Monday, April 12, 2010

Health Care and Macroeconomics

Here are three charts that show the importance of the health care sector in some of the key present and future macroeconomic challenges for the US economy:

1. Health care expenditures and GDP per capita.

As a starting point, below is the correlation between per-capita expenditures on health care and GDP per capita. The US stands as an outlier. (Source: OECD)
2. Health care expenditures and imbalances prior to the current crisis. In the years prior to the crisis the US economy run large current account deficits, a sign of excess spending relative to income for the whole country. One of the components of spending that grew the fastest was private consumption. As a % of GDP it grew by about 4-5% of GDP. All of it can be accounted for by increases in health care and education as shown in the chart below (we have blogged about this before).

3. Health care and government debt. The projections for US government debt is that it will explode to a level of about 300% of GDP in the coming decades (assuming no change in policy). The biggest source of this explosion is health care costs. Yes, there are some other costs associated to aging (more need for healthcare and pension) but most of the increases in government spending comes from the assumption that health care costs will keep growing faster than GDP, as reflected in the chart below - where the units are % of GDP (Source: CBO).

So maybe health care reform was a political distraction from other issues that required the attention of US policy makers, but there is no doubt that getting health care right is a key ingredient for many of the challenges that the US will face in the years to come.

Antonio Fatás