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Thursday, January 06, 2011

Health Care Spending and the Economy

National health care spending was up in 2009, as reported by the federal government. No surprise there.

However, expenditures rose by 4%, which reportedly was the smallest jump in the half-century these numbers have been tracked.

At the same time, though, health care spending as a share of the economy increased by its biggest one-year jump -- from 16.6% in 2008 to 17.6% of the economy in 2009.

What's the deal here? Well, the economy was in recession, and health care spending continued growing. Therefore, health care expenditures increased as a share of the economy.

It is important to understand that there is no magic level that health care spending should be at relative to the economy. For example, if more spending results from consumers having access to and choosing new and improved care, then so be it. However, the reason for this increase is important to note. The Wall Street Journal reported that "federal Medicaid spending helped push up health costs."

That's worrisome, and is what we may be looking at for the foreseeable future under ObamaCare. That is, expanded government programs, mandates and regulations will play an even bigger force than they already have -- which is substantial -- in pushing up health care costs. At the same time, this government interference, along with higher taxes under ObamaCare, will serve to slow economic growth over the long haul.

That's a recipe for pushing health care spending even higher as a share of the economy. Of course, then the crackdown comes in terms of price controls and government rationed care.

Raymond J. Keating
Chief Economist
SBE Council

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