Updated May 11, 2018

The shrinking health spending gap

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Reproduced from a Kaiser Family Foundation analysis; Chart: Axios Visuals

One of the laws of health care baked into the heads of every policy analyst is that health care spending almost always rises much faster than GDP. Except it hasn’t really been doing that since 2010, and the gap between health spending and GDP growth is projected to continue to be small through 2026.

What we don't know: The cause. We don’t know why the gap has closed (experts disagree and emphasize different factors), and we don’t know if the narrowing is permanent or if the gap will widen again.

The big picture: Health spending is still growing somewhat faster than GDP, meaning it will continue to gobble up more and more of our GDP.

The details: As the chart shows, health spending grew 2.8 percentage points faster than GDP annually from 2000 to 2010, then just a half percentage point faster between 2010 and 2016. It's projected to grow only 1 percent faster than GDP from 2017 to 2026.

Have we seen this movie before? Health spending grew only one percentage point faster annually than GDP in the 1990s, when the economy boomed for much of the decade and managed care reached its peak. By the next decade, the gap widened again.  

  • Even if health care grows only marginally faster than GDP through 2026, it is still projected to grow to 19.7 percent of GDP in 2026 — substantially more than the next highest nation, Switzerland, at 12.4 percent.

Modest errors in the projections are certainly possible and can matter. But the narrowed gap also presents an opportunity. If we were able to shave 1 percent off the projected rate of growth in health spending, it would actually be rising at the same rate as GDP.  

The impact: The health cost problem is multidimensional. Employers worry about their annual premium increases. Policymakers worry about the impact of federal health spending on the budget, and their state counterparts worry about the role Medicaid plays in their budgets.

Experts worry about the value we get for the health care dollar and work on tweaking delivery and payment to improve it. And most of all, consumers worry about paying their health care bills at a time when wage growth has been relatively flat.

The bottom line: The gap between health spending and GDP has long been a preeminent measure of cost, and it has narrowed. Now we should watch to see if the change has staying power.

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