Gross Domestic Product: Health Services Grew Almost 12 Times Faster Than Non-Health GDP

The media noted today’s third estimate of second quarter Gross Domestic Product was revised upward from the second estimate. It was a sharply revised estimate of health spending that led to the higher overall estimate. While the estimate of GDP was revised up by $12.9 billion, the estimate of health services spending was revised up by $16.2 billion. Spending on services other than health services was revised down.

In real (inflation-adjusted) dollars, services grew 2.9 percent (annualized, seasonally adjusted) from the first quarter. As a large component of services, health services grew 7.1 percent.  While real GDP growth was 1.4 percent, once health services is stripped out, non-health GDP grew just 0.6 percent (Table I).

Year on year growth tells a similarly grim story, for those concerned with health spending’s takeover of our economy. Real GDP grew 1.3 percent, but health services grew 5.1 percent. Non-health services grew just 1.3 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: Until the August 26, 2016 entry on the GDP release, I discussed nominal GDP growth. As of August 26, 2016, these updates discuss 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.)