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Posted at 9:24 AM ET, 01/ 6/2011

A very bad year for health-care spending

By Ezra Klein

Spending on health care only grew by 4 percent in 2009. That's less growth than we've seen in a half-century! Hurrah and huzzah? A silver lining in an otherwise grim year?

Well, not quite: When looking at health-care spending, you've got to mind the gap between the growth in health-care spending and the growth in GDP. That's the number that really matters: If it's small or negative, we're in good shape going forward. If it's large and positive, health care is eating up a bigger and bigger part of our budget every year, squeezing out other priorities and cutting into wages. Here's the comparison:

percentgrowthhc.jpg

And though growth in health-care spending was low last year, growth in GDP was negative -- and so the gap was really, really big:

growthgap.jpg

The reality is that 2003, when health-care spending jumped by 8.3 percent, was a better year for health-care spending than 2009, when it rose by only 4 percent. The reason is that in 2003, GDP growth was an anemic-but-present 2.5 percent, while in 2009, GDP shrank by 2.6 percent. That meant the 2003 gap was smaller, and thus more sustainable.

This goes to the basic truth of our fiscal situation, which is that for pretty much any problem you can name -- health-care costs, the deficit, whatever -- the most important determinant going forward is economic growth. When it's high, every problem we have gets easier. When it's low, they all become virtually impossible.

By Ezra Klein  | January 6, 2011; 9:24 AM ET
Categories:  Health Economics  
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Comments

Small New Year mixup, but 2009 was not last year...

Posted by: MosBen | January 6, 2011 9:35 AM | Report abuse

Ezra, it looks like you're comparing nominal health care spending growth to real GDP growth.

Posted by: justin84 | January 6, 2011 10:39 AM | Report abuse

I wonder what our debt ceiling looks like when added to this plot ? For I'm told we're headed for a catastrophy.

Posted by: jralger | January 6, 2011 11:14 AM | Report abuse

People need LESS healthcare when the GDP declines? So, to save money, we should trash the economy - good idea.

Posted by: kitchendragon50 | January 6, 2011 11:33 AM | Report abuse

The chart tracks the "growth" in health care spending, not total health care spending. So even if you're getting the same amount or less health care, the cost of it has gone up.

Posted by: Ruthiedke | January 6, 2011 12:12 PM | Report abuse

I'm going to the doctor today for a checkup. I don't feel like paying my bills today. I think Ezra should pay my bills today. Oh,wait. I forgot. It's not Ezra's responsibility to pay MY bills. I wonder if he feels the same?

Posted by: carlbatey | January 6, 2011 12:14 PM | Report abuse

And by the way, that 4% growth added to the approximate 5% cost of the new health care reform changes - preventive care, removal of limits, etc. - is why your health care premium went up "only" 8-10% this year.

Posted by: Ruthiedke | January 6, 2011 12:19 PM | Report abuse

The repukes think only the rich deserve health care.

Posted by: vmax02rider | January 6, 2011 1:14 PM | Report abuse

The Demoncrats think everyone else should pay for their health care.

Posted by: r_leever | January 6, 2011 1:33 PM | Report abuse

The Demoncrats think everyone else should pay for their healthcare.

Posted by: r_leever | January 6, 2011 2:07 PM | Report abuse

Perhaps health care spending rose more slowly because more people, in financial distress, put off going to the doctor (or otherwise undergoing medical treatments).

Posted by: TopeinCO | January 6, 2011 2:10 PM | Report abuse

The last paragraph should be uttered very carefully as it is only sort of true. Growth is the only long-term solution to many of the long-term problems. However, as you may have noticed this week, the GOP has decided that spending, not revenue, is the problem, so we got CUTGO instead of PAYGO (which would have killed the Bush Tax Cuts if not for circumventing it, PAYGO is the reason the cuts had a sunset provision). Growth alone is insufficient because some portion of growth needs to enhance the revenue side of the ledger. If we get tax cuts ad infinitum, growth is no help. These graphics are quite shabby because they do not tell us what they are graphing and they are not sourced. What are health care costs? What is health care spending? Definitions help.

@jraiger: Is a catastrophe better or worse than the catastrophy you cite?

Posted by: rww123 | January 6, 2011 2:33 PM | Report abuse

Well that will all change when the price of chickens goes through the roof. Just you watch.

Posted by: willows1 | January 6, 2011 5:24 PM | Report abuse

How does this news jive with the news that Blue Shield is planning to raise rates on individuals in California by as much as 50%? Where's the beef?

Posted by: slantedview | January 6, 2011 7:29 PM | Report abuse

It's certainly true, Ezra, that economic growth makes the steady rise in health-care costs LESS BAD for the federal budget and the economy.

But you stop your analysis too soon. The more important insight is that if health-care costs continue to increase at a greater rate than the economy grows, then everything deteriorates: the budget deficit grows, the economy performs less vigorously than it should, and citizens spend an ever-greater percentage of their incomes on health care -- either through taxes, or insurance premiums, or out-of-pocket expenses.

So the problem isn't rising Medicare/Medicaid costs. That's a symptom. The problem is rising health-care costs. That's what our political culture must grapple with.

ObamaCare, should it survive, is just the end of the beginning of that battle. Long-term, if we were able to hold the increase in health-care costs to the same rate as the increase in GDP, even starting from the absurdly high level of health-care costs we have now, our long-term structural budget problem would be easily manageable.

Posted by: fredbrack | January 7, 2011 3:12 AM | Report abuse

You seem to making a bad assumption here, that health care costs are a worse thing to spend money on than other things. If fancy new health care treatments are really the most important thing to people, and, insofar as they extend and improve one's quality of life, they likely are, then that is what they will value and they will continue to rise as percentage of spending.

This is separate from the raw costs of health care. If we were seeing the price of aspirin or an x-ray rise faster than inflation, that would be very bad. On the other hand, much of the increasing cost comes from the increasing cost of new treatments, many of which narrowly beat out placebos in improving life, but with generally worse side effects.

This again is separate from the total costs of health care, which is raw costs times usage. There is so much over use, over prescription, over testing, over everything going on that is becoming a huge cost driver, especially when that over use is for some reason focused on the new treatments...

Posted by: staticvars | January 7, 2011 11:49 AM | Report abuse

You left out a lot Ezra. From 2008 to 2009 U.S. health care spending as a percentage of GDP actually rose from 17.5% to 18.6%, and if you back out military spending (appropriate for international comparison purposes since we spend nearly as much on defense as the entire rest of the world combined) it went up from 18.4% of GDP to 19.7% of GDP.

Then there is the reason the rate of growth in health care spending leveled off. That was the result of increasing unemployment and the growing ranks of the uninsured and underinsured which resulted in a significant decline in medical care utilization. Spending on dental actually declined for the first time ever.

In spite of these grim statistics the media largely sugar-coated the numbers, leading with headlines that dealt with the slowed rate of growth in health care spending while glossing over the reasons for it. There is nothing remotely heartening in these statistics. The evidence suggests they will be even worse for 2010 when insurance company profits hit all-time highs while their customer base shrank. This was the result of a continued drop in utilization coupled with an economy-driven shift toward high-deductible policies.

Our health care system is getting more dysfunctional than ever. Ezra, if you know about these statistics you should have included them, and if you don't you have no right reporting on this subject. Your piece is disingenuous and intellectually dishonest.

Posted by: JerryPolicoff | January 11, 2011 1:19 PM | Report abuse

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