in the journal Health Affairs. That’s $282 million an hour.

Health spending as a percent of GDP – a key metric that shows how much of all U.S. spending goes to health care – rose from 16.2% in 2008 to 17.3% in 2009, far higher than any other industrialized country. That’s the largest one-year increase since 1960, when the feds started closely tracking national health expenditures.

The figure went up so much because health spending continued to rise, even as the overall economy shrank. The aging population accounted for a small part of this rise, but two other factors were more important: rising prices and increasing use. Health-care prices rose by 3.2% in 2009, according to the Health Affairs paper, significantly faster than prices rose for the overall economy. Utilization, which includes both volume and intensity of health-care services, rose by 1.5%.

The share of health-care spending paid for by the government (through programs such as Medicare and Medicaid) is also rising, and is projected to cross the 50% threshold soon.

The share of the economy for health care will be close to 20 percent within the next 10 years, according to government forecasters.

These sobering numbers show the urgency of “bending the cost curve down,” as the pundits like to say. Unfortunately the urgency of reforming the safety and quality of health care has taken a far back seat to the money discussion. They actually are compatible goals. One thing we’ve learned in the health care reform debate is the huge overspending in health care caused by widespread use of new technologies before their benefit is proven, driven in part by conflicts of interest by those pushing the new technologies.

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