Gross Domestic Product: Health Services Grow Over Five Times Faster Than “Sluggish” Non-Health GDP

Today’s second estimate of second quarter Gross Domestic Product confirms spending on health services is dramatically outpacing other “sluggish” GDP growth. Fixed investment, durable goods, and inventories continued to collapse, while imports increased. Therefore, growth in services spending grew much faster than GDP. In real (inflation-adjusted) dollars, services grew 4.3 percent (annualized, seasonally adjusted). As a large component of services, health services grew 3.8 percent.  While real GDP growth was 1.1 percent, once health services is stripped out, non-health GDP grew just 0.7 percent (Table I).

Year on year growth is even grimmer, for those concerned with health spending’s takeover of our economy. Real GDP grew 1.2 percent, but health services grew 4.2 percent. Non-health services grew just 1.6 percent, while non-health GDP grew just 0.8 percent (Table II).

The continuing dominance of government and insurers over our health economy is not bending the cost curve.

Technical note: In previous entries on GDP, I have discussed nominal GDP growth. This entry discusses real GDP growth, in line with the way most media cover GDP.

When I discuss health services in these quarterly GDP releases, I mean only health services. I do not include purchases of medical equipment, or facilities construction. While I include Medicare and Medicaid, I do not include Veterans Health Administration or other government benefits. So, these dollar figures undercount the amount of our economy consumed by the government-health complex.

(See: Measuring the Economy: A Primer on the GDP and the National Income and Product Accounts, Bureau of Economic Analysis, October 2014, pages 5-2 and 5-3; Micah B. Hartman, et al., “A Reconciliation of Health Care Expenditures in the National Health Expenditures Accounts and in Gross Domestic Product,” Research Spotlight, Survey of Current Business, September 2010, pages 42-52.)